Treasury Secretary Scott Bessent just issued a stark warning: America’s economic foundation is weaker than it looks.

In a speech to financial leaders in New York, he cautioned that despite low unemployment and a resilient stock market, major cracks are forming. Debt is spiraling, consumer spending is fading, and rising interest rates are squeezing businesses. 

Add in an aggressive push for privatization, and Bessent says the coming months could be turbulent.

Economic Data Looks Strong But The Cracks Are Showing

On the surface, everything seems fine. The latest GDP report shows 1.2% growth for Q1 2025, unemployment remains low at 3.8%, and inflation has eased to 3.1% from the painful highs of 2023. But dig deeper, and the warning signs are flashing red.

“Underneath the surface, the economy is brittle,” Bessent said. “We have a high-debt environment, interest rates that remain restrictive, and consumer spending that is slowing faster than anticipated.”

Corporate debt has exploded past $12 trillion, and with borrowing costs at decade-high levels, businesses are struggling to refinance. Defaults on corporate bonds are rising. Banks, already cautious after last year’s liquidity crisis, are tightening lending, further choking off credit. 

Meanwhile, retail sales slipped 0.9% in January, and February numbers are on track for a similar drop, signaling consumers are pulling back.

Will Privatization Save The Economy Or Make It Worse?

The administration is doubling down on privatization to rein in government spending. Agencies are being downsized, infrastructure projects are shifting to private investment, and services once managed by the public sector like energy and transportation are now seeing an influx of corporate control.

Supporters say this will increase efficiency, cut bureaucracy, and bring in much-needed investment. But critics warn it could lead to higher costs for essential services, creating a system where profitability takes precedence over public access.

After Bessent’s comments, the market had a mixed reaction. The Dow Jones Industrial Average slid 1.3%, reflecting fears over economic fragility. The S&P 500 was flat, but private infrastructure firms and financial services stocks surged as investors bet on the privatization boom.

The bond market is showing signs of stress. Yields on 10-year Treasury bonds spiked to 4.5%, a level not seen in months, as investors demanded higher returns to offset rising risks. 

Mortgage rates, already hovering around 7%, are likely to climb further if bond yields continue their rise, putting more pressure on the already fragile housing market.

The effects of all this will not hit overnight but they are coming. If consumer spending keeps dropping, businesses will start cutting jobs. Higher borrowing costs will make homeownership even harder, pushing more Americans out of the housing market. 

And if privatization leads to higher costs for essential services, everyday budgets will feel an even tighter squeeze.

The administration is betting that private-sector expansion will create more jobs and innovation. But if Bessent is right, the economy isn’t as resilient as it looks. 

The next few months will tell us if this is just another slowdown or the start of something much worse