US Treasury shifts to short-term debt as $40tn national debt mounts
Treasury Secretary Scott Bessent is increasingly relying on bond buybacks and short-term borrowing to manage the US fiscal burden, raising investor concerns as long-term interest rates rise and the federal deficit remains elevated.
The US Treasury is altering its debt management strategy by replacing long-term obligations with short-term debt, a maneuver resembling quantitative easing. Treasury Secretary Scott Bessent is steering this shift as the national debt surpasses $40tn and global long-term interest rates continue to climb.
The federal deficit currently runs at roughly 6% of GDP. Bessent has assured markets that this borrowing is temporary, projecting that artificial intelligence-led growth will generate sufficient tax revenues to reduce the deficit to a more manageable 3% of GDP.
However, economists warn that this pain-free budget consolidation is unlikely. Harvard University professor and former IMF chief economist Kenneth Rogoff notes that AI profits are difficult to tax, while costs for an ageing population and military spending are set to rise rapidly.
This fiscal posture arrives as the premium on long-term US Treasuries largely evaporates. American debt no longer trades as a unique safe asset compared to other advanced economies, causing the traditional value of dollar dominance to fade.
Genuine budget consolidation remains politically unviable, steering the administration away from the blundering, random cuts that Elon Musk and his Doge acolytes pursued in 2025. Consequently, no meaningful debt reduction is expected before November’s midterm elections, leaving the Treasury to rely on financial engineering rather than structural fixes.
Rogoff argues that these heavy-handed attempts to control the bond market undermine Bessent’s credibility. While the former hedge fund manager previously scored wins supporting the Argentinian peso and Japanese yen, his Treasury-led quantitative easing has failed to stem rising long-term yields.
Telling investors there is “nothing magic” about the $40tn debt threshold does little to assuage market fears. With mounting spending pressures and higher rates, bond markets have strong reasons to remain deeply skeptical of America’s fiscal trajectory.
