Most people in finance are glad to hear talk of fiscal austerity, but the idea of playing chicken on the debt ceiling strikes them as seriously dangerous.
Standing apart from basically everyone else is investor Stanley Druckenmiller — a former Soros partner — who doesn’t see a technical default as that big of a deal.
In an interview with WSJ, he sees increased spending, without serious adjustments, as the real risks.
“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,”
The other piece of paper: that same 10-year Treasury without any adjustments made by the US. In his view that would be the far riskier security.
He says that if in the worst case scenario — that markets really did implode in a technical default situation — then Obama and the Congress would come to a solution.