Stopgap over solution: Bessent's market moves mask US fiscal fragility

Editor's note: Huang Ying is a professor and the director of the Capital Market Research Center at Zhejiang University.This article reflects the author's opinion and not necessarily those of CGTN.

Faced with rising long‑term borrowing costs and wild swings in its government‑bond market, US Treasury Secretary Scott Bessent unveiled market‑calming measures in August 2026. The measure expands the Treasury's existing bond buyback program: The maximum size of buyback operations for longer-dated Treasury securities was increased from $2 billion to at least $4 billion per operation. The expanded operations will run from September 9 through November 4. Some market estimates put the potential annual scale at around $128 billion.

Following the announcement, long‑term borrowing costs dipped initially, equities and risk assets rose, and market jitters briefly eased. The initial bond rally quickly faded, with yields rebounding the following trading session.

By Thursday's opening bell, all early gains vanished, with yields on some long‑dated US Treasuries returning to pre‑announcement levels. Lingering fears over US fiscal strains and sticky global inflation sapped optimism. Investors worry over outsized deficits, oil‑fueled inflation, and heavy bond supply from AI‑sector borrowing, viewing the measure as a mere stopgap. As analysts note, such interventions offer fleeting relief without fixing deep‑seated fiscal woes, masking fundamental structural flaws.

To grasp their limited impact, consider America's staggering debt. As of August 18, 2026, US gross federal debt had exceeded $40 trillion, of which about $32 trillion is debt held by the public — investors outside the US government. Total gross federal debt stands at roughly 124% of US GDP, according to IMF projections.

The Congressional Budget Office (CBO) projects the 2026 fiscal‑year deficit at about $2.1 trillion, or about 6% of GDP, well above the widely cited 3% safety benchmark.

Net interest payments are projected to exceed $1 trillion, making debt service one of the largest federal spending categories.

Masses of near‑zero‑rate bonds issued in 2020‑2021 are set to mature; refinancing them at higher rates will inflate debt expenses further. Projections built on the CBO baseline show total federal debt could surge to $63.7 trillion by the end of fiscal 2036. Faced with this grim outlook, the Treasury opts for market tweaks rather than painful budget overhauls.

The root cause lies in US federal spending structure, creating a political deadlock. Nearly two‑thirds of spending goes to mandatory outlays: Social security, medicare and debt interest. Cutting retirement or healthcare benefits would alienate millions of voters, while tax hikes face bipartisan pushback. Even eliminating all non‑defense discretionary programs cannot balance the books. Meaningful spending cuts are politically unfeasible, leaving bond‑market operations as policymakers' main tool to buy time. Washington leverages financial tweaks for political breathing room, postponing tough but necessary fiscal reforms.

It is vital to clarify what the buyback can and cannot achieve. It does not cut total debt, but swaps borrowing tenors: The buyback does not reduce total debt. Instead, it changes the maturity profile of Treasury liabilities by reducing some longer-term securities and increasing reliance on shorter-term issuance.

Total debt remains unchanged; risk is merely shifted toward frequent near‑term repayments. Persistently high inflation and short‑term rates would make these repeated short‑term loans far costlier. The projected $128 billion annual buyback is small beside the estimated $5.5 trillion in circulating long‑term bonds — only 2.3% of the pool. Its calming effect is easily overwhelmed by massive new bond sales needed to plug budget gaps. Meanwhile, the investor base is shifting: Foreign holdings shrink, while heavily‑leveraged domestic hedge funds grow into key buyers, making the bond market more vulnerable to abrupt swings.

These ad hoc interventions carry hidden economic risks. For decades, US debt management has followed predictable, rule‑based norms. Active Treasury intervention in bond markets may prompt investors to demand higher risk premiums, perversely lifting long‑term borrowing costs. The easing measures also work against the Fed's inflation fight. Cheaper credit could boost consumption and business spending, rekindling inflation and amplifying global asset volatility. International investors may lose faith in US Treasuries as the world's primary safe‑haven asset, accelerating diversification away from dollar‑denominated assets.

In conclusion, short‑term market maneuvers can calm investor nerves, but they address symptoms rather than root causes. The US faces the paradox of "sustainable unsustainability": Thanks to the US dollar's global reserve‑currency status, a full‑blown debt crisis has not broken out yet. Even so, widening deficits and rising interest bills keep eroding long‑term fiscal health. Without meaningful reform to welfare programs and tax rules, repeated market‑support measures will only postpone inevitable debt troubles. When these risks eventually surface, they will send damaging shockwaves through global finance and hit emerging‑market economies hardest.