Is Scott Bessent in Over His Head?

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0:53earlier this week for a full work day if you scrolled over to the drudge report the leading story was pure fear there was a picture of a couple of guys on a trading floor excitedly pointing to a screen and big red letters. They said, bond yields soar. Then global panic. Stock crash imminent. Okay, okay, I know. Consider the source. But I gotta say, the bond market, it is clearly trying to communicate something. So I called up the Bulwark's Catherine Rampell to translate. Like, should we be panicking? I think panic is a little bit of an overstatement. There is definitely more jitters.

1:50Catherine is a cool cucumber, but she'll cop to the fact that what's happening in the bond market is troubling. Basically, interest rates are creeping up, making it more expensive to borrow. This is happening for a few reasons, some of them structural, like inflation. There's also the fact that the U.S. government is spending a whole lot without really nodding to much self-control. And then the last piece of all of this is that companies are borrowing a lot to finance their AI investments. Bonds are not just things that the government issues. They're also things that private companies might issue.

2:26So if you are a Meta or an IBM or whoever, like you might raise money by going out and saying, please lend us money, you know, not just give us money through stock purchases, but lend us money. And so that means it's kind of the same audience to some extent. The people who might be lending the U.S. government money might also be lending these companies money. You're painting the picture of like a marketplace that is thirsty for cash right now. But the people who provide that cash are a little bit circumspect about all of the people who might want to drink that cash up at the moment. Fair? Yes, that is a fair way to describe it.

3:11They are kind of like in the catbird seat. And so they can say, OK, I'm only going to lend you money if you agree to pay me a higher interest rate. You did an interview with an investor recently who basically described the situation as investors are looking at the U.S. bond market and saying, it seems like we're in the era of policymaker incompetence here. And if that's the case, I'm going to have to be paid to hold your assets, which didn't make me feel great. Yeah. So that was with Bob Elliott. He was my go-to guy. And yes, a lot of what he saw as happening and other investors, by the way, other participants in this market that I've spoken with, what they've said is basically like, the United States seems to have no idea what it's doing right now.

4:03The thing is, these rising interest rates, they influence rates for all sorts of borrowing. Borrowing that could matter to you. U.S. debt, U.S. treasuries are the benchmark against which basically everything else is judged. That means that 30-year mortgage rates will also be pegged against that and will end up having higher interest rates. So it's like this knock-on effect. I don't see a lot of good news here. Like we're in an economy where people are routinely saying they're worried about the cost of living. Is there good news for them in this? Is there good news? Well, look, as far as anyone can tell, we're not in a recession.

4:50So like, I realized that's a low bar. But are people like you waiting for an economic shoe to drop? A little bit. Today on the show, what a wild ride in the bond market means for the rest of us. I'm Mary Harris. You're listening to What Next. Stick around.

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6:45how long has there been queasiness in the bond market it's been a while and and to be fair it's not just in the united states uh basically around the world industrialized countries are facing this kind of um um i don't want to say rebellion exactly but they're they're facing more difficult conditions from people who are thinking about lending money to governments, you know, us in Japan and elsewhere. And is that because basically we're all like thirsty for money right now? Like we're all carrying a lot of debt? We're all carrying a lot of debt. We have all been carrying a lot of debt for a while.

7:24You know, to some extent, the question is like, well, that's been the case for a while. Why now? Why suddenly? Because like, you know, deficit scolds like myself have been warning for many years, oh, this is unsustainable. We're going to have a bond market problem and blah, blah, blah. And it hasn't happened. And now it seems to be happening. And it's like, I'm not really sure whether a switch has been flipped. And if so, why? Or whether it's just August. Well, I mean, it predates August. You were asking when it started. It goes back a little bit further than that. November of 2024, right after the election, you saw like a bunch of investors, a bunch of central bankers around the world sell U.S.

8:04treasuries. You saw it in April of 2025. So that's Liberation Day. This was another triggering event when maybe there were jitters about the competence of U.S. leadership and our seriousness about governing and holding sacred our privilege or responsibility of being the world's global reserve currency. You saw it again, you know, at the start of the Iran war this year. And then you've seen a few other sort of like mini blow ups in recent weeks when, for example, Kevin Warsh, who is the recently appointed Federal Reserve chair who's been in that position a few months at his most recent press conference.

