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 growth, the economy and a higher GDP/GNP and as for individuals and families to especially take out home loans thus stimulating our home construction industry. But with the present war and situation with Iran and the price of gas, diesel and jet fuel and also the tons of fertilizer needed by our farmers to grow all their crops, the prices for which are all “going with the roof”, he understands now would not be the right 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” “a smart thing to do”, the ultimate goal of 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 this 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 two 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 subsequently 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 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 Treasuries to keep funding our growing Debt with this, in time, all 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 especially with foreign governments now threatening to and are actually buying less Treasuries from us for various reasons which the buying of bonds by foreign nations is “the one thing” that keeps us in enough cash “to cover current expenses and payouts on maturing Treasury debt”, therefore reducing the available cash for any reason The Treasury has “on hand” which reducing the Fed’s balance sheet will do IS “the last thing” we want to happen!!
To make this clearer, the Fed has its own balance sheet and it’s “in the red”, created by way of Quantitative Easing (i.e., the Fed printing money done in emergency situations when money needs to be injected into certain sectors of The Economy) and the Treasury also has its own balance sheet which is also “in the red”, like $39 Trillion going on $40 Trillion “in the red.” This is 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 AND foreign governments (as well) do the same thing.
Now let’s focus on The Fed’s balance sheet which, as stated, is when the Fed “in times of need” and the normal issuance (the selling) bonds will NOT be enough, The Fed will print money and “take back” bonds from The Treasury–the Federal government, in effect, borrowing from itself!! Go figure!!!
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 wants to “attack” first. But because of our present situation with foreign governments for one reason or another buying less Treasuries from us, balancing “the budget” and NOW NOT having as much in reserve with The Treasury (due to our ginormous $39 Trillion Dollar National Debt and running “over” budget every year) while needing to handle government expenses and payouts, this Pandemic-related (public) debt and other debt we still have on the Fed’s balance sheet would be “the last thing” we would want to reduce NOW!!
Because–if we addressed this balance sheet problem now and reduced it 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 Treasury would have to dramatically raise yield rates to attract enough buyers thereby increasing debt-servicing costs or if The Fed couldn’t raise enough funds by way of selling bonds, The Fed would again have to print money. This would affect our credit rating, de-value Our Dollar, 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!! Right?? But then, what is???
What this author suggests, in addition spending cuts and tax increases to the Federal Budget (basically “balancing our 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 per calculations by the CBO (Congressional Budget Office), that it (The Treasury Bond Market) continues to be able to provide the required funds for Our National Budget, its overruns and for payouts of Treasuries not being renewed (in view of lingering repercussions from Trump’s Liberation Day tariffs and other trade relation recent events) as newly legislated spending cuts 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 raise 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!!
But, in the meantime, if 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, is there an immediate solution we could pursue?? Jamie Dimon, CEO of JPMorgan Chase has echoed this warning in the past saying, “It’s better to get ahead of a crisis than wait until it falls into one’s lap.”
Now especially 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 under Section 232 used for national emergencies and, for example, levied on imports such as aluminum, steel and copper intended to protect these industries here which if not produced domestically could threaten national security.
Another exception allowed was under Section 301 to employ tariffs against countries having “discriminatory” or “unfair” trade practices including currency manipulation and the subsidizing of industries producing exports. However, limitations within Section 301 mean Trump cannot use the statute to replace his existing tariffs right away. First, an investigation must find that a foreign country restricted U.S. commerce through discriminatory practices, which could take months to uncover but under Section 122 Trump would be allowed to impose a 10 to 15 percent global tariff which he did on Feb 21st but for only 150 days. Congress would then need to approve an extension to go more than 150 days.
Just recently under Section 301, Trump “imposed a 12.5 percent tariff on some 60 countries around the world [including member nations of the European Union] under the pretext that this is necessary to combat their importation of goods that use forced labor:”
But even with this, one must, to be “on the safe side”, concede, accept and plan for the situation where tariffs, at some point, become a significantly diminished source of revenue for The Treasury. This especially true with The Court also ordering Trump to refund $166 Billion to those importers who paid these reciprocal Liberation Day tariffs. So, with this “in mind”, what else can be done to generate extra revenue on a more permanent basis or, at least, make funds available for the Treasury to “cover” government 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 newly enacted Genius Act and U.S. Stablecoin, that is, “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 further 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 further projections 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” and “get ahead of the game” as Jamie Dimon suggests should Stablecoin use not be enough (by itself) to fully keep up with our expanding National Debt, this author STRONGLY ADVOCATES, 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!! Fortune Magazine reports that 19 percent of our National Budget, as of now, is spent on Our Debt and If the Treasury was forced to pay higher yields, debt servicing costs could soar to over 2 trillion per year!! And if interest rates climbed to 18-20 percent as they did in the days of Carter, we could be looking at $3-4 trillion per year in debt servicing costs!!!
Now if Congress does not make these proposed bond purchases mandatory for domestic importers and Trump adopts this mandatory bond purchase plan for domestic importers “on his own”, wouldn’t the cost of these bond purchases that could be potentially “passed on” to the consumer also be a “tax” and therefore unconstitutional??
Before we answer this question, obviously, the best way to handle our growing National Debt is to simply balance our budget and NOT spend more than what we take in!! But because of the many things we must do to protect society, one’s health and safety, to regulate business and prevent fraud and provide for defense on land, sea and air and now in space, “balancing the budget” would be extremely difficult!! Fortunately, all advanced industrialized G7 nations have national debts that are more than what they make. Though our debt to GDP ratio is currently at 124 percent. Some nations are even higher with Japan at 237 percent!!
Fact is, it simply takes more to adequately protect and police a society than what we collect in taxes and, as a result, bonds must be issued in the form of debt to do everything that must be done!! Please note–the CBO’s “Break Glass” Plan intended to counter the “Next Economic Shock” which can be viewed at https://www.crfb.org/papers/break-glass-plan-next-economic-shock and similar plans to reduce budgetary overruns by budget cuts and various tax increases will be fully addressed in a later article.
Now, getting back to our question, 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”, then another 70 cents, then still another 80 cents and still make a profit!! But couldn’t these major institutional bond-buyers get together and agree to offer domestic importers only 60 or 65 cents “on the dollar”? That would be patently against the FTC’s (Federal Trade Commission’s) anti-trust, anti-competitive laws that have “been on the books” for years which prevent “price-fixing.” That is, sellers industry-wide can’t “gang-up” and agree to all sell at a “fixed” high price nor can potential buyers “get together” and only offer to buy at lower than fair market prices.
With this in mind, having a free-market (bidding) system, 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 multiple times a year with these institutional commercial bond purchasers seeing that even at 90 to 95 cents, 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 legally then 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!!
