How a World-Class Money Manager Sizes Up America's Predicament.

• Author: Druckenmiller, Stanley

The United States is likely to end up the loser.

I've been in the financial markets as some kind of chief investment officer since 1978. And the current market scenario is about the wildest cocktail I've ever seen in terms of trying to figure out a roadmap. Just to frame things a little, the 2020 economic downturn was five times as large as the averagesized recession since World War II, but this latest recession occurred in only 25 percent of the time. More bizarrely, last year while eleven million people were unemployed, we had the largest increase in personal income in twenty years. That's because of the massive policy response.

The 2020 CARES Act added trillions of dollars in fiscal stimulus to the U.S. economy. How big was it? In three months, we increased the deficit more than resulted from the last five recessions combined. And those were big ones--1973-1975,1982, the early 1990s, the dotcom bust, and then of course the great financial crisis of 2007-2008. If you added the increase in the deficit during all those five periods and combined them, we increased the deficit in the United States more in three months in 2020 than we did during the cumulative total.

In six weeks during 2020, the Federal Reserve bought more Treasury bonds than it did in ten years under Ben Bernanke and Janet Yellen when people like me were screaming about how excessive quantitative easing was during that period.

Corporate borrowing, which almost always goes down in a recession as corporations re-liquefy and had already gone from $6 trillion to $10 trillion because of the Fed's virtually free money going into the period, actually went up $400 billion. Just for perspective, corporate borrowing went down $500 billion during the great financial crisis. And obviously, all this stimulus has flowed into financial markets, into commodities, and into financial interest instruments. It's sort of a bizarre background as we continue into 2021.

The juxtaposition of the various policy responses from the United States and other Western economies with their Asian counterparts including China is breathtaking. Since 2018, M2 in the United States has grown 25 percent more than nominal GDP--a 25 percent increase in liquidity. In China, the M2-to-nominal GDP ratio is where it was three years ago. China hasn't borrowed anything from their future.

We've had a massive liquidity input, and frankly, very low investment. The economy's been running primarily on transfer payments and Fed...