When Donald Trump conducted a press conference while flying to the Super Bowl last week, it sparked considerable media coverage, with topics ranging from newly proposed steel tariffs to the announcement of “Gulf of America day.”
However, a less highlighted remark regarding the US’s financial commitments revealed that tariffs are not the only way Trump is putting economic stability at risk.
“We’re even looking at Treasuries,” the president mentioned to the press. “There could be a problem… It might turn out that a lot of these things are highly fraudulent, which means perhaps we have less debt than we originally thought.”
This implied that accessing the US Treasury’s data through Elon Musk’s “department of government efficiency” could uncover a money-saving scheme: why not consider a “selective default” on some of America’s debt obligations, as economists refer to it.
Like many of Trump’s unpredictable statements, this one quickly underwent a “walk-back,” as Americans term it. Kevin Hassett, his economic advisor, clarified the following day that Trump was alluding to various payments made by the US Treasury and not its staggering $36 trillion (£28.6 trillion) in debt obligations. Hassett remarked that the Treasury “had been sending money without indicating its purpose.”
But just consider for a moment the possibility that a US administration might unilaterally decide to default on even a fraction of its debts. The fallout would be disastrous. Given the dollar’s prominence as the world’s reserve currency, the yield on US Treasuries – which are essentially government bonds – serves as a critical benchmark in global finance.
Should investors begin to demand higher yields – essentially interest rates – as a safeguard against the risk of not recovering their investments, the repercussions would echo through the trillions of dollars of other assets that are valued based on the supposedly ultra-safe Treasuries.
Hassett made it clear that this is absolutely not a desired outcome among the more rational members of Trump’s administration. In fact, Treasury Secretary Scott Bessent stated that the president aims to reduce yields on 10-year US government borrowing costs.
However, due to Musk’s erratic management of governmental finances, the US is already renegeing on its moral and financial commitments globally.
New instances arise daily, such as health clinics in developing nations shuttering due to cutbacks from the US Agency for International Development, or projects funded by the National Institutes of Health being delayed.
Officials from New York’s city administration have even claimed the government effectively tapped into the city’s funds, reclaiming $80 million in federal grants that had previously been allocated.
This accelerated austerity is purportedly intended to enhance the government’s financial standing – putting the US through what Wired’s Brian Barrett described as “the private equity wringer,” just last week.
Nevertheless, this Musk/Trump takeover simultaneously threatens to erode confidence in US institutions, likely leading to long-lasting and unpredictable fallout.
Five former Treasury secretaries cautioned in a remarkable editorial in the New York Times last week about the dangers of allowing Musk to maneuver through the country’s financial system.
“Any indication of the selective halting of payments sanctioned by Congress will signify a breach of trust and, ultimately, a form of default. Regaining our credibility once it’s lost will be a formidable challenge,” they warned.
Musk has faced legal challenges while targeting specific governmental branches, making the likelihood of a formal default remain minimal.
Nevertheless, the entire situation – highlighted by a meandering briefing in the Oval Office with Trump, Musk, and his son X (who shares a name with the platform previously known as Twitter) – exudes “political risk,” as analysts might label it, if it were occurring in other countries.
It wouldn’t be surprising if initiatives to develop alternative global reserve currencies and payment systems – similar to proposals from nations in the global south – gain momentum influenced by the antics in Washington.
The insularity of Trump’s administration was further illustrated on Friday, when Bessent – one of the more reasonable voice in the administration – remarked: “The US promotes a strong dollar policy, but our strong dollar policy does not imply that other countries should have weak currency policies.”
In the immediate term, the most significant impact of Trump’s intentions on the global economy is likely to stem from his long-anticipated tariff strategy, which will disrupt the international trading system.
All this is predicted to hinder growth: if trade analysts are correct that Trump’s recent idea of “reciprocity,” based on existing tariffs and VAT rates of each nation, marks the opening offer in negotiations, clarity may remain elusive for weeks or even months.
Despite this corrosive uncertainty, markets have, so far, reacted surprisingly calmly in the face of Trump’s erratic trade policies and seem relatively unconcerned about Musk’s aggressive approach, at least for now.
They seem to place their confidence in the resilient US consumer, alongside the economy’s robust and innovative technology sector, to uphold the narrative of US “exceptionalism.”
However, as the Trump/Musk show continues in Washington week by week, the risk increases that investors will undergo a structural shift in their perception of the US economy – an impact that would ultimately resonate globally.
