Steven Mnuchin warns of inflation risk, 3.5% Treasury yields


(Bloomberg) – Former U.S. Treasury Secretary Steven Mnuchin has warned of the risks of going over the debt ceiling, the Biden administration’s overspending and fears it may fuel inflation further .

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“I am concerned that this is continued inflation, and we could easily end up with 3.5% 10-year Treasuries, which only increases the cost of the national debt and creates budget issues, ”Mnuchin told Bloomberg Virtual Invest Global on Thursday. conference.

Mnuchin did not specify when this could happen. Yields are currently around 1.55% after doubling since last October, but he pointed to rising oil prices as evidence of inflationary pressures and said it was time for the Federal Reserve to normalize monetary policy. .

“There should be a discussion about the appropriate level of national debt and national spending,” he told Bloomberg’s David Westin.

Debt ceiling

Mnuchin did not join six former treasury secretaries who called on Congress to raise the debt ceiling in a letter last month, but made it clear that he supported dealing with the issue to avoid a crisis.

“We cannot let the United States default on its debt,” Mnuchin said.

His remarks came shortly before Senate leaders said they came to an agreement on a deal that avoids any federal default in December. Treasury Secretary Janet Yellen had warned that the government risked defaulting on its financial obligations by Oct. 18 if Congress did not raise or suspend the cap.

Read more: Schumer says deal has been reached to extend debt ceiling until December

Mnuchin said the trillions spent under the Trump administration were in response to the “medical emergency” of the Covid-19 pandemic. “We are no longer in the same medical emergency we were in,” he said.

The good news right now is that the US economy is rebounding, according to Mnuchin, and he supports the bipartisan infrastructure bill. However, he warned that the debt-to-GDP ratio could become “dangerously” excessive if the spending bill envisioned by President Joe Biden passes.

“Casino chips”

Mnuchin, 58, a banker, private equity investor and film producer before being appointed Secretary of the Treasury in the Trump administration, recently returned to investing. Its Liberty Strategic Capital has raised around $ 2.5 billion for private equity investments, with most of the money coming from sovereign wealth funds in the Middle East, including the Saudi Arabia Public Investment Fund, people familiar with the matter said.

Liberty was founded this year with a focus on technology, financial services and fintech, as well as new forms of content, according to a July release announcing a $ 200 million investment in a cybersecurity firm.

He also commented on the risks of stablecoins, saying they should be regulated as the underlying funds are placed in banks with immediate liquidity.

“They shouldn’t be like casino chips,” Mnuchin said. “If you are considering issuing a stablecoin, the real money should be held in a regulated bank, in a trust account, and the people who hold the stablecoins should be able to exchange them for real dollars at any time.”

Read more: Stablecoin Tether becomes Crypto World’s $ 69 billion mystery

(Updates with the status of the debt ceiling talks in the seventh paragraph.)

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