Stanley Druckenmiller, a famous hedge fund manager who helped break the Bank of England, said the U.S. is caught up in the biggest economic crisis of the last 100 years that has been largely caused by an asset bubble and inflation.
“This is the biggest bubble I’ve seen in my career,” Druckenmiller – popularly known as Druck – told CNBC’s morning show host Stephanie Ruhle during a talk about President Joe Biden’s multi-trillion-dollar two-part infrastructure deal.
“We have crypto craze, we have SPACS, we have booming housing prices, we have these things called NFTs, and equity prices as a percentage of GDP are at an all-time high. And as you also know, inflation is at a 30-year high,” Druckenmiller said.
A billionaire and a widely-respected hedge fund manager, Druckenmiller helped George Soros make a billion dollars by betting against the British pound when it was tied to the Deutschmark as part of the European Exchange Rate Mechanism (ERM) in 1992.
They shorted the pound when they bet that the Bank of England did not have enough foreign currency reserves with which to buy enough sterling to prop up the currency and that raising interest rates would be politically unsustainable. Their prediction came to pass and they made millions out of it.
He went on to sound an alarm over Senate Democrats’ $3.5 trillion infrastructure proposal, warning that it could provoke a massive rise in inflation.
“We have a very hot economy and very hot inflation,” he said — a recipe for a perfect bubble burst and economic meltdown.
“What are we going to get out of this? You’re going to get a sugar high, the higher the inflation, then an economic bust.”
This is not the first time the billionaire investor has warned that U.S. markets are caught up in a raging mania fostered by trillions of dollars in government spending. He is also not alone in thingking the U.S. is in the largest bubble ever.
“Sometimes I am right. Sometimes I am wrong, but every bust I had ever seen was proceeded by an asset bubble generally set up by too loose policy…” Druck said.
He argued that the growing retail exposure to equities means a market crash will impact Main Street even more quickly this time around than it did in previous bursts.
The U.S. has already spent $6 trillion in stimulus to battle the effects of the covid-19 pandemic on businesses and households.
Druck said the inability of some companies to hire low-wage workers and the increasing rate of inflation are the by-products of this stimulus.
Any further stimulus spending that the Dems are proposing is only an attempt to fix a problem that does not exist, according to Druck.
“I don’t think we need to do anything, we need to take a step back, take a breath and see where we are. I think any net spending is a problem. I love a lot of stuff in the infrastructure plan, particularly the investments in the digital infrastructure. There’s a lot of other stuff I’m OK with.”