Former U.S. Treasury Secretary Henry Paulson Warns of Potential Collapse in U.S. Treasury Market
Former U.S. Treasury Secretary Henry Paulson stated in a Bloomberg TV interview that the U.S. needs to prepare contingency plans to address the potential collapse in demand for Treasury bonds. He warned that if the Federal Reserve becomes the main buyer and yields continue to rise, it will have "malicious" consequences.
Unlike the 2008 financial crisis, the government currently lacks sufficient fiscal space to rescue itself amid this public debt crisis. The current U.S. national debt has exceeded $39 trillion, and ongoing deficits are driving up supply. If private demand weakens, rising yields will further increase debt servicing costs, potentially leading to reliance on printing money to pay off old debts with new ones.
Source: Public Information
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Paulson's warning points to the structural unsustainability of the U.S. fiscal path. Unlike during the 2008 crisis, when the government could stabilize the system through expansionary fiscal and monetary tools, the high level of existing debt has significantly narrowed the space for similar actions. The core constraint lies in the debt snowball mechanism, where interest payments crowd out the budget, forcing more borrowing and creating positive feedback.
This risk is embedded in the long-term evolution of the dollar-based system. As Treasury bonds serve as the foundation of global reserve assets, a collapse in their demand would directly challenge the dollar's pricing power and liquidity status. When the Federal Reserve is forced to purchase large amounts of debt, monetary expansion accelerates existing dollar depreciation, transferring wealth from holders to issuers and amplifying global purchasing power redistribution, particularly affecting institutions and emerging markets reliant on dollar assets.
Historically, this reflects the result of institutional inertia and misaligned incentives. A long-term low-interest-rate environment encourages fiscal expansion, while the political system struggles to drive substantial revenue and expenditure adjustments, leading to a concentration of debt burdens on future generations. The fixed supply of 21 million bitcoins is viewed as an external option in this context, as its non-dilutable nature by central banks directly contrasts with sovereign currency inflation tools, highlighting the potential for revaluation of hard deflation mechanisms in asset pricing.
Overall, Paulson's statement is not a signal of short-term volatility but rather a manifestation of a node in the long cycle of power and capital redistribution. The U.S. Treasury market, as a global financial anchor, reveals through stress testing the deep disconnection between productivity growth and debt accumulation, which may drive further stratification of the monetary system and exploration of alternative pathways.