TurboTax Timmy’s Fearmongering Is Nonsense
TurboTax Timmy Geithner is going into overdrive trying to scare people over the consequences of not raising the debt ceiling, going so far as to predict a double-dip recession if the ceiling isn’t raised. Well, Stanley Druckenmiller, the famed hedge fund manager and investor (who has so much money that TurboTax would crash if he tried to use it), in the Weekend Interview with the WSJ has a bit of a different view:
‘A financial crisis is surely going to happen as big or bigger than the one we had in 2008 if we continue to behave the way we’re behaving,” says Stanley Druckenmiller, the legendary investor and onetime fund manager for George Soros. Is this another warning from Wall Street that Congress must immediately raise the federal debt limit to prevent the end of civilization?
No—Mr. Druckenmiller has heard enough of such “clamor and hyperbole.” The grave danger he sees is that politicians might give the government authority to borrow beyond the current limit of $14.3 trillion without any conditions to control spending.
When people speak of the bond market, they’re speaking of guys like Druckenmiller, people or institutions that can buy hundreds of millions of dollars in Treasuries. And Druckenmiller is telling us that the bond market is smart enough to distinguish between technical default and insolvency, which is exactly what Brian Wesbury has been saying and reiterated at the Tea Party meeting in Washington DC last week on the topic. The United States’s creditworthiness is deteriorating rapidly and investors are worried that feckless politicians will do nothing about it. That is the catastrophic risk that we face, that the problem goes unaddressed and markets react violently as the US hurtles towards the point of no return. And as another financial sage (sadly, one with significantly less dough than Druckenmiller) has pointed out, as we’ve seen in Greece and Portugal, when the bond marker lets the bottom fall out it is pretty nasty. Boehner & Co. must simply not cave on the debt ceiling issue, it is the single most important thing they can do for the long term health of the economy and the country; and they just happen to have public opinion on their side. This is a rare confluence of events, a hinge of history. I pray they don’t blow it.Tags: tim geithner