In an interview this morning on CNBC’s “Squawk Box,” legendary investor Stanley Druckenmiller gave his view on the dollar’s stance as the world reserve currency and the current U.S. fiscal and monetary policy. Druckenmiller did not hold back his views on what the massive amounts of liquidity meant for the bond market, or the U.S. and its position as the incumbent world reserve currency.
“I am comfortable with it [the dollar losing reserve currency status], that is my central case,” he said.
Druckenmiller referred to the Federal Reserve’s continued monetization of the U.S. Treasury market, and the effects that the yield suppression was having on credit markets and the financial system more broadly.
“Without the Fed buying 60% of debt issued, the bond markets would be totally rejecting this,” Druckenmiller explained. “They are enabling this massive expansion in fiscal policy, and the problem is, if you end up getting inflation, and frankly even if you don't, the debt is going to be so big…”
It seems that Druckenmiller holds that same view that many Bitcoin proponents share, that the U.S. dollar in the current macroeconomic environment is guaranteed to debase in value, and that U.S. fiscal and monetary policy is incentivizing individuals to venture further out on the risk curve to capture returns in a system where financial repression seems to be the path selected by policy makers to “escape” the debt trap.
“My issue here is, in the future as we go forward… if the 10 year goes to 4.9%, the interest expense alone [on the federal public debt] will be close to 30% of GDP, every year,” he said. “There is no way we can afford to have 30% of all government outlays be toward interest expense, so what will happen is the Fed will have to monetize that. When they monetize it, I believe it will have horrible implications for the dollar, and that's why I said in that speech that I think it is more likely than not within 15 years we lose reserve currency status.”
With the Fed committed to continue injecting liquidity into the financial system in an attempt to keep yields artificially low, it is directly incentivizing a massive amount of capital to seek an exit. And now, more than a decade after the financial crisis, that exit valve exists in Bitcoin and it is stronger and more robust than ever. On a side note, the most recent Bitcoin halving was one year ago today.