Janet Yellen is behind the “biggest blunder” in the history of America’s Treasury, according to billionaire hedge funder Stanley Druckenmiller.
Druckenmiller—whose decades-long career has seen him build a net worth of more than $6 billion—slammed the Treasury Secretary during an on-stage discussion at last week’s Robin Hood Investors Conference, arguing that Yellen had failed to take advantage of the ultra-low interest rates era.
“When rates were practically zero, every Tom, Dick and Harry in the U.S. refinanced their mortgage… corporations extended [their debt],” he said. “Unfortunately, we had one entity that did not: the U.S. Treasury.”
In 2020, at the height of the COVID-19 pandemic, central banks all over the world cut interest rates as lockdowns and health concerns stifled spending. The U.S. Federal Reserve eased monetary policy so that rates fell to near zero.
Thanks to a post-pandemic surge in consumer demand, labor and production shortages, and Russia’s invasion of Ukraine sparking a global energy crisis, inflation spiraled to its highest level in four decades last year. The Fed, then, has been much more hawkish over the past two years as it battles to tame surging prices, carrying out a series of rate hikes that has brought interest rates to a 22-year high.
Druckenmiller—who was chief investment officer at George Soros’s wealth management firm for more than a decade before setting up Duquesne Capital Management in the 1980s—argued last week that Yellen should have issued more long-dated Treasury bonds when debt was cheap.
“Janet Yellen, I guess because political myopia or whatever, was issuing 2-years at 15 basis points when she could have issued 10-years at 70 basis points or 30-years at 180 basis points,” he said. “I literally think if you go back to Alexander Hamilton, it is the biggest blunder in the history of the Treasury. I have no idea why she has not been called out on this. She has no right to still be in that job.”
A spokesperson for Yellen via the U.S. Treasury Department was not immediately available for comment when contacted outside of usual business hours.
Druckenmiller, who closed Duquesne Capital in 2010 and now manages his money through a family office, warned at the Robin Hood conference that there would be long-term consequences for the current U.S. debt picture.
“When the debt rolls over by 2033, interest expense is going to be 4.5% of GDP if rates are where they are now,” he warned. “By 2043—it sounds like a long time, but it is really not—interest expense as a percentage of GDP will be 7%. That is 144% of all current discretionary spending.”
$1 trillion borrowing
With U.S. fiscal spending reaching unprecedented levels, the U.S. Treasury is expected to borrow more than $1 trillion via short-dated T-bills by the end of 2023 as the government looks to build its cash reserves.
According to the Cato Institute thinktank, federal interest payments doubled between 2015 and 2023, with the government set to pay $640 billion in net interest this year. By some estimates, interest payments will become the government’s single biggest expense by 2051.
Druckenmiller isn’t the only high-profile financier to have sounded the alarm over the U.S. debt picture in recent months.
Back in June, Bridgewater Associates founder Ray Dalio warned America was facing a debt crisis as there may not be enough buyers for the influx of government debt on the market.
Meanwhile, JPMorgan boss Jamie Dimon said earlier this month that “the largest peacetime fiscal deficits ever” could stoke America’s inflation problem and fuel further rate hikes.
