On Halloween 2023, hedge fund manager Stanley Druckenmiller identified what he called the “worst fiscal blunder” in the history of the U.S. Treasury Department. The blunder occurred in the early days of the Biden administration and accelerated the U.S. government’s unsustainable fiscal path.
The link to the video is set to begin with key parts of comments that Druckenmiller made during a wide-ranging discussion with fellow hedge fund manager Paul Tudor Jones at a financial industry conference, in which Druckenmiller spends about three minutes outlining the Treasury Department’s failings and placing the blame for them on top Treasury officials.
Below is an excerpt from Druckenmiller’s analysis.
“Janet Yellen, because of political myopia or whatever, was issuing the two-year note at 15 basis points. She could have issued the 10-year note at 70 basis points and the 30-year note at 180 basis points,” the former hedge fund manager said in a conversation with Paul Tudor Jones at the Robinhood Investors Conference. A clip of the conversation was distributed Monday on X, the social media platform formerly known as Twitter.
“Looking back to the time of Alexander Hamilton, [Yellen’s approach represented] “This is the biggest blunder in the history of the Treasury Department,” Druckenmiller said.
The omission seems even more egregious given that Americans refinanced their mortgages en masse at rock-bottom interest rates and that companies with high credit ratings refinanced their debt, Druckenmiller said.
“I have no idea why she wasn’t called in on this. She has no right to remain in that position.”
Missing a clear opportunity in early 2021 to lock in low interest rates on the huge debt the US government had accumulated at that time was a major blunder, but it was not the end of the administration’s fiscal mismanagement. The costs of this bureaucratic blunder will be felt for years to come, especially given the US government’s continued overspending since then.
cost
Druckenmiller spoke about the long-term damage caused by Janet Yellen’s mistakes.
“Here’s the result, folks. If the debt is carried forward to 2033, with interest rates at current levels, the interest costs will be 4.5% of GDP. By 2043, which sounds like a long time but it’s not – 20 years, the interest costs will be 7% of GDP. That’s 144% of all current discretionary spending,” he said.
According to a 10-year forecast released earlier this year by the Congressional Budget Office, the federal government’s nonpartisan budget agency, annual federal spending is expected to rise from about $6.3 trillion in 2022 to nearly $10 trillion by 2033.
The budget deficit (i.e. federal spending beyond revenues) is projected to exceed $2.8 trillion in 2033, double the $1.38 trillion it was in 2022.
“Interest spending alone accounts for 144 percent of total discretionary spending, so any politician who thinks they’re not going to cut benefits is completely lying,” Druckenmiller said.
This isn’t a theoretical problem that might happen in 10 or 20 years. It’s already a problem in 2024. The Biden administration is already cutting benefits because of this.
Why wait until next Halloween to get really scared?
