Former Treasury Secretary Henry Paulson urged U.S. authorities on Thursday to prepare a contingency plan for a potential collapse in demand for government bonds before it’s too late.
“We need an emergency break-the-glass plan, which is targeted and short-term, on the shelf, so it’s ready to go when we hit the wall,” Paulson said during an interview on Bloomberg Television’s Wall Street Week with David Westin.
A Different Crisis Than 2008
Paulson, who led the Treasury through the 2008 financial crisis, said a U.S. debt crisis would be far harder to contain than the credit meltdown he managed then.
“When you hit the wall and you’re trying to issue Treasuries and the Fed is the only buyer and the prices of the Treasuries are going down and interest rates are up, that’s a dangerous thing,” he said.
He added that while the timing of such a scenario is impossible to predict, the impact would be severe. “When we hit it, it will be vicious, so we have to prepare for that eventuality.”
A Widening Global Warning
Paulson’s remarks land as fiscal pressure mounts globally. The IMF has separately warned that the ongoing Middle East conflict is acting as a “large, sudden tax on income” for fuel-importing economies, pushing prices higher and slowing growth, strains that could accelerate pressure on sovereign debt markets worldwide.
U.S. national debt has surpassed $39 trillion, with the deficit running at roughly 6% of GDP levels historically seen only during wars or recessions. The Congressional Budget Office projects the debt-to-GDP ratio will hit a record 108% by 2030.
Paulson said fixing the problem would require higher revenues, closing tax loopholes, and overhauling Social Security and healthcare programs.
The challenge, he noted, is political. “Congress doesn’t like to do unpleasant things until there is an immediate crisis.”
Disclaimer: This content was produced with the help of AI tools and was reviewed and published by Benzinga editors.
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