Stanley Druckenmiller doesn’t do a lot of press, especially since he wound down his hedge fund last summer having found very little worth investing in according to his farewell letter. He is one of the legends of the game and so always worth listening to if and when he decides to grant the press access.
The Wall Street Journal got him to talk about his views for their Weekend Interview. There’s one piece that jumped out at me and then I’ll send you over…
Some have argued that since investors are still willing to lend to the Treasury at very low rates, the government’s financial future can’t really be that bad. “Complete nonsense,” Mr. Druckenmiller responds. “It’s not a free market. It’s not a clean market.” The Federal Reserve is doing much of the buying of Treasury bonds lately through its “quantitative easing” (QE) program, he points out. “The market isn’t saying anything about the future. It’s saying there’s a phony buyer of $19 billion of Treasurys a week.”
Warming to the topic, he asks, “When do you generally get action from governments? When their bond market blows up.” But that isn’t happening now, he says, because the Fed is “aiding and abetting” the politicians’ “reckless behavior.”
Druckenmiller would prefer a technical default now, as painful as that might be, if it meant that we would really clean house on entitlement spending and fiscal recklessness. He’d rather see Treasury bondholders get their interest payment 6 days late and have that momentary panic be the catalyst for a cleansing that helps us 6 to 7 years down the road.
This is a “take your medicine now” admonishment from the man who helped Soros nearly break the Bank of England in the early 90’s.
Head over for the whole thing, it’s important stuff.