Kerby Anderson

Henry Paulson served as U.S. Treasury Secretary when we had the Great Financial Crash in 2008. He was not just a passive observer but was the architect of the TARP program that was able to bail out some of the banks.

He made a statement the other day that is worth repeating. During an interview on Bloomberg he warned, “I think we need an emergency break-the-glass plan, which is targeted and short-term on the shelf so it’s ready to go when it, when we hit the wall.” Let me break down what he said.

What is the emergency? He is talking about a financial crash. In another part of the interview, he doesn’t say we need a plan “if” a crash would occur. He merely says we can’t be precise about “when” it will occur. The crash seems inevitable, that’s why we need to write the plan. And I might mention that very same day, the Treasury bought back $15 trillion of their own debt in one single operation.

What does it mean to hit the wall? In the interview, he says hitting the wall will be vicious. He is talking about a crash that occurs when we cannot fund our debt. Each year, the U.S. Treasury needs to refinance about $7-8 trillion of maturing debt, and it also must finance an additional $2 trillion of new debt because of our fiscal deficits. The interest of the debt is already larger than the defense department.

When the former Secretary of the Treasury warns us about a coming crash and encourages government leaders to put together a break-the-glass emergency plan, we should listen to what he said and take appropriate action. His comments deserved more attention than they received.