We Are Blundering Our Way Into a Financial Crisis

You’ve heard warnings for years about how a fiscal crisis was brewing in the United States because the debt is unsustainable — and financial markets would eventually protest. However, the logic was often vague and the risk hypothetical.

Guess what? The Trump administration has made obvious the real source of risk. It isn’t federal borrowing grinding ever higher. The true risk is our political leaders doing something wildly irresponsible that unnerves financial markets.

President Trump has brought budgetary chaos with extraordinary speed. In just his first week in office, his administration threatened to withhold payments of trillions of dollars of congressionally enacted spending. Days later, he appeared to reverse course. Then he allowed staff members of the newly formed Department of Government Efficiency, or DOGE, to gain access to critical Treasury payment systems, prompting the resignation of a senior official with decades of public service. New threats to withhold federal payments now come daily. At least one agency, the U.S. Agency for International Development, may no longer be operative.

Those who have spent years scanning the horizon for risks of a fiscal crisis should fix their sights on the president’s malpractice. When Mr. Trump asserts he can pick and choose which payments to make, regardless of laws enacted by Congress, it is not impossible to imagine the president declaring he can pick and choose which holders of United States Treasury securities should be paid.

During his first term, senior officials from Mr. Trump’s administration reportedly considered the idea of canceling some of the payments on U.S. Treasuries held by China as retribution for its purported role in the pandemic. Now, with DOGE itching to meddle in Treasury payment systems, the president may soon have the means to withhold payments at his personal whim. “We’re even looking at Treasuries,” he told reporters ominously when discussing his plans to commandeer the payment system. “It could be that a lot of those things don’t count.”

Why is this a potential crisis in the making? The $28 trillion market for Treasuries — by far the most important financial market in the world — depends first and foremost on trust. By that we mean confidence that the United States Treasury will pay its interest and principal on time and that American politicians won’t drive the economy off a cliff. Because of that trust, Treasuries are viewed as risk-free assets. They serve as the benchmark for interest rates on all kinds of loans such as mortgages, business loans and borrowing by other governments. That trust is why American retirees and overseas pension funds put their money in Treasuries when they can’t risk losing it. It’s the bedrock of America’s economy.