Government finances

Washington Post - Former Treasury Secretary Henry Paulson suggested the US government should prepare a backup plan in order to avert a potential collapse in demand for Treasuries—an event he warned would have “vicious” effects.

“We need an emergency break-the-glass plan, which is targeted and short-term, on the shelf, so it’s ready to go when when we hit the wall,” Paulson said during an interview for Bloomberg Television’s Wall Street Week with David Westin. With regard to any breakdown in the $31 trillion market for US government debt, Paulson said that would pose a different case from the financial crisis two decades ago.

“As bad as it was,” the government had fiscal firepower to address the credit meltdown, he said. “You can come in and clean up the mess.” But in the event of a US public debt crisis, “you’re trying to issue Treasuries and the Fed is the only buyer and the prices of the Treasuries are going down and interest rates are up, that’s a dangerous thing.”