Billionaire hedge fund manager Paul Tudor Jones has raised the alarm about the US government’s current fiscal deficit and increased spending promised by the two presidential candidates, saying the bond market can force the government’s hand after the election in directing it.
“We’re going to go very fast if we don’t get serious about our spending problem,” Jones told CNBC’s Andrew Ross Sorkin on Tuesday.
The founder and chief investment officer of Tudor Investment said he was concerned that government spending could lead to a big sell-off in the bond market, driving up interest rates. They say they don’t have fixed income and will bet on the longer-dated portion of the bond market.
“The question is after this election, will we have a Minsky moment in the United States and US debt markets?” Jones said, referring to shorthand for the dramatic decline in asset prices.
“Are we going to have a Minsky moment where suddenly there’s a point of recognition that what he’s talking about is fiscally impossible, financially impossible?” he continued.
The federal deficit for the 2024 fiscal year will rise to more than $1.8 trillion, according to the Treasury Department, 8% higher than in 2023.
The government offsets this deficit by selling Treasury bonds, and the bond’s timing profile and cadence of sales are closely watched by Wall Street traders. The increase in interest rates over the past three years is another concern for many economists and traders, as the annual cost of borrowing is higher for the government.
Jones pointed out in an interview that the budget deficit has increased under the administrations of former President Donald Trump and President Joe Biden, and said that Trump and Vice President Kamala Harris are “most unfit for the task in front of them” on the budget. He also said he is still concerned about inflation, especially if Trump wins.
Hedge fund managers say there are many ways for the government to better balance spending but that may require significant changes, such as allowing tax cuts from Trump’s first term to expire or reducing the federal workforce.
Jones founded a hedge fund more than four decades ago and became famous for correctly predicting the stock market crash of 1987.