US Treasury debt strategy drives gradual currency debasement regime

The US is operating in a 'fiscal dominance' regime where government debt levels constrain monetary policy. The Treasury is financing multi-trillion dollar deficits by leaning heavily on the short end of the curve, issuing T-bills rather than longer-term bonds. With over $13 trillion in debt requiring refinancing by the end of 2027 and $2 trillion in annual deficits, the government is effectively conducting a 'quasi-twist' operation, buying back longer-dated securities at a rate of approximately $5-6 billion per week while issuing short-term debt. This strategy, described by Treasury Secretary Scott Bessent as a quasi-twist, aims to lower volatility and inject liquidity.

The combination of Fed T-bill purchases and deficit spending creates a gradual debasement of the currency. James Lavish argues that the US is in a long-term debasement regime where the Treasury's need to finance deficits overrides the Fed's ability to tighten monetary policy aggressively. He views this as a long-term positive for non-yielding assets like Bitcoin and gold. Lavish stated, "We're on a long-term debasement regime. I think the Fed and the Treasury want to avoid the situation that we got into in 2021, 2022, where they had to print over $5 trillion."