Stan Druckenmiller, Hedge-Fund Mgr: Seniors “Steal”?

We think that the term “steal” in the article is sensationalizing the issue and grossly mischaracterizing the general intentions of parents and grandparents toward their offspring.

That said though, there are interesting points raised and some missed (perhaps due to a desire to keep the article to a more manageable/digestible length).

…trickle-down monetary policy.

The Federal Reserve’s decision to hold interest rates near zero and buy $85 billion of assets a month is pumping up the stock market, all with the hope that rich people will spend those gains, and that money will trickle down to the rest of the country.

Let’s not forget that the stock market was not, and still is not, the prime target of the Fed but rather the housing sector on the ground, with housing-related stocks being a secondary beneficiary.

“The chances of this being a new bull market like 1982 aren’t high, because we’re not attacking the crux of the problem, which is too much leverage and too much debt,” he [Stan Druckenmiller, hedge-fund manager] said.

We don’t disagree with that. However, we see that “too much leverage and too much debt” as being still mostly in the private sector. Private debt far, far outstrips public debt as a percentage of GDP. Not increasing public spending in a recession during a private-sector deleveraging is counterproductive. It would literally sink the economy, putting tens of millions out of work.

That’s not to say that the government has necessarily done an excellent job managing the dynamics. We’re just glad that things weren’t allowed to just “run their course” as with pre-Great Depression recessions. We’re glad 1) not all of the New Deal risk-management constraints against wild speculation were completely gutted and 2) re-regulation (within reason) came back into vogue.

However, there is an argument that private deleveraging may have run its course: Americans take on more debt, by Janna Herron. Thursday, February 28, 2013.


Druckenmiller suggested changing eligibility ages for Social Security and benefit structures for wealthy retirees, as well as removing disincentives for those who would rather work in their later years. Adding a federal consumption tax would help, he said, because seniors consume about the same amount as people in their 20s or 30s, yet pay less in income taxes.

Changing eligibility ages to trend with increasing life expectancy has to be weighted for infant-mortality figures, which are often missed or ignored in such calculations. Also, we’d need to factor in people living longer but with longer periods of frailty.

Removing disincentives for those who would rather work seems to make perfect sense.

Adding a consumption tax is, however, highly regressive.

Another way to shift the burden as the population ages would be to fully tax dividends and capital gains, since retirees typically rely more on those forms of income, he said. To avoid double taxation, the government could abolish corporate taxes, which would also eliminate some incentives for companies to move business abroad.

How about abolishing corporate taxes only for those corporations for which the investors pay full personal income taxes here? The object isn’t to simply attract foreign direct investment in the US without capturing revenue to run our public sector.

Read the whole article (opens in a new tab so you may easily comment here): Druckenmiller Sees Storm Worse Than ’08 as Seniors Steal – Businessweek.