Stanley Druckenmiller: Tariffs are simply a consumption tax that foreigners pay for some of it

in October when you spoke at a conference and said that you were shorting us treasuries I think it was 10 to 15% of your portfolio at that time you still shorting treasuries based on what you're watching I still have a short in treasuries um I know a lot of people have been surprised by interest rates Rising after the cut of course we weren't because I thought the Fed was making a mistake and I was worried about the same animal spirits we've been talking about and of course our horrendous fiscal situation having said that we've come

quite a ways I think we're probably in the seventh inning but sometimes you can make a lot of money from the seventh inning to the ninth inning and who knows if the FED stimulus uh into a melt up in asset prices with the kind of animal spirits I talked about give you upward inflation which is not our forecast but we're definitely open-minded to it and we're not expecting lower inflation that could tip the bond market and create a problem so we're still short treasuries um but we're we're certainly not pressing the size of that position

now you you've said in a perfect world stand that that you're not a FL fan of tariffs but that it could be potentially the Lesser evil if it's done in moderation yeah I don't want to exit this interview as tariff man um in in a perfect world I would not be for a 10% tariff but we're not in a perfect world as you know we have a big fiscal problem mandatory spending plus interest expenses literally 100% of revenues right now and both sides of the aisle have said they are not about to cut entitlements which

is the elephant in the room having said that because of that we need pay Force so our main choices are an income tax um and a consumption tax like tariff so when I say a tariffs are the lesser of the two evils in terms of those two because we have a fiscal problem we need revenues tariffs will generate revenues we also have a private savings problem in this country they're far too low so I think a lot of economists who are out raising the alarm Bells about tariffs would probably be fine with a consumption tax

to me tariffs are simply a consumption tax uh that that foreigners pay for some of it now the risk is retaliation but as long as we stay in the 10% range and I think so-called fear of Donald Trump um I think I think the the risk are overblown relative to the rewards the rewards on high it's more like they're the lesser of two two evils you know Stan you you had said before the election that you would not be voting for kamla Harris you would not be voting for um Donald Trump part of your concern

was I think what you called bipartisan fiscal recklessness on the the part of all parties at this point you've been very concerned about our spending levels and not getting that under control um but Scott bessent has been tapped to be the incoming um treasury secretary he's someone you know well you worked with him he worked with you at uh at the Soros fund and you've worked very closely with him I think you know him well how do you feel about the appointments that are being made and named when it comes to looking after the fiscal

side of things or at least when it comes to the treasury Department what what what you might anticipate Scott's extremely capable um big brain very thoughtful he's in the unique position that I don't think any other treasury secretary has been in where he's been an active participant in markets as he said in his confirmation uh hearing he's been to 40 countries I know he's been involved in markets in at least 40 countries so he's extremely capable he understands the fiscal situation I think he understands that the biggest risk to the Administration is both fiscal and

inflation um having said that he's he's not in charge he's extremely persuasive he had no problem persuading me many times when we work together but I just don't know how it's going to work out this is a huge huge problem he inherits uh the deficit is currently at 6.7% of GDP it's $1.9 trillion the last time we were at full employment um was 19 20 2017 it was 3.4% of GDP we also have peace so we have a president who in the campaign said he's going to um not have taxes on tips not have taxes

on Social Security so there's there's a lot of things going on there's some Hope on do I've heard the optimistic assessments I hope they're true I'm too old and too cynical to really see a lot of that stuff happening if they could cut two or 300 trillion out that' be great if we could get say a trillion dollars or more over the next 10 years out of tariffs that would help but we're just in a mess because interest expense is just a huge huge growing elephant and uh it's above defense spending it's now above non-mandatory

discretionary spending so unless we get this under control the eighth wonder of the world power of compounding with interest expense is just going to continue to cause upward pressure