Economist warns Treasury buyback plan could trigger dollar devaluation spiral
Treasury Secretary Scott Bessent's plan to increase buybacks of long-term bonds has raised concerns among economists, including Robin Brooks of the Brookings Institution. Brooks argues that such financial engineering fails to address the deficit and could lead to currency depreciation, similar to Japan's yen. He warns that markets are primed for dollar debasement, though some analysts see the worries as overblown.
The Treasury's buyback announcement follows the 30-year yield reaching its highest point in nearly two decades, a level that briefly retreated before climbing back as market participants questioned the plan's effectiveness. Brooks draws direct parallels to Japan, where prolonged yield management has coincided with sustained yen weakness against major currencies.
The proposal arrives as the federal deficit heads toward $2 trillion this fiscal year. While some analysts like Goltermann view the debasement concerns as exaggerated, pointing to the strong U.S. economy, others including Gillum expect long-term yields to keep rising given ongoing debt issuance from both the Treasury and corporate borrowers.
The buyback debate could affect anyone who holds dollars, invests in bonds, or purchases imported goods. If the dollar enters a sustained decline, consumers may face higher prices on foreign products while international investors could demand higher yields on U.S. debt, potentially raising borrowing costs for households and businesses. Conversely, if the concerns prove unfounded, the episode may simply reflect normal market volatility rather than a structural shift in currency confidence.