8:52he was not really able to answer the question of how the Federal Reserve planned to deal with inflation and why that plan didn't involve interest rate increases. That's like his whole job, by the way, to be able to answer that question. This is like a whole other rabbit hole we can fall down, but he sees his job as communicating less, basically. And if he communicates less, that means there may be a lot more volatility in the markets. You know, market participants are listening to what he's saying, like, wait, is he going to do this? Is he going to do that? And then they're like freaking out because they're like, we don't know what he's going to do.

9:28Maybe we'll just go berserk. And so that's a little bit, I'm oversimplifying, but that's a little bit of what happened when he did his press conference. Then there are these other big questions about, again, like the independence of the Federal Reserve, which we really need for a whole host of reasons, including the ability to trust that a U.S. dollar is a safe place to store value and all of these other things. Like, again, all of these questions are intertwined about governance, about independence, about seriousness, about competence. All of those things matter. And then you have the confluence of plus we have this environment where there are a lot of people who are thirsty for money.

10:11hmm it's it's interesting to hear you talk because you're basically like all of these changes are happening at the same time like the ai thing is happening right we've decided we're going to put a sphinx in charge of the fed we're like doing all of these things that robust communication could maybe like address to some extent right but when you're you're not doing that uh it creates real questions and maybe a sense of unease among investors well it's not just communication, right? Communication is part of it. It's also about strategy. So it's like, how well are they communicating the strategy so people understand it?

10:49And also, do they even have a strategy themselves? And those things are related. But if you think, well, maybe they're not communicating it because they don't have a strategy, as opposed to they're just not good at talking about the strategy, that's way more worrisome. And again, there are a number of things that have happened, not just at the Fed. The Fed, I think, is still mostly run by grownups and they're trying to do their best. But there's a lot of other things that are happening elsewhere in the administration where you might worry, are there actually grownups in charge? Do they know what they're doing?

11:22Are they politicizing other things? Let's talk about one of those things where people maybe had questions about who's in charge here. Because last week, we've been talking about the bond market, this queasiness, the fact that the bond market touches other things that are relevant to American consumers' lives, like the mortgage rates. And then last week, we see Treasury Secretary Scott Bessent try to intervene and fix, quote unquote, what's happening with the bond market. Explain what he tried to do and what he thought might happen versus what actually did happen. So you know how I was saying that there's a lot of debt and maybe not that many people who are interested in funding that debt, which is driving up interest rates.

12:11Scott Besson, the Treasury Secretary, said, I am going to announce, kind of apropos of nothing, off schedule, that we, the U.S. government, the Treasury Department, will buy back a lot of the debt that's currently outstanding. So these are Treasury bonds that already exist that, like, maybe are not looking so attractive. Maybe they have relatively high interest rates. They're sitting on the market basically because investors are like, I could use a higher interest rate here. Yes. That sort of thing. So more or less. So Treasury Secretary Scott Besson said, we are going to buy those back. And he said it was about liquidity and market functioning and other things that normally sound perfectly.

13:02He cares about the financial plumbing or whatever. And of course, we want the financial plumbing to work. That's a good thing. And who's going to argue with that? Whatever you think it means. It's a relatively abstract idea. But what it really looks like he's doing is he's saying, you know, those high interest rates are making me a little nervous. Again, it's an election year. It's well, yeah. I mean, he didn't say that, right? He actually accused his predecessor, Janet Yellen, of doing similar things, of like trying to mess around with interest rates, you know, for various kinds of treasuries to make it cheaper to borrow.

13:40Because again, like what happens with the interest rates for the treasury, for U.S. debt, ends up having these knock-on effects for consumer prices, for business prices, for borrowing. So he accused Janet Yellen of doing that. I don't really think that's what happened. They did some different things in the Biden administration under Janet Yellen. But it wasn't this. This seems like a pretty explicit attempt to buy back these treasuries so that interest rates can go down. Could the Treasury Department ever buy enough bonds to make a difference in this marketplace? Not at the level that he initially suggested.

