In November, President-elect Donald Trump tapped Scott Bessent, a hedge fund investor, as his pick for Treasury secretary, a role that will advise the incoming President on key economic policies. Bessent stood out from a list of high-profile competitors on Wall Street that included Apollo CEO Marc Rowan, Cantor Fitzgerald CEO Howard Lutnick and JPMorgan Chase's Jamie Dimon.
Bessent, 62, will replace Janet Yellen as Treasury secretary, pending Senate confirmation. Unlike Yellen, who rose to fame through academic halls of fame and public service roles including chair of the Federal Reserve from 2014 to 2018, Bessent made his name in the private sector, notably serving as chief investment officer at George Soros' family office from 2011 to in 2011. 2015 before starting his own fund, Key Square Group.
In 1992, while heading the Soros Fund Management London Office, Bessent used the hedge fund to trade $10 billion against the weak British pound, eventually forcing the Bank of England, the UK's central bank, to intervene to support this money. In another high-profile trade in 2013, he made a $1 billion profit in three months trading the Japanese yen.
What does the secretary of the Ministry of Finance do?
The Secretary of the Treasury is one of the few key economic advisors to the President. Other important advisory roles within the executive branch include the secretary of commerce, the secretary of labor and the chairman of the Federal Reserve. Each includes distinct and complementary economic policy commitments.
The job of the secretary of the Treasury Department is similar to that of the CFO, who is generally responsible for collecting money and making payments on behalf of the federal government. This includes enforcing tax and taxation laws, running the Internal Revenue Service, managing the finances of government agencies and servicing the national debt. The Treasury Secretary also oversees treasury operations, including the production of coins and currency, and represents the US at the International Monetary Fund and the World Bank.
In times of financial crisis, investors often look to the Secretary of the Treasury for guidance. In January 2023, with Congress deadlocked over the inability to pass legislation that would raise the debt ceiling, putting the US at risk of defaulting on its debt for the first time, Yellen calmed the markets by taking extraordinary measures, including halting reinvestment. of government securities held by a government employee's retirement fund that is classified as a credit crunch. As New School economics professor Steven Pressman explained at the time, “This is essentially money the government owes itself.” By doing this, Yellen temporarily lowered the debt ceiling, opening up room to fund other federal activities.
During the 2008 Financial Crisis, President George W. Bush's Treasury Secretary Henry Paulson was instrumental in writing the $700 billion bailout plan. He told the Senate leaders that the government needs money the size of a bazooka.
“If you have a bazooka, and people know you have it, you may not need to take it out,” he said. In fact, Paulson asserted that, if the markets see that the Treasury Department has the money to bail out Fannie Mae and Freddie Mac if the situation worsens, investors will hope to keep their money in the financial system, thus restoring trust in financial institutions. without using aid money.
What's in Bessent's playbook?
Bessent has high ambitions for his future role, saying he wants to borrow from former Japanese Prime Minister Shinzo Abe's “Three Arrows” approach to help Japan recover from a decades-long recession. In a 2013 speech, Abe described the “three arrows” as “bold fiscal policy, flexible fiscal policy, and a growth strategy that encourages private sector investment.”
Bessent's version will also include a “3-3-3” plan: increasing GDP growth to 3 percent; reduce the budget deficit to 3 percent of GDP; and increase US oil production to three million barrels per day. With expectations that US economic growth could slow from 2.8 percent to 2.2 percent by 2025, Bessent's strategy aims to help the economy reach its maximum potential. Although financial and energy policies are beyond his domain, Bessent may have a strong influence on policy makers to achieve these goals.
