Stanley Druckenmiller, one of the best-performing hedge fund managers of the past three decades, has a warning for the youth of the US: Do not let your grandparents steal your money.
Druckenmiller, 59, said the mushrooming costs of the Social Security, Medicare and Medicaid programs, with unfunded liabilities as high as US$211 trillion, will bankrupt the nation’s youth and pose a much greater danger than the country’s US$16 trillion of debt currently being debated in the US Congress.
“While everybody is focusing on the here and now, there’s a much, much bigger storm that’s about to hit,” Druckenmiller said in an hour-long interview with Stephanie Ruhle on Bloomberg Television’s Market Makers.
Photo: Bloomberg
“I am not against seniors. What I am against is current seniors stealing from future seniors,” he said.
Druckenmiller said unsustainable spending will eventually result in a crisis worse than the financial meltdown of 2008, when US$29 trillion was erased from global equity markets.
What is particularly troubling, he said, is that government expenditures related to programs for the elderly rocketed in the past two decades, even before the first baby boomers, those born in 1946, started turning 65.
Druckenmiller stopped managing money for outside clients in 2010 after three decades in the business, including more than a decade as chief strategist for billionaire George Soros.
From 1986 through 2010 he produced average annual returns of 30 percent, one of the best long-term track records in the industry.
US President Barack Obama and congressional leaders have been locked in a disagreement over the US’ budget deficit and automatic spending cuts.
Under the cuts, federal spending will be reduced by US$85 billion in the final seven months of this fiscal year and by US$1.2 trillion over the next nine years.
Half of the cuts would come from defense and half from domestic spending. The reductions were designed to be so unpalatable that lawmakers would come up with a way to replace them.
In 2011, Social Security, Medicaid and Medicare accounted for 44 percent of the government’s US$3.7 trillion of expenditure, up from 34 percent in 1990, according to statistics compiled by the US Bureau of Economic Analysis.
“The seniors have a very, very powerful lobby,” Druckenmiller said.
“They keep getting more and more transfer payments” from younger generations through what’s essentially a pay-as-you-go system, he added.
“AARP has been on the forefront of a national conversation with over 6 million Americans about potential options for strengthening Social Security and Medicare — and ultimately health and income security in retirement,” said David Certner, the legislative policy director at AARP, the Washington-based senior citizens lobby group with more than 37 million members.
“Older Americans know how important these programs are and want to make sure they are strong for their children and grandchildren,” he said.
There were 40 million people in the US aged 65 and over, according to the 2010 US Census, the year before the first baby boomers hit retirement age.
By 2020, that number is expected to grow to 55 million, according to the US Department of Health and Human Services.
“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,” Druckenmiller said. “I don’t know the timing of when the markets will respond to this, but it will happen.”
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.
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.
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