Scott Bessent’s Tightrope Walk

The US Treasury secretary must defend Trump's economic agenda while maintaining investors’ faith in US bonds.

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Episode Transcript

Speaker 1 (00:00):
Skank Besant's tightrope Walk by Selaia Mosen. Selaia Mosen is
the senior Washington correspondent for Bloomberg News and the author
of Paper Soldiers. How the Weaponization of the Donner Changed
the World Order Read by Mike Couper. Alexander Hamilton got
it right when he said that every U. S. Treasury
Secretary after him would be plagued by the prospect of

(00:23):
weary creditors questioning the strength of American debt investors the
world over price stability and predictability from the most significant economy,
And whoever holds the job can expect every word they
say to be scrutinized. Opinion is the soul of it,
Hamilton once wrote, The histrionics matter even in the best
of times. The job requires serving as the steward of

(00:44):
the U. S. Economy and chief advocate for the president's
economic vision, goals that are sometimes at once. But Treasury
Secretary Scott Besson faces an especially tenuous version of this
balancing act. He is both the face of the unpredictable
Trump administration's economic agenda and America's chief bond salesman, tasked
with maintaining investors faith in the twenty nine trillion dollar

(01:05):
treasury market. Right now, US President Donald Trump is playing
chicken with the very ideals that have made American bond
so special predictable economic growth, stability, and the ability to
manage an economic crisis. Can Bessent find a way to
keep both markets and the president happy? In just over
two months, predictions of what lies ahead for the US

(01:26):
economy turned from robust GDP growth to warnings of a
global recession, mostly because of Trump's trade war. Even before
Liberation Day, conflicting messaging unnerved investors. The White House floated
targeted graduated tariffs one day and leaked the possibility of
universal tariffs the next. But Trump's April the second announcement

(01:46):
of the largest package of import taxes in more than
a century, resulted in the biggest drops in stock and
bond markets since the global financial crisis. Some six trillion
dollars in value was wiped out from the S and
P five hundred alone at one point, before Bessend helped
orchestrate the ninety day pause on tariffs for countries that
hadn't yet retaliated. Markets have since partly recovered the S

(02:08):
and P five hundred has made up about half of
its losses since April the second, but some of the
damage from the self inflicted crisis may be irreversible. America's
pristine safe haven assets, the dollar and treasuries, have taken
a hit amid a loss of confidence in US policy makers,
and China remains walloped with tariffs of one hundred and
forty five percent and no off ramp in size. The

(02:29):
continued fickleness risks pushing a strong US economy into a recession,
all while the federal Reserve is still battling inflation, meaning
any response to fiscal policy troubles will be complicated. Bessen
isn't phased by such talk. While there was an apparent
fire sale on treasuries on April the ninth, he went
on Fox Business to say that there was nothing systematic
about the market reaction, and after the administration paused the

(02:53):
reciprocal tariffs to start negotiations, he remained steadfast that there
wouldn't be a recession in the US. Besen and has
telegraphed that he was not the driving force behind the
April of the second tariff announcement, but is so far
taking charge of negotiations During the ninety day pause. J P.
Morgan chasen Co Chief executive officer Jamie Diamond said on
Fox Business just before that pause was announced, let's God

(03:16):
take the time to negotiate. In an April fourteenth interview
with Bloomberg TV, Bessant revealed that he's closely monitoring Wall
Street's fear gauge the Vicks, saying that as lightly peaked
as he signed an orderly process on tariff negotiations ahead,
it was exactly what traders wanted to hear. Going forward,
the history onics will matter even more as markets start

(03:37):
to unclench from the frenzy. Traders and investors will be
reading the signals and pauses in Bessont's TV appearances for
clues on how tariff negotiations with America's trade partners are revolving.
He may need to refrain from using words like numbskull
to describe heads of state, as he did in an
apparent reference to Justin Trudeau in March, and he'll want
to avoid any repeat of Tim Geidner's now infamous two

(03:59):
thousand and niter and a cash room speech, which led
to a split screen CNBC image of President Barack Obama's
newly minted Treasury chief, haltingly delivering his first speech devoid
of details, alongside a rolling list of stocks dropping with
each word he spoke. Geidner later admitted that his speech sucked.
Another headache for Bessant has to do with the meddling

(04:20):
of a revolutionary inventor turned public servant. Elon Musk is
endeavoring to apply the same disruptive wit that made him
the world's wealthiest man to the unbroken, but antiquated, and
uniquely significant payment system that executes US government spending. Musk's
mission to shrink the size of the U. S. Government
has put a spotlight on the Treasury's little known Bureau

(04:40):
of Fiscal Service. The office oversees the somewhat decentralized work
of the payments system, basically America's checkbook. It's where eighty
eight percent of all U. S. Government payments are processed,
totaling five point four to six trillion dollars a year.
Work done at BFS, which includes managing the behemoth national debt,
has been a politic and gone largely unnoticed for decades.

