Former US Treasury Secretary Henry Paulson has issued a stark warning about the future of the US bond market, urging authorities to prepare an emergency plan in case demand for government debt suddenly collapses.
Speaking in a recent interview, Paulson said policymakers should have a ready-to-use contingency strategy for what he described as a potentially “vicious” scenario. While he admitted that predicting the timing is impossible, his message was clear: if the system cracks, the consequences could be severe and fast-moving.
The US Treasury market is widely considered the backbone of the global financial system. It acts as a benchmark for pricing everything from corporate bonds to mortgages and equities. Any instability here would not stay contained; it could ripple across global markets.
At the heart of the concern is America’s growing debt, now exceeding $39 trillion. Economists have long warned of a possible “doom loop”, where rising debt leads investors to demand higher yields, which in turn increases interest costs and worsens the deficit.
If that spiral accelerates, some analysts believe the Federal Reserve may have to step in as a major buyer, effectively printing money to stabilise the market. That could weaken confidence in the US dollar and push investors toward alternative assets.
For crypto, the implications are mixed. On one hand, assets like Bitcoin could benefit as investors look for non-sovereign stores of value. On the other hand, a sudden liquidity crunch could initially hit risk assets hard, including crypto markets.
There is also a stablecoin angle to consider. Tether, the largest issuer in the space, holds a significant portion of its reserves in US Treasuries. A sharp disruption could create pressure on its reserves, raising concerns about stability in extreme scenarios.
Source: X.com
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