Former U.S. Treasury Secretary Paulson Calls for Contingency Plans to Address U.S. Debt Demand Collapse

ME News Report, April 17 (UTC+8), former U.S. Treasury Secretary Paulson called on the U.S. government to develop contingency plans to prevent a potential collapse in U.S. debt demand. He warned that such a scenario would have “extremely serious” consequences. Paulson stated, “We need an emergency response plan that is targeted and short-term, and prepared in advance so it can be activated once a critical point is reached.” Paulson said that if the $31 trillion U.S. debt market fails, its nature will be different from the financial crisis he faced twenty years ago when he was in office. “Back then, the situation was already dire, but the government still had fiscal space to respond to the credit crisis. But if a U.S. public debt crisis occurs and hits a critical point, attempting to issue bonds when only the Federal Reserve is buying, and bond prices fall while interest rates rise, it will be a very dangerous situation.” For years, U.S. budget experts have warned of a potential “doom loop”: as government debt continues to grow, investors demand higher yields, pushing up government interest expenses and further expanding the fiscal deficit. In extreme cases, if the Treasury cannot raise enough funds to pay interest or principal, it is widely believed that the Federal Reserve will have to step in as an emergency buyer. Paulson said, “Once that happens, the shock will be very intense, so we must be prepared for this possibility.” (Source: Jintou)