14:20It was actually like a teeny, teeny tiny fraction relative to the overall size of this market. And so when he first announced this, again, it was like kind of weird. People weren't expecting it. Treasury does have these regularly scheduled things where they buy back certain debt instruments or they issue more debt instruments. But this was like off schedule, which kind of took everybody by surprise. And it It was a relatively puny intervention because it was so small relative to the size of the overall market. And so what happened was, like, for a very brief period, interest rates did go down because it was like, everybody's like, oh, I guess they're going to buy a bunch of stuff.

15:02And then people thought about it saying, wait a second, they're not really buying that much. And all of those problems that caused interest rates to go up at the long end, debt, concerns about ineptitude, AI-related corporate bonds, et cetera. All of those things are still - All those things still exist. They still exist. And so instead, it backfired. And Besant was trying to get these rates down. Instead, they went up. You know, they dipped briefly and then they went up. Not really beating the incompetence allegations here. Yeah, exactly. So the whole thing made him look kind of feckless, right?

15:39If part of the concern of bond investors is, I don't really know if I trust that there are adults in charge who are thinking things through and thinking about how these markets work and taking serious their responsibilities. And then you see something like this, which seems like it was sort of half-baked. You're like, yeah, this is confirming some of my suspicions. I mean, it didn't really help that his mentor wrote an op-ed in the Wall Street Journal where he was like, by the way, a terrible idea, which is bizarre. That was very surprising. So his, his mentor, um, is this legendary investor, Stan Druckenmiller.

16:17Actually, Stan Druckenmiller, fun fact, was the mentor for both Scott Bessent and Kevin Warsh. Um, so, uh, Druckenmiller writes this op-ed, um, or has AI write an op-ed for him. That's a whole other. Right. This, we should, this is the other wrinkle in this. The fact that like he used AI to write it, But he did sign it. So I guess he agreed with what AI said. The significance is not like, did he actually craft each individual word? It's does he stand publicly by this message that is basically a public rebuke of his former protege? And it was. I mean, isn't this more of a family meeting? It's a little weird that you would do this in the op-ed pages of the Wall Street Journal, I totally agree.

16:58When I saw that, I was like, yeesh. You know, did he try to get through to Besson and Besson didn't take his call or Besson wasn't listening? Besson left me on read. I don't know. I mean, Druckenmiller is not someone who's like out there yelling and screaming. He's not he's not seen as partisan. He is not someone who's always, you know, seems to be looking for a lot of attention. You don't see him on like CNBC and Bloomberg all of the time. He goes on. But, you know, he's not like. I think he's secure enough in his legendary investor status that he doesn't seem like he needs to go out there and get a lot of attention for his views.

17:40So it seemed pretty significant that this was a moment that he chose to place this op-ed. And we don't know what kind of conversations he may have had Druckenmiller with Besant before this. Besant has since said, yes, he has talked to Druckenmiller. Besant gave an interview yesterday on CNBC where he was asked about this. And Besson said, yeah, yeah, we've talked. And like, I think he's just mad that he lost some money that day or whatever, which I don't know. I mean, it doesn't really seem like he was taking to heart the concerns that not just Druckenmiller, but basically everyone who, again, this guy, Bob Elliott, that I spoke with among many other people in this market, all kind of had the same reaction, which is this is like putting a Band-Aid on a gunshot wound, right?

18:27If you think that buying a few treasuries is going to like solve the problem of all of these much more concerning issues about debt and governance and whatever, like you've just, you've lost the plot.

18:48We'll be right back after a quick break.

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21:12you've been sort of fascinated by the fact that scott besson seems to be making moves that almost seem to be in opposition to fed chair kevin warsh um can you explain that a little bit like it just it's interesting because you're saying maybe there's some longer play that will make all of this make sense but if you just look at what they're doing at the moment, it seems like it's not connecting. Like one point I've seen made is basically like if Scott Besson actually wanted his play to work of injecting, you know, doing this buyback plan, he would kind of rely on the Fed to come in and basically do quantitative easing, like give him way more money to do this for real, for real, which is something Kevin Warsh is like, I don't want to do that.

