A few days ago, a reader wondered about the read-across of recent events for the mountain of cash parked in US money market funds.

“Recent events” meant Scott Bessent’s upsized Treasury buybacks, which’ll be funded either with new Bill issuance or, according to sources who spoke to the mainstream financial media earlier this week, “spare” cash in the TGA.

Bessent’s gambit rekindled the so-called “debasement” trade, with gold and Bitcoin rising and the dollar back-footed, as investors and traders fretted over the prospect that the Fed might get roped into this charade (e.g., via new RMPs if a flood of new Bills causes funding market indigestion). If Bessent taps the TGA, it’s a de facto fiscal expansion, which is obviously dollar negative.

The short answer to the reader question is that there’s no “read-across,” per se, for the $8 trillion or so in sideline cash, most of which is parked in government money funds. Indeed, inflows to money market products go a long way towards explaining why Treasury’s keen to issue at the very front-end — that’s where demand’s strongest, and when the curve’s steep, it’s also where borrowing costs are cheapest for the government.

The (potential) problem isn’t for investors, it’s for the government. The higher Bills’ share of total outstanding debt, the more vexing a sudden increase in short-end yields will be. That’s one reason the expert panel which advises Treasury recommends capping Bills’ share at 20% or so. If you ratchet that up to, say, 30%, then ~a third of your marketable debt’s subject to extreme rollover risk.

For now, with the curve steep and the Fed unlikely to raise rates rapidly, that’s a risk Bessent can safely run. And in doing so, he avoids having to issue more securities with an embedded term premium, which is to say he’s saving taxpayers from paying the cost of America’s fiscal indiscipline.

But, as ever, there’s no free lunch. As discussed here on multiple occasions of late, Bessent’s “twist” has an unmistakable air of gimmickry, and the market knows Treasury’s capacity to cap long-end yields on its own is inherently limited: Bessent can’t conjure new reserves.

If you’re a deep-pocketed, swashbuckling bond vigilante, you know the only person with unlimited firepower is Kevin Warsh. You also know that a Fed which fires up the printing presses to fund Bessent’s buybacks (e.g., with Bill purchases) is a Fed that’s perpetuating a Ponzi scheme, which could be self-defeating if the bad optics overwhelm the impact of the buybacks at the long-end of the curve.

Running down the TGA to fund buybacks could be likewise self-defeating. Mechanically, TGA-funded buybacks would reduce outstanding debt, but they wouldn’t improve America’s fiscal position (you’re canceling your liabilities by running down your assets), and no one’s going to believe the TGA won’t be rebuilt sooner or later with new issuance.

In the meantime — and I alluded to this above — the market could interpret TGA-funded buybacks as a fiscal expansion. Treasury would be writing checks from its account at the Fed, and those checks would be cashed by bond-sellers, whose accounts would be credited with reserves (i.e., cash). So, it’s a liquidity injection funded by the US Treasury. Again, that’s dollar-negative or at least it could be, because it looks like easing.

So, if the question’s whether this masquerade of Scott’s could devalue the dollar itself, the answer’s probably “yes.” But if the question’s actually (read: strictly) about money fund strategy, there’s no straight-line read-across. From a strategic perspective, money funds respond to shifts in net supply and relative appeal of front-end instruments, whether Bills, repo or O/N Fed facilities. In that context, I guess TGA-funded buybacks could cause Bills to richen (less supply versus previous assumptions about how the buybacks would be funded) and money fund assets could rise given that Treasury would be injecting reserves into the system. Those reserves have to go somewhere to earn a return. But I don’t think that’s what the reader was asking.

A more provocative question asks about the ramifications of a permanent TGA reduction for the next debt ceiling deadline. More colloquially: What happens in the event Bessent goes crazy, drains the TGA for buybacks and doesn’t rebuild it before mid-2027?

I think — I assume — that reducing the outstanding debt (i.e., buying back a bond) by writing a check drawn on the TGA gives the government more headroom (i.e., pushes the debt ceiling reckoning date into the future). But if that comes at the cost of a permanent reduction to the TGA, it’s a shell game: You’re giving yourself more room under the ceiling by running down the buffer you’d use to meet your obligations in the event you hit said ceiling and can’t borrow more without an act of Congress.

Presumably, a smaller buffer makes it more difficult to determine the “X-date,” which is anyway a moving target (i.e., hard enough to forecast without a Treasury that comes into a standoff with an empty checking account).

I don’t think that’s on the cards, but it’s worth mentioning because… well, because as Nicolas Maduro can attest, you never know with this administration.