Scott Bessent Faces Senate Scrutiny on Financial Policies, National Debt and

During his confirmation hearing before the Senate, Scott Bessent, President Donald Trump's nominee for Secretary of the Treasury, issued a stark warning about the state of the U.S. economy. He described the national debt as a "disaster" and highlighted the country's budget deficit, which has now exceeded 6% of GDP—a figure he noted is rarely seen outside of wartime or economic crises. Bessent warns senators that the historic role of the Treasury as a financial lifeline in national emergencies such as Civil War, World War II, and the COVID-19 pandemic is now threatened by unsustainable financial activities. He emphasizes that "What we have now will make it difficult for us to do the same thing again". Incoming Minister of Finance Janet Yellen has also expressed similar concerns. Earlier this month, Yellen described the country's financial path as "completely unsustainable," urging the new government to prioritize addressing this issue. However, the connection between Bessent and Yellen stops there, as both have very different visions to address these challenges. The focus is on tax reduction The focus of the debate is the fate of the Republican Party's tax cuts in 2017, which lowered personal and corporate taxes but are set to expire at the end of the year. Bessent declared that extending these cuts is his top economic priority, warning that allowing them to expire could cause significant economic disruption, potentially leading to financial instability or even an "abrupt halt" to economic activity. Democratic senators challenged Bessent on the fairness of extending tax cuts for the wealthy, asking why billionaires should still benefit from reduced tax rates. Bessent defended the policy with familiar Republican arguments, asserting that lower tax rates would stimulate economic growth and pointing out that wealthy Americans have contributed significantly to federal revenue. "The United States has no revenue problem," Bessent argued. "The United States has a spending problem." He pointed out that a 40% increase in discretionary spending over the past four years is the main culprit. As part of the Trump administration's strategy to address government waste, Bessent emphasized the establishment of the Department of Government Efficiency (DOGE), an initiative of President Trump and tech mogul Elon Musk. He told lawmakers that DOGE is essential to eliminate inefficiency and reduce waste in federal programs. Warning about the stability of the treasury bond market Critics of Bessent, including Janet Yellen, argue that extending the duration of tax cuts could weaken the long-term US economy. Yellen has warned that this policy could erode the market's ability to recover, damage the value of the dollar, and potentially trigger a debt crisis. Yellen's concerns have been underscored by recent developments in the financial markets. Treasury bond yields have experienced unusual fluctuations, with the 10-year bond yield dropping 13 basis points on Thursday and the 2-year bond yield falling 10 basis points. Just a few days earlier, the 10-year bond yield had reached its highest level in 14 months. Market volatility is driven by new inflation data. Core inflation, excluding food and energy price fluctuations, slowed to 3.2% annually in December, slightly lower than economists' forecast of 3.3%. Month-on-month core inflation only increased by 0.2%, while headline inflation, including all goods, rose by 0.4% monthly and 2.9% annually. The Federal Reserve signals the possibility of a interest rate cut The cooling inflation data has raised hopes for a potential interest rate cut. Federal Reserve Governor Christopher Waller hinted in an interview with CNBC that if inflation continues to decline, the central bank may cut interest rates earlier than expected. "If the data continues like this, we may see interest rate cuts earlier than the market's expected," he said. A Road Ahead Full of Challenges Bessent's confirmation hearing revealed deep divisions on how to address the nation's financial challenges. While the Republican party focuses on tax cuts and spending reductions, the Democratic party emphasizes the need for fair tax policies and long-term financial stability. When the Senate prepares to vote to confirm Bessent, the risk to the US economy is very high. With a fragile Treasury market, unstable inflation data, and growing concerns about national debt, the decisions made in the coming months will shape the country's financial trajectory for many years to come.