22:02So it's like you can see these two philosophies kind of at loggerheads. Yes. And that's what I mean when I say that it feels a little bit like the Treasury is homing in on the Fed's turf. The Fed is supposed to be the entity that's setting interest rates. They primarily focus on short-term interest rates, as we've been talking about. That's like when they have their regular meetings a few times a year, when you hear an announcement, they raise interest rates, they lower interest rates. That's short-term interest rates. That's mostly what they do. But then they do have some effect on these long-term interest rates through quantitative easing, which again, like was a thing that they kind of innovated or like they took these extraordinary measures.

22:46That was the term that they used during the financial crisis. And actually, Kevin Warsh was a Fed governor during part of this and was really upset by the fact that the Fed was doing this. And that's part of the reason he ultimately left and had this break with somebody else who had been a mentor of his, Ben Bernanke, who was then the Fed chair. Warsh is back. Warsh is saying, like, I never wanted any part of this. I want to get rid of these things on our balance sheet. I want to shrink our balance sheet. But right now, we have a president who really doesn't want that and who appointed Kevin Warsh because he thought Kevin Warsh was going to reduce interest rates.

23:30He thought Kevin Warsh was going to have easier, looser monetary policy, especially leading up to the election. But in general, Donald Trump always wants lower interest rates. So it's been like a little bit hard to figure out how did Kevin Warsh plan on threading this needle, like doing the thing that he keeps on saying he wants to do, which is going to raise interest rates, at least at the long term, while appeasing the president. I mean, I'm sure he wouldn't frame it as appeasing the president, but like clearly that's what the president thought he was getting. He said this publicly, right? He said that it's at least a side effect of what we're talking about here.

24:06Yeah. And so the question was like, how is he going to like keep Trump off his back and do the thing that he wants in markets? And maybe the get out of jail free card is like, he gets rid of some, you know, like he gets rid of some treasuries again, they haven't done it yet. And then Scott Besson's department, which is confusingly also called the Treasury, buys back some of those Treasuries. And then maybe it neutralizes it. I don't know. But right now they seem to be, as you say, working in opposite directions. One is like trying to do things that would raise interest rates. One is trying to do things that would lower interest rates.

24:46This is all in the backdrop of like other things, much bigger forces that are affecting interest rates, like that maybe the government can't really overcome. Yeah. I mean, I was struck by this one line in particular from that Stan Druckenmiller op-ed in the Wall Street Journal. He wrote, you know, the long-term treasury yield is the most important price in the world. It is also the only fiscal disciplinarian the U.S. has left. And I think what he was saying was like, hey, what's happening in the bond market it's like a little alarm bell. It's like telling you something. So like, don't turn the alarm down before you figure out what the alarm is telling you to do.

25:32Like maybe it's telling you there's too much carbon monoxide in the economy and you got to fix that. I guess I wonder this fix you're talking about, this idea that like maybe there's like some grand scheme in the future. Or will it be about paying attention to this disciplinarian? Because it doesn't seem like it to me. No, no, no, no. That's the thing. No, this is like all different. Like, I think this is, if my theory is correct, that this is all about handing off responsibility for the balance sheet, blah, blah, blah. Like, I think on balance, it should be neutral. Like, it would be like, well, I don't know what it's going to look like, but it's like the things that the Fed is holding maybe effectively get held by the Treasury.

26:12And like, it's a wash. but all of those other forces that we were talking about the things that are setting off the alarm including our unsustainable debt our inability to do anything about that debt and to some extent the other stuff we were talking about inflation AI borrowing whatever those are still going to be around and at some point we will have to deal with them Every other country has been able to do that or has had has been forced to do that. When they borrow too much, markets flip out. They start to demand much higher interest rates, you know, for the privilege of the country continuing to borrow.

