Druckenmiller Comes Out

When you said goodbye
You were on the run
Tryin' to get away from the things you'd done
Now you're back again
And you're feeling strange
So much has happened, but nothing has changed
--Glenn Frey

Legendary (and now retired) fund manager Stanley Druckenmiller has generally shunned the public spotlight. However, he has "come out" on the issue of entitlements and government spending and how they are breaking the country. He says that current fiscal and monetary policies amount to robbing the young generation.

Druckenmiller recently co-wrote this WSJ editorial with a Harlem social entrepreneur and former Fed governor, and then sat for a rare CNBC interview with Maria.

His message is that escalating entitlements constitute generational theft. To live better today, the older generation is consuming resources that the younger generation will have to pay back. Because this will compromise standard of living of the young, what is going on right now amounts to robbing from the young to subsidize the lifestyles of the old.

From where I sit, slavery is the more appropriate term. Robbery is usually a one-off event, while slavery is the ongoing confiscation of an individual's production. When we borrow more than our income to elevate living standards today, the producers of the future become the slaves--forced to surrender a portion of their production to pay our debts.

If I borrow money with the promise to pay it back during my lifetime of production, then I am entering into a contract of voluntary servitude. But if I borrow money under the auspices that someone other than myself will have to produce in order to pay back the resources that I consume, then I am contracting someone else into conditions of involuntary servitude. I am enslaving someone else.

As such, government debt markets resemble slave markets.

Druckenmiller observes that the problem is compounded by central banks that are buying interest rates down across the world. This has deadened market signals that would otherwise alert us that current policies are problematic. He notes that he can't think of any political system in the world where policymakers have not substantially acted until interest rates head north.

But intervention in the money markets won't restrain interest rates forever. "Eventually the hamster can't move on the wheel anymore."

Moreover, when exactly interest rate markets decide to get concerned is not knowable. But the change is often sudden and without warning. "The bond market," Druckenmiller observes, "is a funny thing. In Greece the bond market was perfectly fine until February of 2010. Not moving, not doing anything. And then in two weeks it was over."

Druckenmiller is coming out on this issue thinking that we still have time to be proactive and reverse course ahead of a cataclysmic wipe out.

Surely Druckenmiller realizes that, human nature being what it is, such a proactive reversal is a long shot.