Yellen's failure to lock in cheap debt was the worst mistake in Treasury history

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MARKET INSIDER

Janet Yellen made the worst mistake in Treasury history when she failed to lock in cheap debt, elite investor Stanley Druckenmiller says
by Theron Mohamed
Oct 31, 2023

• Janet Yellen made the worst mistake in the US Treasury's history, Stanley Druckenmiller says.

• The Treasury chief should have issued more long-term government debt at low interest rates, he said.

• Druckenmiller noted that many American households and businesses managed to lock in lower rates.

Janet Yellen made the worst mistake in the history of the Treasury, which has helped pave the way for a debt disaster, Stanley Druckenmiller says.

Yellen, who was appointed Treasury secretary in January 2021, should have issued more long-dated government bonds before the Federal Reserve began hiking interest rates early last year, Druckenmiller said. The billionaire investor and head of Duquesne Family Office made the comments to elite trader Paul Tudor Jones during a fireside chat at a recent Robin Hood Foundation event.

"When rates were practically zero, every Tom, Dick, Harry, and Mary in the United States refinanced their mortgage," Druckenmiller said. "Unfortunately we had one entity that did not, and that was the US Treasury."

"Janet Yellen — I guess because political myopia, whatever — was issuing two years at 15 basis points when she could have issued 10 years at 70 basis points or 30 years at 180 basis points," Druckenmiller continued, referring to the terms of the debt issued by the Treasury.

"I literally think if you go back to Alexander Hamilton, it was the biggest blunder in the history of the Treasury. I have no idea why she's not been called out on this, she has no right to still be in that job after that," Druckenmiller said.

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Donald Trump’s Idea to Cut National Debt: Get Creditors to Accept Less
By Binyamin Appelbaum
May 6, 2016

... Experts also described Mr. Trump’s debt refinancing proposal as fanciful, saying there was no reason to think America’s creditors would accept anything less than 100 cents on the dollar, regardless of Mr. Trump’s deal-making prowess.

“No one on the other side would pick up the phone if the secretary of the U.S. Treasury tried to make that call,” said Lou Crandall, chief economist at Wrightson ICAP. “Why should they? They have a contract” requiring payment in full.

Mr. Trump told CNBC that he was concerned about the impact of higher interest rates on the cost of servicing the federal debt. “We’re paying a very low interest rate,” he said. “What happens if that interest rate goes two, three, four points up? We don’t have a country. I mean, if you look at the numbers, they’re staggering.”

The Congressional Budget Office projects that interest payments on the federal debt will climb to $500 billion in 2020 from roughly $250 billion this year. That is based on a projection that rates on the benchmark 10-year Treasury will reach 4.1 percent in late 2019, still a low level by historical standards. If rates were to climb more quickly, or reach higher levels, debt payments would be higher.

Pressed to elaborate on his remarks, Mr. Trump did appear to step back. He said that he was not suggesting a default, but instead that the government could seek to repurchase debt for less than the face value of the securities. The government, in other words, would seek to repay less money than it borrowed.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said that she shared Mr. Trump’s concern about the size of the federal debt, but that the issue needed to be addressed through changes in fiscal policy — some combination of less spending and more revenue.

“It’s a policy problem, not a debt-management problem,” she said. “When it comes to fiscal responsibility, people are always looking for the easiest of answers. If there were low-hanging fruit here, the Treasury Department would already be on it.”

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