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Stanley Druckenmiller, founder, Duquesne Family Office

The risks posed by the battle over the US debt ceiling (see page 11) are dwarfed by the long-term risks of unchecked government spending, says former hedge-fund manager Stanley Druckenmiller. “This focus on the debt ceiling instead of the future fiscal issue is like sitting on the beach at Santa Monica worrying about whether a 30-foot wave will damage the pier when you know there’s a 200-foot tsunami just 10 miles out,” he tells Bloomberg in a email, arguing that spending on social security and healthcare is unsustainable and will have to be slashed.

America’s fiscal position today “looks much worse than I had imagined 10 years ago”, says Druckenmiller, who retired from managing money for clients in 2010, after a career in which he averaged returns of 30% per year over 25 years. In addition to a lack of fiscal restraint by politicians from both parties, he also blames the US Federal Reserve for the easy-money policies that led to reckless behaviour in markets, banks and governments. “By still owning a large amount of government debt, the Fed continues to create the false illusion that it can help with our fiscal problems.”

The five percentage-point increase in interest rates over the past year was a step towards “trying to correct the biggest mistake in Fed history”, but the central bank’s commitment to sound money does not seem strong. “At the first signs of trouble, the Fed last month, and in just four days, undid most of the small progress they had made in reducing their balance sheet.”

As a result of poor US policy, Druckenmiller’s only high-conviction trade at present is to be short the US dollar, he told an investor forum last month. While the dollar is down 10% against a basket of leading currencies since November, he expects it to slide further, especially if the central bank cuts rates as the economy weakens. “Currency trends tend to run for two or three years.”