26:54And they you know, the country has to get its house in order. It has to figure out if not necessarily like how to have a balanced budget, like how to not have unsustainable growing deficits. But if you're the U.S., they let you do it? Basically. Sort of thing? Basically, because we are kind of insulated from a lot of the consequences of our irresponsible fiscal policies because we have the world's reserve currency. Everybody wants dollars, right? Like we are like the lingua franca, whatever the financial lingua franca is of the world. Other countries want dollars. They do transactions in dollars.

27:37They invest, you know, they hold their savings in dollars and in treasuries. And so what that means is the kinds of things that make us irresponsible, that would normally drive up interest rates a lot more, at least than they are right now, we don't have to deal with as much because like there's still going to be a lot of people willing to lend, willing to, to lend us money because they want dollars, if that makes sense. But is what's happening in the bond market a signal that that might be changing? Yes. I mean, we, we have already seen that happen to some extent. Like I mentioned, there have been a few occasions in the past year and a half when it looked like central banks around the world dumped treasuries.

28:23Treasuries are dollars, basically, right? This is a way of holding dollars. And that's happened when there were pretty jarring episodes related to U.S. governance, Liberation Day, reelecting Donald Trump, the Iran War. There have been a few times when it's like people around the world, central banks in particular around the world, said, you no, maybe I don't want to be so all in on dollars and on U.S. debt. The problem is that there isn't like a safe haven to go to. There isn't an obvious substitute for us. The analogy that often gets used is we're the cleanest dirty shirt. So it's like everything is kind of unattractive as a store of money, as a reserve currency, but like we're a little bit less unattractive than everybody else.

29:16And again, I think it's made us a little bit hubristic in the United States about what we can get away with. We've gotten away with so much, right? We've played by different rules than every other country, particularly countries whose budget numbers look similar to ours, you know, in terms of like debt relative to GDP or deficits relative to GDP. we've been able to get away with a lot more. Maybe we can just get away with it forever. And the question is, what will, like, if something can't go on forever, it won't, or whatever the expression is, what will be the thing that forces us to change our ways?

30:00Yeah, because right now it feels like we're getting like the polite goodbyes versus the like fleeing the party kind of thing. The little Irish exits. Yeah. Yes, exactly. But it just, it feels like the only thing that will catch someone's attention for real, especially in this administration, is a full-on evacuation. Yeah. And I don't want to get to that point. Ideally, we would be addressing some of our challenges well before we had the crisis. but sometimes it's like easier to just put off the hard thing. Like all, all of the things you would need to do to address these fiscal challenges that we're talking about are really, really painful.

30:39Like there's a reason we've put them off. It's not just that we're lazy. It's like, well, raising taxes, nobody ever wants to do that. Cutting spending, nobody ever wants to do that. It's like at some point you got to pay the piper and neither party wants to do that. And I worry that it'll be a crisis. A crisis is the only thing that can force these hard decisions, some combination of them, to get made. And because we have skated for so long, we've avoided a crisis for so long, people who were warning that a crisis would be coming just don't sound credible, right? Like it's like the boy who cried wolf.

31:18Well, maybe there's a wolf coming. And I think that's really what the question is right now. Are bond rates creeping up because the wolf is at the door? It's no longer a bunch of deficit scolds. It's no longer people like warning about this far off possibility that might be somewhere in the future, in a future that never materialized. Maybe that future is the present now. And we don't know. like I said, in a better world, we wouldn't let it get to that point. We would resolve the issue before we had the crisis. But I don't know that we're in that world. But here we are, in the real world. Yes.

31:57Catherine, I'm really grateful for your time. Thanks for coming on the show. Thanks for having me. Catherine Rampell is the economics editor over at The Bulwark and an anchor at MS Now. You should really sign up for her bulwark newsletter. It's called Receipts. And that's our show. What Next is produced by Evan Campbell, Madeline Thames-Ducharme, and Patrick Fort. Paige Osborne is the senior supervising producer of What Next and What Next TVD. Milo Bell is the executive producer of podcasts here at Slate. Ben Richmond is the senior director of podcast operations. And I'm Mary Harris. Go track me down in blue sky.

32:34I'm at Mary Harris. Thanks for listening. Catch you back here next time.

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