Journalist: “USA will never go into default,” says Treasury Secretary Scott Besent. “That will not happen.” It impresses just that you have to clarify it. Is the debt reputation so damaged?
Gordon Gekko: No one is thinking of reaching that extreme. But today the treasure makes acrobatics with the flow of funds so as not to violate the ceiling of the public debt. The question came to the story of the negotiations to raise the borrowing top in Congress, and its difficulties. He referred to the eventual moment X in which the exceptional mechanisms are exhausted to administer the box and – if a legislative agreement is not forged – a resounding decision must be made. What Besent points out is that the default will never be that decision.
Q.: Last month, the treasure said it was reasonable to expect that attempt to fall in August. Is that so?
GG: That said. The Congress Budget Office estimated, at the time, which could be in August or September. And there are those who think that extraordinary measures can be stretched until October. The Bipartisan Policy Center, by case. Much depends on the behavior of the collection, and on the special funds to which Besent wants to take hand temporarily. In principle, the tax package should be approved no later than September 30.
Q.: It won’t be easy.
GG: Not at all. It cost a lot to pass it through the House of Representatives and was achieved by a single vote. And the Senate is another drama. We will have to accept many changes to succeed. And if so, the modified version must return to the lower house. And it will be another fight.
Q.: It will be a birth of the mountains. Even with majorities in both cameras.
GG: You have to forget the Democrats. They all voted against. The problem is to arrange the troop itself. It is strenuous but not impossible. Trump has enough predicament to align the Discolos, and Speaker Johnson has shown chameleonic skills to meet demands of the most diverse. I think that is why the passage of the September 30 is the most likely scenario.
Q.: Why do you insist with that date?
GG: Because the only way in which the initiative thrives is by means of resolution, which is a special mechanism that allows its simple approval in the Senate. And the authorization to use that path expires on September 30.
Q.: The package contemplates an increase in debt roof, isn’t it?
GG: Of US $ 4 billion.
Q.: And don’t you think they will change it in the negotiation?
GG: Trump wanted to delete the debt roof after he won the choice and before assuming. We speak it at the time. He did not get it. And he inherited the problem. The total debt adds US $ 36 billion. What he wants is to get rid of this corset for the rest of his mandate. If the package is approved, the roof will run, although perhaps less than what you ask.
Q.: I understand. There will be no default for a political dispute, says Besent. But if the tax reduction is approved, the fiscal deficit is going to shoot. Jamie Dimon, the JPMorgan CEO, insists that it is played with fire. “There will be a crisis with public debt,” he says. He is convinced of this, although he acknowledges that he does not know if it will happen in six months or in six years. The deficit left by the Biden administration – in an economy overflower – is 6.4% of GDP. Is there an appetite among the “vigilantes” to finance additional extension?
GG: No. None. Trump knows. Besent knows. And Congress knows. The Fed lowered the short rates 100 base points between September and December. Long rates climbed 120. It is a very powerful message. Fed Funds dropped from 5.50% to 4.50%. The 10 -year rate was at 3.60% before the electoral campaign entered its defining mile. With an economy that flew (and inflation higher than the current one). Today around 4.40% / 4.50%. The 30 -year -old rate 5%. Given the first glimpse of a fiscal policy by accelerating the contrary, we will have another setting up.
Q.: We saw the difficulties in placing the last batch of treasure bonds at 20 years.
GG: We are notified. They are the bonds, and it is the dollar that wobbles. And yet the idea of the tax package is to bring the deficit to 8% in 2026.
Q.: It would be imprudence. And I would give the right to Dimon, perhaps before what he could expect.
GG: We already notice in April that there is no appetite for such an adventure. But politics will insist. The markets will ultimately, those that put brake. Trump is confident that the collection for the tariffs suffer the cost, but does not reach. Besent has some cards under the sleeve. The regulation – for example, if the supplementary leverage (again) is modified – can make banks more treasure bonds. But, they are patches. And the markets are going to exert their pressure before the package is sanctioned, while discussing. That is why, so and everything, there are buyers of long bonds. And the flows are important. They do not ignore the risk. They think that the yields are good – vis a vis, the expected inflation – and take position, discounting that in the end the markets will impose discipline. A little as happened with the bag and the retraction of reciprocal tariffs.
Source: Ambito
