BELGRADE – The current situation in the global economy is similar to the situation on the eve of the crisis of 2008, billionaire trader Stanley Druckenmiller said.
According to the businessman, the main risks stem from actions of the US Federal Reserve and the People’s Bank of China.
He criticized the Federal Reserve for its “myopic policy” of low interest rates which has led to growing bullish sentiments in the market.
“The bull market is exhausting itself,” he said at the Ira Sohn Investment Conference in New York.
The Fed’s easy monetary policy has resulted companies taking on massive debt loads which they then used to buy back shares, instead of increasing capital spending.
By keeping interest rates low, the Fed is ‘raising the odds of the economic tail risk they are trying to avoid, Druckenmiller pointed out. The same policy of the Chinese Central Bank is also harmful to the global economy.
The slowdown in China’s growth is a big concern, as well as the uncontrollable growth of US debt, the investor added. According to him, US corporations are “stuck in the mud, forlorn of growth, unwilling to invest, and addicted to share buybacks to gin up their stocks.”
The Ira Sohn Conference is one of the most prestigious meetings of investors and hedge fund managers. At the 2005 event, Druckenmiller warned his colleagues that the policy of Alan Greenspan, who at the time was Chairman of the Federal Reserve, would result in a housing bubble. Finally, this happened and the global economy engulfed in a crisis in 2008. Druckenmiller believes that the bubble was further inflated by former chair Ben Bernanke and current chairwoman Janet Yellen.
“The Fed has borrowed from future consumption more than ever before. It is the least data dependent Fed in history. This is the longest deviation from historical norms in terms of Fed dovishness than I have ever seen in my career,” Druckenmiller was quoted as saying by CNBC. “This kind of myopia causes reckless behavior.”
According to media reports, Druckenmiller whose net worth is estimated at $4.4 billion is making long-term investments in gold while holding short positions on US companies’ shares.
At the same time, some economists believe that the current state of the global economy indicates that it may be facing structural adjustment and not only the downward part of the economic cycle.
In April, the International Monetary Fund (IMF) announced that the global economy was expected to grow at 3.2 percent in 2016, with a further growth of 3.5 percent in 2017.
“Maybe it is not just an economic cycle we are facing, but some kind of structural adjustment of the world economy that we do not understand yet, what the consequences are and how to deal with this,” European Commission Europe-Aid head of unit Jose Correia Nunes told Sputnik.