(05:02):
Mask wants to impose a full take revolution and streamline
that system. Upgrade the decade's old technology, trim labor costs
by dismissing civil servants who've run the sensitive system for years,
and reconsider some of the payments for Social Security Aid
across the fifty States, another congressionally approved payments. Mosque has
proven he can transform entire industries, but Trump's decision to

(05:25):
bring that frenetic energy right into the heart of the
global financial system is risky. Since the first fifty thousand
dollar loan to the federal government from the Bank of
New York in seventeen eighty nine, the US borrowing apparatus
has been managed with the utmost care. The Treasury Secretary's
main job is to protect this national blessing, as Hamilton
referred to the American debt. Even small hiccups in the

(05:47):
system that managers bonds could prove disastrous. Bessant, a former
hedge fund manager with a unique background where government policy
meets markets from his time working for George Soros, will
face the heat over any fallout. Critics are unforeseen by nature.
The US needs a Treasury chief who can instill stability
and predictability, but it is when the country demands the

(06:08):
most from this agency when the nation's economic articles of
faith are in peril that the job suddenly necessitates some
one who is willing to think creatively and push the
limits of power. Take Salmon P. Chase. In eighteen sixty two,
the Civil War had nearly emptied treasury coffers of gold
and silver, forcing the then Treasury Secretary to take action

(06:28):
once seen as immoral to avoid an economic collapse. Chase
took the wild step of creating money backed not by
God created metals, but by paper and the faith and
credit of a still young nation. A century and a
half later, Hank Paulson half jokingly knelt before House Speaker
Nancy Pelosi for help staving off a deeper global financial
crisis in two thousand and eight. In a crisis, the

(06:51):
Treasury Secretary has to do whatever it takes. But in
Trump's second term, whatever it takes is still an open question.
The president is less construed than he was the first
time around, As Liberation Day proved to the world, can
Bessant ride a unicycle across a tight rope if he
needed to to save the economy. He's in the midst
of managing a self inflicted crisis by the US. A

(07:12):
black swan event may be a different beast altogether. One
such potential crisis could have to do with the need
to raise the debt ceiling sometime this summer. That fight
is generally risky, twice triggering a downgrade in U S.
Debt's credit rating, and more recently a warning. The trifecta
of deep partisanship in Congress, an unpredictable president, and Musk's

(07:33):
techies storming the government could be just the perfect storm
that triggers a market crisis. Missing a payment or delaying
a Treasury auction would not create a storm in a
tea cup. It would spell calamity across the world as
soon as this summer. If we had one bad treasury
bond sale, the net effect would be pretty intense, said
Representative Frank Lucas, an Oklahoma Republican on the House Financial

(07:55):
Services Committee. He's leading a Congressional task force that's reviewing
the resis billions of the U. S. Treasury's market at
a time when the world is questioning whether deficits in
the world's largest economy are too high. A second predictable
crisis that could force the Treasury Department into action includes
a sustained dropping confidence in the dollar, the world's reserve asset,

(08:15):
which brings the US tremendous economic and diplomatic power. The
dollar has trended down more than three percent since worldwide
tariffs were announced, despite economic theory predicting a stronger dollar
in response to such levies. In part, there has to
do with the expectations of rake cuts from the federal
reserve to boy an economy squeezed down by the tariffs,
but it also has to do with traders losing confidence

(08:38):
in American policy makers. It would take a lot for
the dollar's global role to come apart, and that prediction
has come and gone many times in the past half century.
Bessend understands these dynamics as well as anyone. He made
his name betting against the British pound. But the gumbo
of threats that exist now post the biggest challenged king
dollar has seen yet. There are the vulnerabilities that emerged

(08:59):
after the Biden administration's twenty twenty two economic sanctions regime
on Russia. There's the fact that American voters chose an
isolation as president just as the world order is fragmenting,
Despite the fact that America needs other countries financing help
for the largest debt pile that's ever had. And there
are Trumps continued clashes with US democratic institutions that have

(09:19):
made the dollar such an attractive investment rule of law,
an independent central bank, press, freedoms, and independent courts. What
Bessent now has to prove is that he has the
gravitas for a difficult job made harder by a volatile
boss bent on renegotiating America's role in the global order.
Fighting an economic crisis requires close relationships with international colleagues,

(09:41):
a group that Besant snubbed by skipping a group of
twenty finance ministers meeting in February. Bessant will finally have
a speed dating session with that group next week, when
dozens of officials fly into Washington for the International Monetary
Funds Spring meetings. He'll need to talk to fellow finance
ministers to assure them that his boss as a genda
won't tank their economies or wreck their security. Simultaneously, Besson

(10:05):
must continue to assure Trump that a calibrated approach to
tariff negotiations is good for the economy and meets his
broader goals to a certain extent. Treasury secretaries live and
die by their relationship with the president, which means Bessen
must remain in Trump's good graces. George W. Bush went
through two treasury chiefs before he got to his now

(10:25):
legendary choice of Paulson. Before then, there was Paul O'Neill,
or big O, as Bush pejoratively called him, who went
rogue in search of water security with U two's Bono
in Africa, and John Snow more a cheerleader than an
innovative creator of policy. One lesson for Bessen may come
from Stephen Mnuchen, Trump's treasury chief from twenty seventeen to

(10:46):
twenty twenty one. While he was initially ridiculed by economic
traditionalists along with much of Trump's cabinet in the early
days of his first term, Manuchin is now lauded for
being a moderating force as the world adjusted to a
populist America. He served as a shock absorber between Trump's
economic isolationism and Wall Street's vulnerabilities, but his fieldy to

(11:06):
his boss's overall mission was well understood. When he didn't
agree with Trump, Munetchen went silent rather than offer reassurances
that might later prove false and damage his credibility. The
world wants a Treasury secretary who understands economics and finance,
as well as the importance of stability and predictability. Their
job is to implement the president's economic agenda, but when

(11:28):
turbulence strikes, investors want a secretary who can put their
personal credibility on the line to protect the US economy.