The “Worst Fiscal Blunder” in U.S. Treasury History

On Halloween 2023, hedge fund manager Stanley Druckenmiller identified what he called the “worst fiscal blunder” in the history of the U.S. Treasury. That blunder occurred in the early months of the Biden administration and accelerated the U.S. government’s unsustainable fiscal path.

The video below is cued to start at a key point in Druckenmiller’s comments, which he made as part of a wide-ranging discussion with his fellow hedge fund manager Paul Tudor Jones at a finance industry conference. Druckenmiller takes about three minutes to describe the Treasury department’s blunder, the blame for which he lays at the feet of the Treasury’s top bureaucrat.

Here’s a partial transcript of Druckenmiller’s analysis:

“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,” the former hedge-fund manager said during a conversation with Paul Tudor Jones at the Robin Hood Investors Conference, a clip of which circulated Monday on X, the social-media platform formerly known as Twitter.

“I literally think if you go back to Alexander Hamilton, [Yellen’s approach represented] the biggest blunder in the history of the Treasury,” Druckenmiller said.

This omission seems even more egregious, according to Druckenmiller, considering that Americans refinanced their home loans at rock-bottom mortgage rates en masse, and corporations with sturdy credit ratings refinanced their debt.

“I have no idea why she hasn’t been called on this. She has no right to still be in that job.”

Missing that obvious opportunity in early 2021 to lock in low interest rates for the large amount of debt the U.S. government had accumulated at that point in time is a massive blunder. But the administration’s fiscal mismanagement didn’t stop there. The costs of that bureaucratic failure will be felt for years to come. All the more so because the U.S. government has been on an excessive spending binge in the years since.

The Costs

Druckenmiller laid out the long-running costs of Janet Yellen’s blunder:

“Here’s the consequences, folks. When the debt rolls over by 2033, interest expense is going to be 4.5% of GDP if rates are where they are now. By 2043 — it sounds like a long time but it is really not; it is 20 years — interest expense as a percentage of GDP will be 7%. That is 144% of all current discretionary spending,” he said.

According to 10-year projections released earlier this year by the Congressional Budget Office, the federal government’s nonpartisan budget agency, annual federal outlays are expected to swell to nearly $10 trillion by 2033 compared with nearly $6.3 trillion spent in 2022.

It is projected that in 2033 the deficit — that is, federal expenditures in excess of revenue — will be more than $2.8 trillion, twice the $1.38 trillion from 2022.

“Interest expense alone will be 144% of all discretionary spending, so the politicians who are telling you, and who think they are not going to cut entitlements, it is just an outright lie,” Druckenmiller said.

That’s not a theoretical problem that might occur some ten or twenty years from now. It’s already a problem in 2024. Because of this, the Biden administration is already cutting entitlements.

Who needs to wait for next Halloween to get properly scared?