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A government debt is a government claim against personal income and private property – an unpaid tax bill. – Hans F. Sennholz,
All democracies institute programs for current voters and shift the debt to future workers, even the unborn. Social Security, Medicare, prescriptions drug benefits for seniors are prime examples in America.“That money is not going to be there,” Stanley DruckenmillerPeople aren't going to wonder whether 20 years ago we delayed an interest payment for six days. They're going to wonder whether we got our house in order.'
'A financial crisis is surely going to happen as big or bigger than the one we had in 2008 if we continue to behave the way we're behaving," says Stanley Druckenmiller.
Druckenmiller is referring to the excessive spending of the federal government. James Freeman of The Wall Street Journal quotes Druckenmiller: What's going to be catastrophic is if we don't solve the real problem," meaning Washington's spending addiction.
Druckenmiller has made a fortune knowing and investing in government bonds, and adroitly analyzes the American debt crisis. First, he presents cuts in government spending, and good fiscal stewardship.
"Here are your two options: piece of paper number one—let's just call it a 10-year Treasury. So I own this piece of paper. I get an income stream obviously over 10 years . . . and one of my interest payments is going to be delayed, I don't know, six days, eight days, 15 days, but I know I'm going to get it. There's not a doubt in my mind that it's not going to pay, but it's going to be delayed. But in exchange for that, let's suppose I know I'm going to get massive cuts in entitlements and the government is going to get their house in order so my payments seven, eight, nine, 10 years out are much more assured," he says.
Next, he presents the position of President Obama, Treasure Secretary Geithner and the America’s political elites – more spending:
Then there's "piece of paper number two," he says, under a scenario in which the debt limit is quickly raised to avoid any possible disruption in payments. "I don't have to wait six, eight, or 10 days for one of my many payments over 10 years. I get it on time. But we're going to continue to pile up trillions of dollars of debt and I may have a Greek situation on my hands in six or seven years. Now as an owner, which piece of paper do I want to own? To me it's a no-brainer. It's piece of paper number one."
Druckenmiller is very critical of Federal Reserve's printing of money and low-interest rate, which facilitates Congress’ and Obama’s reckless spending: "When do you generally get action from governments? When their bond market blows up." But that isn't happening now, he says, because the Fed is "aiding and abetting" the politicians' "reckless behavior."
Dangerously, President Obama, Treasury Secretary Geithner and Ben Bernanke of the Federal Reserve are spending America into a financial disaster. However, Druckenmiller is encouraged by Representative Paul Ryan’s budget proposal. Druckenmiller is blunt: "We don't have a choice between Paul Ryan's plan and the current plan, because the current plan is a mirage. . . . That money is not going to be there."