Despite the consensus view heading into 2018 that the Treasury yield curve would finally steepen as the Federal Reserve raised interest rates 4 times in 2018 (and possibly again in 2019), driving US stocks lower as higher interest rates brought  the post-crisis epoch of “accommodative” monetary policy to a decisive conclusion, the yield curve continues to flatten. But as US markets have mostly shrugged off this vanishing term premium, some of the country’s most respected hedge fund managers have been making the rounds in the financial press, warning that the next recession – if not a devastating debt crisis – is just around the corner.

First it was Jeffrey Gundlach, then Ray Dalio (who even devoted a free e-book to the subject comparing the modern economy to that of the late 1930s) and Ken Griffin. Now Stanley Druckenmiller has joined the party with an interview with Kiril Sokoloff, chairman of 13D Global Strategy & Research, published by RealVision. During the interview, which was taped earlier this month, Druckenmiller warned that the US’s “massive debt problem” would eventually lead to another financial crisis. “We tripled down on what caused the crisis. And we tripled down on it globally.”

But while President Trump’s decision to blow out the federal budget deficit at a time of 4.2% US GDP growth certainly won’t help, Druck blames the Federal Reserve for waiting so long to raise interest rates, allowing cheap debt to proliferate and encouraging the formation of asset bubbles in both the US and emerging markets, where the strengthening dollar has allowed fears of a possible contagion to fester.

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