Former U.S. Treasury Secretary Paulson calls for contingency plans to address potential collapse in U.S. Treasury demand

Golden Ten Data reported on April 17 that former U.S. Treasury Secretary Hank Paulson has called on the U.S. government to develop a contingency plan to prevent a potential collapse in demand for U.S. Treasury bonds. He warned that such a scenario would have “extremely serious” consequences. Paulson stated, “We need an emergency response plan that is targeted and short-term, and it should be prepared in advance so it can be activated once a critical point is reached.” Paulson noted that if the $31 trillion U.S. Treasury market malfunctions, its nature will be different from the financial crisis he faced during his tenure twenty years ago. “The situation was already bad back then, but the government still had fiscal space to address the credit crisis. But if there is a U.S. public debt crisis, and a critical point is reached where only the Federal Reserve is buying Treasuries during issuance, with bond prices falling and interest rates rising, that would be a very dangerous situation.” For years, U.S. budget experts have warned about a potential “doom loop”: as government debt continues to grow, investors demand higher yields, pushing up government interest payments and further expanding the fiscal deficit. In extreme cases, if the Treasury Department cannot raise enough funds to pay interest or principal, the market generally believes that the Federal Reserve would be forced to intervene as an emergency buyer. Paulson stated, “Once it happens, the shock will be extremely severe, so we must prepare for this possibility.”