The danger with addictions is they tend to become increasingly compulsive. That might be one moral of this week's events.A few days ago, expectations were sky-high that the Federal Reserve was about to reduce its current $85 billion monthly bond purchases. But then the Fed blinked, partly because it is worried that markets have already over-reacted to the mere thought of a policy shift.Faced with a choice of curbing the addiction or providing more hits of the QE drug, in other words, it chose the latter.
The Fed understands, as the market seems not to, that the current "recovery" could not survive without continuation of massive monetary stimulus. Mainstream economists have mistaken the symptoms of the Fed's monetary expansion, most notably rising stock and real estate prices, as signs of real and sustainable growth. But the current asset price bubbles have nothing to do with the real economy. To the contrary, they are setting up for a painful correction that will likely be worse than the one we experienced five years ago.
"Getting in was easy. Getting out—not so much. The Fed is trapped and can't end tapering or else the bond and stock markets will blow up. The longer this continues the bigger the inevitable burst."
"This is fantastic for every rich person," he said Thursday, a day after the Fed's stunning decision to delay tightening its monetary policy. "This is the biggest redistribution of wealth from the middle class and the poor to the rich ever.""Who owns assets—the rich, the billionaires. You think Warren Buffett hates this stuff? You think I hate this stuff? I had a very good day yesterday."Druckenmiller, whose net worth is estimated at more than $2 billion, said that the implication of the Fed's policy is that the rich will spend their wealth and create jobs—essentially betting on "trickle-down economics.""I mean, maybe this trickle-down monetary policy that gives money to billionaires and hopefully we go spend it is going to work," he said. "But it hasn't worked for five years."