Breakingviews - Scott Bessent debt plan has awkward historic echo

Reuters

18-07-2025

LONDON, July 17 (Reuters Breakingviews) - Outside the U.S. Department of the Treasury in Washington, D.C. stands an imperious-looking statue honouring the institution's longest-serving secretary. Albert Gallatin was the Swiss-born founding father who engineered the financing of the 1803 purchase of Louisiana via an innovative international bond issue, opens new tab. That famous fiscal coup more than doubled the newly independent nation's territory and established its sovereign credit for the next century. Not for nothing does the monument bear the inscription: 'Genius of Finance'.
Scott Bessent, the current occupant of Gallatin's office, faces a task considerably bigger than his illustrious predecessor's. Buying Louisiana cost $15 million, equivalent, opens new tab to around $16 billion today. By contrast, the Congressional Budget Office (CBO) estimates, opens new tab the One Big Beautiful Bill Act (OBBBA) recently passed by Congress will increase the federal government's financing needs by $3.4 trillion over the next decade. Bessent's attempt to square the fiscal circle is reminiscent of an altogether more controversial pioneer of public finance: the 18th-century Scottish economist and speculator John Law, author of the world's first inflationary financial crash.
The political stakes are high. In stark contrast to the CBO's pessimistic assessment, the White House Council of Economic Advisers (CEA) expects, opens new tab the president's flagship economic bill to shrink future budget shortfalls by $5.5 trillion. The CBO sees the U.S.'s debt to GDP ballooning to nearly 130%, while the CEA has it shrinking to a relatively frugal 94%. If Bessent manages to realise the administration's vision, he will also have earned a statue on Pennsylvania Avenue.
Over the past six months, the outlines of a four-part plan have emerged. The first part is Trump's sweeping tariffs on imports. Economists used to the U.S. championing global free trade were understandably shocked when the president unveiled the levies in April. Yet from a fiscal perspective they are beginning to work. According to, opens new tab Treasury data, customs duties brought in $64 billion in the second quarter of 2025 – nearly $50 billion more than the same period last year – with almost half of that coming in June alone. Over the longer term, trade diversion and re-shoring of manufacturing will doubtless crimp those proceeds. Nevertheless, the bounty lends credence to Bessent's prediction that tariff revenue will top $300 billion in 2025, and to the CEA's prediction that the levies will bring in $2.8 trillion over the next decade.
Part two is even simpler: bet on economic growth. The CBO's baseline budget projections assume U.S. GDP will expand by less than 2% a year. The White House thinks that's a desultory underestimate. The CEA points to the artificial intelligence investment boom, rampant growth of private credit, a promised surge of deregulation, and the dynamic effects of the tax cuts and investment incentives embedded in the OBBBA. It predicts these factors will leave the U.S. economy significantly larger a decade from now than the CBO predicts. The non-partisan Committee for a Responsible Federal Budget accuses, opens new tab the White House of 'fantasy growth assumptions'. Bessent is not deterred. After all, stronger growth narrows the financing gap by $4.7 trillion.
Part three is to force down interest rates and reduce the cost of servicing the public debt. Interest costs are now the U.S. government's second largest expenditure category, running at nearly $1 trillion a year. For months, Trump has assailed Federal Reserve Chair Jerome Powell for what he claims is excessive hawkishness, dubbing him 'Mr. Too Late', a 'major loser', and a 'stubborn mule', and probed replacing Powell before his term expires next May. The president believes the central bank should drop its policy rate to 1%.
Undermining the Fed's inflation-fighting credentials would risk higher longer-term borrowing costs as investors demand a premium to hold U.S. debt. Bessent has a plan to head that off by reducing the Supplementary Leverage Ratio (SLR), which limits the size of U.S. banks' balance sheets relative to their equity capital. Relaxing this rule will enable large lenders to hold more Treasury bonds, offsetting selling by other investors. The Fed is considering the proposal.
These measures inch Bessent closer to meeting the White House's fiscal expectations, but won't get him all the way. That's where the fourth and most exotic part of the plan comes in: the promotion of U.S. dollar-backed stablecoins. The GENIUS Act currently passing through Congress would open the floodgates for cryptocurrencies backed by dollar-denominated assets. A surge in stablecoins and a corresponding boost in demand for U.S. Treasury debt, Bessent believes, opens new tab, 'could lower government borrowing costs and help rein in the national debt'. If the tokens catch on with overseas users the resulting extraterritorial seigniorage will also afford Uncle Sam a new way of monetising the greenback's exorbitant privilege, opens new tab. Citi analysts expect, opens new tab the stablecoin market to balloon to $3.7 trillion by 2030, from about $250 billion today.
Gallatin would recognise the first two parts of Bessent's plan - the exceptional potential of the American economy and the bumper customs revenues it brings. But pressuring financial institutions to hold U.S. government debt and championing monetary innovation go well beyond anything the financial guru ever dreamt of.
They are, however, eerily reminiscent of the infamous 'System' of John Law. In 1715, the Regent of France invited the Scottish professional gambler to cure the stricken superpower of its debt-ridden malaise. Over the next four years he implemented a visionary economic strategy the like of which the world had never seen before, nor has seen since – until now.
The lynchpin of Law's scheme was lockstep monetary and fiscal coordination. He founded France's first public bank and introduced a revolutionary innovation – paper money. Then he reformed the tax system and radically restructured the public debt, convincing investors to hold his novel banknotes instead. The result was that the cost of borrowing plummeted to a previously unheard-of 2%. For a brief moment in early 1720, it seemed France's problems had been solved.
Unfortunately it all unravelled in an epic inflationary boom and bust. Subordinating monetary to fiscal policy while simultaneously reinventing the means of payment itself proved an unstable combination. Law was driven out of France in ignominy and retired back to the casino in Venice. No statue commemorates his genius – just a plain paving stone in a local church, opens new tab.
Is Bessent a 21st-century Gallatin or the reincarnation of John Law? As the Scotsman himself might have put it: 'mesdames et messieurs – faites vos jeux'.
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