As Kevin Wursh takes over as the new Fed Chair, he’s definitely of the opinion, interest rates need to be lowered to make it easier for businesses to take out loans which stimulates the economy, growth and GDP/GNP and for individuals and families to especially take out home loans thus stimulating the home construction industry. But with our present war and situation with Iran and the price of gas, diesel and jet fuel, fertilizer, and even the clear plastic that all grocery stores use to wrap their meat, etc. all “going with the roof”, he understands now would not be the time to begin to lower rates.
And how ‘bout reducing the size of the Fed’s balance sheet? He believes in that too. Though reducing the size of the Fed’s balance sheet is “always” the ultimate goal which helps to make Our Economy and Dollar stronger and is (theoretically) NEVER a bad idea, this author thinks now would NOT be the right time and that IS for reasons other than the situation with Iran.
The problem is with our National Debt now at $39 Trillion and growing with “no end in sight,” And what Trump did with his Liberation Day tariffs beginning on April 2nd of last year and his attitude and treatment of our trading partners DIDN’T help matters!!
Just to review the events of the past year beginning with Trump’s April 2nd, 2025 Liberation Day multi-nation tariffs when, on the same day, the stock market crashed and China and Japan, our biggest foreign government bondholders, threatened to dump their Treasury bonds, causing Treasury yields to “shoot up” while stocks plummeted—the exact opposite of what one would expect when the stock market “takes a dive” with Moody’s dropping their Triple-A (AAA) rating for the U.S. to a Double-A (AA) rating reflecting loss of confidence in the Dollar which brings us to possibly to the worst situation where The Treasury is running out of money and not being able to cover current expenses and payouts on maturing Treasury bonds becoming due and even more importantly possibly not being able to sell enough new Treasury bonds to fund our growing Debt with this, in time, possibly leading to The Dollar losing its status as The World’s Reserve Currency!!
Basically with our present situation and Debt, the worst thing we could do would be to lessen or reduce the amount of available cash The Treasury has on hand when we’re always “running above budget” and with foreign governments now threatening to and are actually buying less Treasuries from us for whatever reason which is “the one thing” that keeps us in enough cash “to cover current expenses and payouts on maturing Treasury debt” IS “the last thing” we want to happen!!
To make this clearer, though the Fed has its own balance sheet and it’s “in the red”, created by way of Quantitative Easing (i.e., the printing of money done in emergency situations when money needs to be injected into certain sectors of The Economy), the Treasury also has its own balance sheet which is DEFINITELY “in the red”, like $39 Trillion going on $40 Trillion “in the red.” That’s where domestic institutional investors such as banks, retirement-pension funds, insurance companies and individual investors buy bonds as an investment and collect yields on their bonds along with foreign governments (as well) doing the same and the “other”–The Fed’s balance sheet as stated that’s when the Fed “in times of need” will print money and “take back” bonds basically an emergency situation where the government (the Treasury) is running out of funds and the government ends up borrowing from itself!!
This happened during World War II, the 2008 financial crisis where banks “too big to fail” were “bailed-out” by The Fed (printing money and pumping it into the banking system) and recently the Pandemic where the public and businesses needed stimulus checks to stop from “going under” and to pay rent and put food “on the table” and this debt “to this day” relating to the Pandemic is still “on the books”!! Please note—as everyone recalls and particularly those receiving stimulus checks, no one was expected to pay this money back, i.e., this was a public debt incurred by the government with no expectation that the millions of people receiving these stimulus checks were required to pay the government back. Hence a public debt that would be paid back by extra tax revenue and to this day, it’s still on the Fed’s balance sheet.
This is the part of the Fed’s balance sheet that Kevin Wursh more than likely wants to “attack” first. But because of our present situation with foreign governments for one reason or another buying less Treasuries, balancing “the budget” and NOW NOT having as much in reserve with The Treasury needing to handle government expenses and payouts, this Pandemic-related debt and other debt we still have on “the books” and balance sheet would be “the last thing” one should want to do NOW!!
Because–if we addressed this balance sheet problem now and foreign governments dramatically cut back even more on buying bonds causing the Treasury suddenly not to have enough assets (“cash on hand”) to take care of current expenses and debt coming due, The Fed would again have to print money. This would affect our credit rating, de-value Our Dollar and its relative value in relation to other currencies and ultimately could cause Our Dollar, at some point “down the road”, to be put in such a precarious position that it could eventually lose its status as The World’s Reserve Currency.
So, ok, reducing the Fed’s balance sheet though generally an excellent idea—NOT A GOOD IDEA for right now!! But then, what is???
What this author suggests, in addition spending cuts and tax increases to the Federal Budget (which will take time in Congress) is to also take steps, in the meantime to make sure our Treasury Bond Market in lieu of our present budget overruns and annual deficit of $1.9 trillion for this year and projected to increase to a whopping $3.1 trillion by the year 2036, that it continues to be able to provide the required funds for Our National Budget, any overruns and for payouts of Treasuries not being renewed (especially in view of recent events) as the spending cuts necessary and tax increases to the Federal Budget are implemented. Hopefully as AI (Artificial Intelligence) is integrated into Our Economy, this will increase our productivity, GDP/GNP, and tax-base revenue “to make up” for what we need to arrive at a more balanced budget and get Our Growing National Debt under control!!
