Druckenmiller Digs In on Criticism of Yellen, Disputes Her Math


(Bloomberg) — Billionaire investor Stanley Druckenmiller isn’t letting up in his verbal sparring with Treasury Secretary Janet Yellen, saying her department is defending itself with faulty arithmetic.

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It began with a critique of Yellen that her department had made “the biggest blunder in history” by not taking advantage of near-zero interest rates to sell more longer-term bonds. Then, Yellen pushed back at the criticism Thursday, saying the Treasury was pushing out maturities to the longest in decades. And on Friday, Druckenmiller weighed in again, saying the Treasury’s computations omitted critical borrowing on the Federal Reserve’s balance sheet.

“The only debt that is relevant to the US taxpayer is consolidated US government debt,” Druckenmiller said in an interview. “I am surprised that the Treasury secretary has chosen to exclude $8 trillion on the Fed balance sheet that is paying overnight rates in the repo market. In determining policy, it makes no sense for Treasury to exclude it from their calculations.”

The dispute pits two of the highest-profile names in US financial circles: Druckenmiller, 70, is a former investor for George Soros who now runs his Duquesne family office, while Yellen, 77, is an economist and former Federal Reserve chair and a pillar of the Biden administration’s relationship with Wall Street.

Ironically, the backdrop for their exchanges has been a period of huge moves down in interest rates, with yields on 10-year Treasuries headed for their biggest weekly decline since March. On Wednesday, the Treasury’s quarterly refunding plan showed a smaller increase than investors expected, spurring hope that a glut of government debt would soon abate.

The Druckenmiller-Yellen tit-for-tat began last week with a video clip in which Druckenmiller, speaking in an interview with hedge fund manager Paul Tudor Jones at a conference, leveled his accusation about a missed opportunity to lower debt costs. Yellen’s riposte came in a CNN interview.

“I disagree with that assessment,” she told the network. The agency has been pushing out the average maturity of its bond portfolio and “in fact, at present, the duration of the portfolio is about the longest it has been in decades.”

Yellen said in the interview that “we have found in regular discussions with Wall Street professionals having regular and predictable issuance of maturities across the spectrum — both long, intermediate and short — is critical to having deep and liquid markets for US Treasuries, which is critical to lowering our costs over time.”

“And that is exactly what we’ve been doing,” she added.

The average maturity of US government marketable debt declined last quarter to 72 months, from 74 months, Treasury Department data show. The maturity had held at 74 months since reaching that mark in the third quarter of last year, which was the highest level on record in data going back to 1980.

Those are the figures that drew Druckenmiller’s fresh objections on Friday. He also said the Treasury had failed to refinance its obligations in the way that US mortgage holders and corporate borrowers did when rates were low.

“Look at the contrast with what US households did,” he said. Average mortgage maturities went from 3 1/2 to eight years as homeowners eased their payment burdens, he said, and “they’re not getting hit with all the interest rate increases now, but Treasury is.”

Druckenmiller said the real challenge for US fiscal policy is the ballooning federal debt — the annual deficit roughly doubled in the fiscal year that ended Sept. 30, effectively reaching $2.02 trillion.

“We have a big problem,” he said. “And ultimately that’s up to Congress.”

–With assistance from Laura Curtis.

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