Legendary hedge fund manager and deficit hawk Stanley Druckenmiller reportedly said the current deadlock over the US debt ceiling pales in comparison to the dangers of unchecked future government spending.
As reported in a Bloomberg report, Druckenmiller spoke at the University of Southern California Marshall School of Business on Monday, saying:
The fiscal recklessness of the last decade has been like watching a horror movie unfold.
The situation “looks much worse than I had imagined 10 years ago”, he added.
Stanley Druckenmiller expanded on his thoughts in a follow-up email to Bloomberg, saying that he hopes the US doesn’t default, “but honestly, all this focus on the debt ceiling instead of the future fiscal issue is like sitting on the beach at Santa Monica worrying about whether a 30-foot wave will damage the pier when you know there’s a 200-foot tsunami just 10 miles out.”
The ace investor went on to question the actions of the US Federal Reserve, saying the institution’s easy-money policies over the last decade gave rise to reckless behaviour and spiralling moral hazards in financial markets, government and banks.
At the first signs of trouble, the Fed last month, and in just four days, undid most of the small progress they had made in reducing their balance sheet. This asymmetric Fed response is what feeds the lack of serious structural action in DC from both sides of the aisle.
Per Bloomberg, he went on to say:
Unfortunately, by still owning a large amount of government debt, the Fed continues to create the false illusion that it can help with our fiscal problems.
Market participants are awaiting the Fed’s policy announcement this evening (8:00 CET). According to the FedWatch Tool, traders are factoring in an 83% probability of a 25 basis points hike – down 12% since yesterday’s expectations.
The FOMC meeting comes amidst tumbling banking stocks this week, as reports of potentially devastating US banking insolvencies spread.
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