Now with The Supreme Court’s recent ruling on Trump’s reciprocal tariffs as being unconstitutional in that it’s actually a tax and therefore solely within purview of Congress, The Court struck down Trump’s authority to impose tariffs through the International Emergency Economic Powers Act (IEEPA). except for limited exceptions. So, what else besides tariffs can be done to generate extra revenue or money for the Treasury to pay its government’s expenses?
Now, one way “to fill the void left by disenchanted governments” because of China’s and Japan’s (our two biggest bondholders) threat to sell their Treasuries and to prevent a potential WHOLESALE bond sales threat by a collective of foreign nations should such ever materialize, as per The Genius Act, “The rapidly expanding stablecoin market is projected to be able to fill the void left by disenchanted governments that are dumping Treasuries and “de-dollarizing” in response to Western sanctions and U.S. tariffs.”
As Author Ellen Brown explains stablecoins “are cryptocurrencies that are backed by safe assets (e.g., short-term U.S. Treasuries).” And that, “As of March 2025, their total market capitalization reached $232 billion, a 45-fold increase since December 2019. Projections suggest this figure could hit $400 billion by year-end and as much as $2.8 trillion by 2028 with a further projection of $3 trillion by 2030. Treasury Secretary Scott Bissent also asserts, “stablecoins are a strategic tool to ‘lock in dollar supremacy’.”
Another way “to fill the void left by disenchanted governments” should Stablecoin use not be enough (by itself) to fully keep up with our expanding National Debt, as this author suggests, would be to require (domestic) importers to purchase U.S. Treasuries with a certain percentage (say 10 percent) of their sales when importing goods here–therefore, in essence, creating a NEW 3rd class of U.S. Treasury purchasers!!
As it stands now, there are two (2) main groups of bond purchasers–domestic institutional investors such as banks, retirement-pension funds and insurance companies, with the second class of large-scale bond purchasers being foreign governments. But because of their present concern over our rising National Debt, they are now buying less and are also investing more in developing their own country’s infrastructure and economy and that of their trading partners. A prime example being China’s Belt and Road Initiative.
But with a large-scale third class of U.S. Bond purchasers also being required to be a MANDATORY class of purchasers, this would stabilize the U.S. Bond Market giving “guaranteed” relief and confidence to domestic institutional investors and foreign governments AS WELL! This way, there would always be, as a result of this New 3rd class of bond buyers, the required minimum of cash reserves The Treasury would need to make scheduled payments and for current government expenditures coming due. This, alone, would stabilize the bond market and act as a “hedge” against (AND ALLAY) any fears causing large scale selloffs or future non-purchases of U.S. Treasuries by foreign governments or domestic investors fearing a loss of value to their investment!!
Also, with this New 3rd class of bond buyers and this is VERY IMPORTANT, this would STABILIZE our Bond market, that is, making the Treasury less dependent on their bond auctions not having to sell as many Treasuries otherwise not “being put in a position” to sell at higher yield rates to meet their quota thereby saving on debt servicing costs!!! Just to give an example, our debt servicing costs on outstanding bonds this year was a trillion dollars!! If the Treasury was forced to pay higher yields, debt servicing costs could soar to over 2 trillion per year!!
Now, if (domestic) importers were required to purchase bonds instead of tariffs, wouldn’t that still amount to a tax? Fact is institutional commercial bond buyers would be extremely interested in “relieving” these domestic importers of their bonds and the bidding amongst them would hence be very competitive and probably go up to as high as 90 to 95 cents (“on the dollar.”)
But wouldn’t someone just offer, say, 50 cents “on the dollar”? Well, let’s say that’s true! But then again, someone else would then offer 60 cents “on the dollar” and still make a sizable profit. Basically the bidding would probably go up to as high as 90 to 95 cents (“on the dollar”) as such domestic importers would also be buying imported goods several times a year thereby also buying Treasuries several times a year and these institutional commercial bond purchasers could see that even at 90-95 cents “on the dollar”, a reasonable profit could still be made.
But even at this relatively minor 5-10 percent loss of say the 10 percent levy on what they pay for their imported goods therefore amounting to 5-10 percent of 10 percent of what they pay for these goods equaling a half percent to one percent of the total sales costs to the domestic importer, a relatively miniscule amount, wouldn’t that still, in some way, be a “tax” that the importer could theoretically “pass-on” to the consumer?
Well, if Congress enacts a law that requires domestic importers to buy Treasuries but doesn’t require these importers to absorb the costs of buying Treasuries, these costs could be “passed-on” to the consumer or the government could reimburse our domestic importers with cash so there is no potential pass-thru loss to the consumer or better yet reimburse them with Stablecoin which then could be used to pay their foreign importer-shippers which would be then redistributed throughout the world further stabilizing our bond market and help keep our Dollar as The World’s Reserve Currency!!!
And in conclusion, just to be “on the safe side”, in case Stablecoin use is not enough to keep up with our expanding National Debt as Congress hopefully will enact a more balanced budget (suggestions for which will be addressed in our next article), additionally requiring domestic importers to purchase bonds would solve the problem of making sure the Treasury always has enough funds “on hand” “at all times” to (1) fully finance our budget, (2) any of its cost overruns and (3) the debt servicing costs on outstanding Debt!!
