‘We’re In A Financial Crisis’: Treasury Readies $1 Trillion Warchest | Danny Moses

**Danny Moses** (0:00)
I mean, we're in a financial crisis. So, if you didn't know anything else, and you saw these announcements over the last month, you would say, are we in a financial crisis? That is a crisis, David. I think this is seatbelt time. But why are they doing that? You know what? While there's only so much balance sheet and competition with treasuries and corporates that are out there, that now we're gonna securitize those assets.

**David Lin** (0:22)
It's Monday, August 24th, and Treasury Secretary Scott Besson just made a bombshell announcement. Apparently, the Treasury is sitting on nearly $1 trillion for bond buybacks. And according to Besson, this morning we learned that the Treasury is ready to spend it. Two senior officials told CNBC that $950 billion of the Treasury general account is considered to be available to fund bond buybacks. And this comes after last week's announcement to double bond buybacks, which sent yields lower for only one day. Our next guest says we're already in a financial crisis because the government won't take drastic measures for intervention unless a crisis is happening now already or looming. They just won't tell us straight to our faces. So on the announcement, the 10-year yield fell four basis points while the 30-year dropped 4.5 basis points. Gold is up more than 1% on a weaker dollar and Save Haven demand and Bitcoin jumped 3% extending its week-long rally and is just shy of $80,000 as we film right now since August 19th, the day the Treasury first made its surprise bond buyback announcement. Bitcoin is up 25%, the largest move this year. However, the S&P 500 is down, led by a sell-off in semiconductor stocks.
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During the events leading up to the 2008 financial crisis, he worked at Front Point Partners. Danny and his colleagues were featured in Michael Lewis' book The Big Short and the Hollywood blockbuster of the same name. So the question is, the big question is today, can markets survive whatever financial crisis the government is trying to prevent right now? Danny, welcome back.

**Danny Moses** (2:52)
Thanks for having me, David. Great to be here.

**David Lin** (2:53)
Before we talk about today's announcement and what Scott Besson wants to do with the Treasury general account, let's talk about why they're doing any of this to begin with. Apparently, the Treasury has decided it's drawing a line in the sand right below 5% at the 10 year. Now, this isn't a number we haven't seen before in history. And in fact, the 10 year briefly went to 5% in 2023
But the question is, why are they so concerned now that they are willing to use $1 trillion, we're up to $1 trillion if needed, because that's what's available in the Treasury General account, to intervene and backstop bond sales and stop the long end of the curve from going up even further. Why 5%?

**Danny Moses** (3:43)
Well, let's back up a little bit. And I've talked about Bank of Japan a lot, and it only matters every so often, you know, with the yen weakening to where it has been. So if you go back to kind of Camp David several weeks ago, where Besson on a notepad had buy Japanese yen, invisible site that might have implanted, not sure.
The yen being weak is a problem, obviously, for Japan. But the reason that prevents a bigger problem for us is they're the largest foreign holder of US. Treasuries, around $1.2 trillion, and they have been selling. Because they would need to sell that, obviously, to finance themselves. So that's kind of back up to kind of where this kind of started. If you go to the last Fed meeting at the end of July, when we didn't raise rates, and leading up maybe a couple weeks before we thought we were, then leading into it, it was 30% chance we weren't. Remember, Bank of Japan always follows us 24 to 36 hours later, right?