Submitted by Taps Coogan on the 16th of November 2018 to The Sounding Line.

Legendary Investor Stanley Druckenmiller recently gave a rare and extended interview to Real Vision to discuss his career and outlook on today’s markets, as well as to issue a strong critique of the past several years of monetary policy.

Druckenmiller:

“My great hope is… we get out of this ridiculous monetary regime and when we do, things start to make sense again…. I have, maybe to a fault, been a critic of this monetary regime, which is very academically run, and I’ve always thought that part of Capitalism was you’ve got to have a hurdle rate to investment. You can’t just go on these silly inflation ‘this and that.’ That if you are going to make an investment, it should have some hurdle rate and I think taking the hurdle rate away from investments and all this stuff is causing a lot of (illogical market correlations). I don’t know that, but that’s my intuition, and I am hoping that… we go back to some sort of normal regime sometime in the next 20 years… but I don’t know… I just don’t know. Like everything else, I am open minded on it. 

Question:

“If you were running the Fed, what would you do and I”ll give you the two challenges…? If you don’t raise rates, asset prices continue to build… and the way you cause a deflation is to deflate an asset bubble that went too high… On the other hand, because of the enormous rise in debt, $247 trillion, up 11% in the last year, three times global GDP, a lot of companies and countries would be bankrupt if interest rates go too high. Plus all the mal-investment that took place as funds were forced to lend money at ridiculous rates. So how do we regularize?”

Druckenmiller:

“This is really a problem… but in every private talk I have given for the last five years, I’ve answered this question the same way, but it’s a much much much more challenging situation than five years ago, for the reasons you cite…. The reason the debt has exploded, again, there’s no hurdle rate for investment and when you can borrow money at zero, of course debt is going to explode… We have this massive debt problem. If we don’t normalize, it’s going to accelerate and cause a bigger problem down the road. If we do normalize, we are going to have a problem and unfortunately we are going to have a much bigger problem than we would have had if we had normalized four or five years ago. So I am going to give you the same answer that I gave at a dinner for or five years ago…, I would raise rates every meeting as long as I could and the minute you got substantial disruption, I would back off. The sad thing is that since I made that statement… we’ve had these just rip-roaring markets and what I was saying is just sneak one in every time you can… and they’ve passed up on so many golden opportunities. But the problem now is… the debt is so much higher, particularly in emerging markets, than it was five years ago, you’re not going to be able to raise that much more and we are already starting to see the consequences.”

There is much more to the interview, so enjoy it above,

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