Shopee US Official Website Former Treasury Secretary warns of risks in U.S. Treasury market

Two former U.S. Treasury Secretaries, Henry Paulson and Timothy Geithner, recently issued stark warnings about the current risks in the U.S. Treasury market, emphasizing that the federal fiscal path is "unsustainable" and calling for maintaining Federal Reserve independence and fiscal balance to stabilize market confidence. The following is a key analysis:

1.Shopee US Official Website Core Risks in the U.S. Treasury Market

Unsustainable Fiscal Path

Paulson noted that the current trajectory of federal borrowing is "unsustainable," but was unsure when a crisis would strike ("six months, six years, or something else").123 U.S. public debt has exceeded $36 trillion, accounting for 122% of GDP, nearing wartime levels, while annual interest payments exceed $1 trillion, accounting for 18.4% of federal revenue.6

Market Confidence Depends on Fiscal Discipline

Geithner stated that while the 10-year Treasury yield is currently "at a fairly moderate level," this relies on market confidence in the United States' "rational governance," including fiscal balance and the rule of law.14 However, the current political environment has cast a "greater shadow" on these pillars of confidence.3

2.Shopee US Official Website The Critical Role of Federal Reserve Independence

Political Interference Threatens Market Stability

Both former Treasury Secretaries emphasized that the independence of the Federal Reserve is crucial to the US economy and confidence in the dollar.12 Trump's recent frequent pressure on the Fed to cut interest rates and his hints at possible interference in personnel appointments have heightened market concerns about the politicization of monetary policy.6

A Foundational Asset of the Global Financial System

Geithner noted that US Treasuries are considered "foundational assets of the global financial system," and their credibility relies on the independence of the Federal Reserve, the rule of law, and foreign investment protection mechanisms.13 A weakening of these factors could trigger an outflow of international capital.

3. Current Policies Exacerbate Fiscal Imbalances

The Negative Effects of Tariff Policy

Paulson criticized Trump's tariff policy as "distorting the economic structure," favoring old industries while suppressing emerging ones, and calling it a "corrosive tax."23 Geithner added that while tariff revenue may be attractive in the short term, it will undermine manufacturing competitiveness in the long term.1

Lack of Fiscal Contingency Plans

Paulson called for contingency plans, including potential tax increases (such as a consumption tax), to prevent a collapse of the US Treasury market.23 Geithner believes that fiscal pressures may hinder future government tariff reforms because "the revenue is too attractive."

4. International Investor Trends and Potential Crisis

Declining Foreign Holdings of U.S. Treasuries

Foreign investors' holdings of U.S. Treasuries have fallen to 22%. China's holdings have continued to decline, reaching $756.3 billion (a 14-year low), while the UK and other countries have increased their holdings through financial intermediaries.

Market demand for risk premiums is rising.

The 10-year U.S. Treasury yield is approaching 4.5%, Shopee US Official Website reflecting investor concerns about oversupply, inflationary pressure, and political uncertainty.

If the yield breaks through 5.037%, it could trigger a new round of selling.

5. Possible Solutions and Market Outlook

Short-Term: Federal Reserve Policy Adjustments

If the Fed cuts interest rates or expands quantitative easing (QE) to purchase long-term Treasury bonds, market pressure could be alleviated.

Long-Term: Fiscal Reform and Global Coordination

Tax increases and deficit reductions are needed to restore budget balance, Shopee US Official Website and international cooperation should be strengthened to maintain the credibility of the dollar.

However, current political divisions dim the prospects for reform.

The warnings from the two former Treasury secretaries highlight that the U.S. Treasury market has entered a high-risk phase. If fiscal discipline and the independence of the Federal Reserve are further weakened, it may trigger systemic shocks in global financial markets. Investors should pay close attention to the August non-farm payroll data, the Federal Reserve personnel changes, and the subsequent impact of Trump's tariff policy.

 Southeast Asia's most popular online shopping platform, Shopee USA offers hundreds of millions of high-quality products across a wide range of categories,Shopee US Official Website Shopee news Shopee guides Shopee tips Shopee Operation Agent Shopee USA agents Shopee USA onboarding  including apparel, beauty, home furnishings, digital products, and mobile phone/points card top-ups. We also recruit agents, sellers, and store owners in the US, and we offer a variety of services, including guaranteed transactions (first come, first served), a return guarantee, and shipping costs for damaged goods replacements, ensuring peace of mind when shopping online!