Spending
Bessent put it bluntly: “We do not have a revenue problem in the United States of America. We have a spending problem.”
He pointed out that the federal government is spending 24% to 25% of Gross Domestic Product (GDP)—levels that are more typically associated with crises.
The borrowing capacity of the Treasury, he noted, has been called upon to save the union many times throughout our national history.
Getting control of spending is not just a question of economic prosperity, it is a question of national security. We need to have the ability to borrow more in the future, should another crisis hit.
Bessent recommitted to guiding the administration towards federal deficits that do not exceed 3% of GDP. He also emphasized the urgency of reducing deficit spending in order to support a return to a low inflation environment.
Tariffs
The element of Trump’s economic policy that has perhaps been most controversial is tariffs. Bessent spoke at length about what he anticipated the Trump tariff strategy will look like and how tariffs can be used to advance American interests.
Bessent broke tariffs into three main purposes: (1) remedying unfair trade practices; (2) revenue generation; (3) negotiation tactics.
One of the more interesting points he brought up, which we found highly persuasive, is that tariffs are potentially more useful than sanctions as a tool for foreign policy.
He noted that he shared Trump’s concern that financial sanctions potentially undermine the status of the U.S. dollar as the world’s reserve currency, which he highlighted in his opening remarks remains an absolute priority.
The Biden administration has supported the seizure of Russian financial assets, for example, which has sent shockwaves throughout the world.
Central bankers, especially in emerging markets, are now questioning whether they can rely on investments in U.S. financial assets, like Treasury bonds.
Given the seizure of Russian financial holdings, they are very naturally asking themselves if their own assets could be confiscated to the extent the U.S. has some objection in the future to the behavior of their government.
One of the major reasons gold has soared in recent years is that emerging market central banks are selling U.S. Treasuries and buying gold, because Treasuries are viewed as less reliable. Gold is a non-sovereign financial asset and carries no counterparty risk.
Bessent pointed out that tariffs are a superior economic tool relative to sanctions.
Through strategic application of tariffs, the United States can shape the behavior of foreign powers without incentivizing them to abandon the U.S. dollar and U.S.-led western financial institutions.
Inflation
Many elements of Bessent’s testimony touched on the inflation problem and the urgency of addressing it. A subtle but important point he made (and one which does not regularly surface in public discourse) is that inflation hits different parts of the population differently.
Bessent noted that the basket of goods used to calculate overall inflation rates differs from the basket of goods that would be relevant to the bottom half of wage earners. His focus, therefore, is on solving inflation for the people who bear the burden the hardest.
Bessent may be a Yale-educated, globe-trotting money manager, but, as he explained to the Senators, he came from humble circumstances in South Carolina.
He shares Trump’s populist economic vision. He argued that it was now time to shift the policy focus from what works for Wall Street to what works for Main Street.
Bessent described inflation as “one of the great killers for working families.”
China
With respect to working families, he also noted that labor’s share of national income fell from 69% to 60% over the past 20 years. He attributed this directly to China’s rise in the manufacturing sector.
Bessent described the Chinese economy as currently being in a state of recession, if not depression. Rather than doing what it needs to do to fix its internally “imbalanced” economy, China wants to export its way out of its economic problems at the expense of American workers.
He also noted that China uses its trade surpluses to fund its military expansion. Once again, Bessent displayed his understanding of the indirect but very real relationship between economic policy and national security.
Energy dominance
Bessent repeatedly advocated for policies that will lead to substantial increases in U.S. energy production, which he justified on multiple levels.
More domestic energy production would not only help with inflation, it gives the U.S. greater bargaining power with respect to its adversaries.
Bessent does not want just energy independence—but energy dominance. If we produce more oil and gas domestically, we have more flexibility to sanction the output of other countries, like Iran and Russia.
“Make Iran Poor Again” was his proposed tagline for managing Iran. He clarified that this was focused on the Iranian government, not the people.
The main idea is that the stronger the U.S. becomes with respect to energy markets, the less careful it needs to be in challenging energy-rich adversaries and the more room the U.S. has to maneuver in foreign policy.
Entitlements
The topic of entitlement programs like Social Security and Medicare came up several times.
Bessent was keen to defend Trump’s position that these programs “would not be touched.” He emphasized that these are genuine long-term problems but that we do need to prioritize the short-term federal deficit problem.
Interestingly, he at one point revealed an open-mindedness to using the “asset side” of the U.S. balance sheet to solve some of these longer term fiscal problems.
There was not too much elaboration, but this suggests the possibility of liberating some of the vast physical assets of the federal government as a potential method of addressing long-term liabilities.
Central Bank Digital Currency
Bessent was asked if supported the creation of a Central Bank Digital Currency (CBDC). This is an area of focus for many Americans, who are concerned about potential privacy violations and infringements of their economic liberty.
Bessent clarified that he would not support the creation of a CBDC.
He explained that other countries are going down this path because they lack investable financial instruments (like bonds) that are denominated in their domestic currency.
As a result, they are creating CBDCs so other countries have access to a reserve asset that is denominated in their currency (which presumably would facilitate trade and investment).
Because the U.S. offers a wide array of dollar-denominated financial assets, it therefore has no need to introduce a CBDC.
The right choice
The hearing became quite personal when Bessent was asked why he had previously not engaged in public service.
He explained that although he has been involved with many charitable and educational institutions throughout his career, he has indeed never served in government.
He further explained that as a teenager, he had applied to the Naval Academy at Annapolis but was denied because of his “sexual preference.” He was also later denied an opportunity in the foreign service for the same reason.
With his husband and their two young children behind him at the hearing, Bessent praised Donald Trump for not caring at all about his sexual preference in giving him this opportunity to serve his country.
Bessent believes he was chosen because Trump felt he was the best person to implement his vision for America’s economic future. Today’s performance should give Trump, if not all Americans, confidence that he made the right decision.
