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The U.S. Treasury Reimagined

Posted:November 27, 2024

Categories: Central Bank, Credit, Economics, Economy, Federal Reserve, Gold, Monetary Policy, US Treasuries

President Trump nominated hedge fund manager Scott Bessent as U.S. Treasury Secretary last Friday after the markets closed. This was a critical nomination for his cabinet. The markets mostly “cheered” this announcement this week as the stock market rose and bond yields dropped. His professional accomplishments as a hedge fund manager are pretty impressive. His focus has been chiefly on “Global Macro,” meaning he looks for investment opportunities across markets (stocks, bonds, currencies, commodities, etc.) and the entire globe. A successful global macro manager is adept at analyzing geopolitical and macroeconomic trends. Given how complex the global economy is now, this seems like an excellent candidate to run the debt that backs the global reserve currency.

In this article, I want to focus on what Bessent has said publicly about the future and what’s been reported as his goals. Specifically:

  1. Growing the United States economy and purging itself from its debt burden.
  2. Participating in the political party running our government during the next term and melding the working class and business class together for the country's common good.
  3. Helping to shape a global realignment of policy and trade - the most significant global restructuring since Bretton Woods in 1944.

Growing the United States via “3x3x3”

Bessent has stated that he aims to achieve the following three goals (“3x3x3”) by 2028:

  1. Reduce the budget deficit by 3% - Currently running at 6.3%
  2. Achieve 3% consistent GDP Growth - Currently running at 2.8%
  3. Increase the US oil production by 3 million barrels per day - Currently 13,401 per day

This idea was loosely modeled on the “three arrows” policy by Japanese Prime Minister Shinzo Abe in 2012. In an attempt to reflate the economy in Japan in 2012, he proposed policies aimed at monetary, fiscal, and structural issues in the Japanese economy. Bessent is looking to accomplish similar goals within the United States, albeit from a more favorable starting point in economic growth. Bessent’s strategy would be achieved through policies such as extending the Trump tax cuts, deregulation, energy independence and dominance of the United States, tariffs, and lowering inflation. This is a very tall order. However, Bessent believes this is the “last chance” for the United States to grow out of its debt burden.

Political Party of the Future

Bessent is emboldened by what’s emerged since the election on November 5th. He sees a realigned Republican party that includes leaders from both the working class and the business class working together for the common good of the United States. He sees this as the “working class, entrepreneurs, and patriots against the managerial class and status quo.” This is similar to the socio-economic structure of our nation in its infancy- everyone working together to grow a nation out from under the thumb of tyranny and elitism.

Global Realignment

Bessent believes that the world is amid the greatest global policy and trade realignment since Bretton Woods in 1944. I have written about this before and agree with this comment. The world was fractured post-World War I, with indebted nations breaking from the gold standard one by one. The world was turning towards a more “rules-based” approach, which meant a transfer of power from the sovereign individual to the state. The Bretton Woods Agreement in 1944 was a push towards this goal, with the global currencies tied to the US dollar and the US dollar tied to gold. It was an attempt to tie in the success of the 19th-century gold standard with the State. This ultimately failed, and a new system was born in 1971 when the US went off the gold standard. With free-floating currencies, governments could pursue “beggar thy neighbor” economic policies. This meant vastly different outcomes for many countries. Fifty years later, we live with the consequences of how this system has evolved. The world has become more indebted, more fractured, and more crisis-prone. What’s interesting to hear from Bessent is that he believes we are in the midst of a bull market in gold. He also said that his largest investment position is gold. This is very telling. Whatever system evolves over the coming years, it appears that gold will most likely be at the forefront, and whoever has the gold makes the rules.

 

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