Marc Lasry, Co-Founder and CEO of Avenue Capital Group.
Adam Jeffery | CNBC
Marc Lasry, who makes a living investing in distressed businesses, believes the US may be headed for that status itself.
While unsure of the timing and doesn’t expect any major problems to arise anytime soon, the billionaire hedge fund boss Avenue Capital and owner of Milwaukee Bucks sees the high national debt will eventually return to cause problems.
“How much longer can you borrow dollars from scratch?” That’s what Lasry said on Tuesday at the SkyBridge SALT conference in New York. “If that goes up, we’ll have real problems.”
Lasry referred to the government’s ability to borrow cheap to fund a budget deficit that is likely to exceed $ 3 trillion for the second straight year. National debt is now $ 28.4 trillion and has generated interest costs of $ 524.7 billion in the first 10 months of fiscal 2021, even when government bond yields are near record lows.
When asked if the US thinks the US is just “kicking the can” before debt becomes a problem, Lasry said, “I think you are,” but isn’t sure when the day is the reckoning will come.
“You can’t just borrow as much as we borrow,” he said. “There is a real cost involved.”
One reason the US has borrowed so much without major economic impact is because the Federal Reserve kept policy rates at zero. The Fed has signaled that it is in no rush to hike rates, although it may withdraw its monthly bond purchases before the end of the year.
Lasry largely praised the role the central bank played during the Covid-19 pandemic.
In addition to keeping interest rates low and adding more than $ 4 trillion to its balance sheet, the Fed has put in place a number of programs to keep liquidity flowing through the bond markets where the hedge fund chief makes his money.
In the early days of the crisis, there was a rush of sales that met a shortage of buyers, prompting the Fed to intervene in both government and corporate bond markets.
“The Fed is making sure that the system continues to work and that people have access to liquidity,” said Lasry.
However, he is still concerned about the country’s financial condition.
Democrats in Congress want to pass on an additional $ 3.5 trillion in spending on infrastructure improvements and climate change mitigation, on top of the more than $ 5 trillion spent on pandemic stimulus measures in the past year and a half.
“Big dollars are being spent and hopefully the economy will be able to pay it back,” said Lasry.
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