Speaking on SiriusXM's "The Megyn Kelly Show," Palihapitiya suggested that the current administration's efforts to tackle the U.S. debt are likely to be hampered by the fiscal decisions made under the Biden administration.
Scott Bessent, a billionaire hedge fund manager, assumed the role of Treasury Secretary under President Donald Trump on January 27. His appointment, which received bipartisan support in the Senate, was accompanied by a commitment to usher in a "new economic golden age." However, as reported by the Daily Caller, the Democrats' resistance to Trump's strategy to eliminate government waste has raised doubts about the potential for significant changes in the U.S. budget. Trump's cost-cutting measures are being implemented with assistance from the Department of Government Efficiency.
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Palihapitiya voiced his concerns about the economic predicament the U.S. currently faces, attributing it to the fiscal policies of the Biden administration. He said, "The last couple of years, the Biden administration and specifically Biden and [Janet] Yellen did one thing that I hope no government afterwards ever does, which is they were effectively speculating on rates." He further explained that the Treasury's role is to finance the government through the sale of bonds, the proceeds of which are then redirected to various sectors such as health, social security, and defense.
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According to Palihapitiya, the Biden administration financed government operations using short-term paper, banking on the belief that inflation would remain under control and future interest rates would decline. This would, in theory, allow the government to borrow more cheaply in the future. However, this assumption proved to be significantly flawed. "It turned out that was an enormously incorrect assumption, and they should not have made that decision," Palihapitiya stated.
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Despite claims by former President Biden and his team that the U.S. economy performed well during his tenure, inflation reached a high of 9.1% in June 2022, adversely affecting businesses and consumers. The Federal Reserve, which targets a 2% inflation rate, announced in December 2024 that it would reduce its federal funds target range to 4.25%–4.50%, a decrease from its September target range of 5.25%–5.50%.
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Palihapitiya highlighted the daunting task facing Trump and Bessent, who now have to refinance approximately 25% to 30% of the total U.S. debt, amounting to around 10 trillion dollars, in the next six to nine months. This must be done amidst rising inflation and interest rates. "We're doing it against the backdrop where now inflation is ticking back up, and rates are ticking back up," he said.
The venture capitalist also expressed concerns about the potential impact of the House's budget bill, describing it as a "problem." He explained, "There's the Senate version, which is super-light, and it says let's just deal with border security and the military. Then there's what, sort of, Trump has asked for, which is the House version, which is this, 'one big, beautiful bill.' The problem is those two things are on a collision course, and the big bill may be a little bit too early in the sense that, to exactly your point, we don’t know how bad the situation is."
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Palihapitiya warned of dire consequences for the U.S. economy if Bessent fails to secure favorable borrowing terms in the market. "If Bessent goes into the market and gets clubbed over the head and all of a sudden we have 10 trillion dollars that we have to borrow at five or five and a half percent, I think it’s going to be really bad for the U.S. economy, in which case there will be no choice except to make very deep cuts in a broad-based way," he said.
In an effort to bolster the U.S. economy, President Trump recently unveiled the "Fair and Reciprocal Plan." This initiative aims to rectify long-standing imbalances in international trade and promote fairness across the board.
