Paulson Warns of U.S. Debt Risk to Treasury Bonds

Former U.S. Treasury Secretary Henry Paulson warned on Friday that the nation's mounting debt burden could trigger a sudden collapse in demand for Treasury bonds, urging policymakers to prepare an emergency contingency plan to mitigate the fallout.

In an interview on Bloomberg Television's Wall Street Week with David Westin, Paulson, who led the Treasury Department from 2006 to 2009 and oversaw the 700 billion dollar Troubled Asset Relief Program during the 2008 financial crisis, described the risk as governed by the "law of economic gravity." He likened a potential breakdown to hitting a wall unpredictably, with vicious effects on the financial system. "We need an emergency break-the-glass plan, which is targeted and short-term, on the shelf, so it's ready to go when we hit the wall," Paulson said. "When we hit it, it will be vicious, so we have to prepare for that eventuality."

The U.S. national debt has ballooned from about 10 trillion dollars in 2008 to more than 35 trillion dollars today, with the debt-to-GDP ratio approaching 100 percent and the annual budget deficit averaging around 6 percent of gross domestic product over the past three years. Economists have highlighted...