(Bloomberg) -- Goldman Sachs Group Inc. President John Waldron warned that out-of-control spending could expose the US to serious risk in the event of a political crisis.

“The thing that I worry about is the confluence of a political crisis and a lot of leverage in the Treasury system,” Waldron said at an event organized by Semafor. “The more leverage we have, the riskier we make it. So I wish Washington would get its spending under control.”

Waldron drew comparisons to the market jolts from the pension-fund turmoil that rocked the United Kingdom in 2022. UK pension funds used a strategy known as liability-driven investment, or LDI, to protect themselves from falling government bond yields. That move backfired when the government of Prime Minister Liz Truss announced unfunded tax cuts and increased state funding — sending yields soaring, and exposed a major risk at the heart of the country’s financial system.

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“Think about the LDI situation that happened in the UK. That was really precipitated by a political crisis,” Waldron said. “It was a Truss budget at that moment that didn’t have a lot of credibility. And then there was a bit of a run on Gilts. And then we uncovered in the run on Gilts that there was a levered structure in the Gilts.”

A version of that turmoil could emerge in the US if there’s a political crisis, Waldron said. “So I think we should worry about that,” he added.

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The US must avoid taking the reserve currency position for granted, Waldron said, noting that US households have been picking up slack from the lack of foreign buyers like the Chinese who have historically bought Treasuries. He noted that there’s an assumption that growing wealth in the US will continue to pile into Treasuries because people are comfortable there’s no alternative to the dollar for quite some time to come.

“You’re making a pretty big bet that will continue to be the case,” Waldron said.

--With assistance from Sridhar Natarajan.

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