Hedge fund legend Stanley Druckenmiller made a rare appearance on CNBC to discuss the debt crisis with Maria Bartiromo, who appeared to keep pace with him step for step.
Mr. Druckenmiller has been talking the debt crisis about the debt crisis in similar terms to other alternative fund managers at all levels. Not only large names such as managed futures legend Ray Dalio who has logically predicted political chaos if the debt crisis is not addressed, but anyone with a mathematical mind recognizes the inevitable.
But it is Druckenmiller who so toughly understands the topic, as was on display in the interview. He noted the market will figure out the debt crisis math and take action long before the real event. Significnatly, Mr. Druckenmiller recognizes the coming entitlement tidal wave that could literally swamp the budget in red ink. Perhaps for this reason he pegged the timing of a bond market implosion in the 4-5 year range. Other projections have put a ten year time horizon in place while my aggressive projection has been in the 3-4 year range. These projections are not just based on the math, but the logical market reaction and likely volatility that might arise.
Solving the problem requires politicians touching third rail issues: reducing spending and increasing revenue. This isn’t just a tough problem it is the toughest problem political leaders will face. And the problem will likely be addressed by markets before the government can no longer support itself.
Government will not likely reach the point where defacto default takes place before the markets react. Problem is, Mr. Druckenmiller notes, is bond market reactions are manipulated. This has been sending the wrong message to political leaders. Now is the time solve the problem. Political leaders need motivation to solve the problem. President Obama’s sequestration was really the wisdom of Soloman in attempting to place a guillotine over the heads of political leaders to compromise. It didn’t work. One might assume had the bond market been giving political leaders the appropriate messages, this moment to “solve the big problem” might not have been squandered.
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