Brad Sherman Questions Impact of Less Liquid or More Expensive US Treasuries

National Debt and Reserve Currency Status

• 📉 The US faces a fundamental problem of too much national debt, which has tripled since the 2008 fiscal crisis, exacerbated by tax cuts and COVID-era spending.
• 🌍 The US dollar's role as the world's reserve currency is crucial, with other entities like the Euro, Yuan, and crypto seeking to challenge this status.
• ⚠️ Stablecoins are identified as a threat to the dollar's dominance by enabling secrecy for illicit activities, potentially undermining the US's ability to enforce fiscal laws.

Banking Regulations and Treasury Market

• 🏦 A recent Federal Reserve change to Global Systemically Important Banks (G-SIBs) leverage requirements effectively decreased their required capital, prompting questions about applying similar changes to smaller banks.
• 💡 There's a concern that current regulations, particularly leverage capital requirements, disincentivize banks from holding low-risk assets like US Treasuries.
• 📈 If US Treasuries become less liquid or more expensive, it could lead to higher interest rates across the economy, affecting mortgages, car loans, and general borrowing costs.
• ⚠️ Dealers may increase rates charged to hedge funds for treasuries, potentially leading hedge funds to either increase risk or stop buying treasuries altogether.
• 🧐 It is considered absurd to regulate banks in a way that treats holding a corporate bond as equally risky as holding a treasury.