"Personnel is policy," goes the old Washington maxim. Legendary investor Stanley Druckenmiller, who made a billion dollars for the Quantum Fund by breaking the Bank of England in 1992, has discovered how to make policy serve his portfolio.

Druckenmiller reportedly has been shorting long-term U.S. Treasury bonds for at least the better part of a year. His bet against U.S. debt received plenty of attention in the fall of 2024, when reports had Druckenmiller earmarking 15% to 20% of his portfolio to short bets on U.S. government debt. Last November, he told an interviewer that "my current bear position [in Treasurys] is about 25% of net asset value $(NAV)$" - meaning that 25% of his portfolio's net asset value was allocated in this way.

Druckenmiller hasn't said much lately about his big short on Treasurys - though last January he told a CNBC interviewer that he was still holding the position. Evidently, he's got company. Last October, the usually stuffy Bank of England raised alarms, warning that hedge funds had piled into short bets against U.S. debt totaling a record $1 trillion. Apparently, the market figures that if you're betting against Uncle Sam, Druckenmiller makes a pretty good wingman.

Druckenmiller has admitted he doesn't know whether the Treasury short pays off in six months or six years. Which, in trader-speak, means "I'm rich enough to wait. Are you?"

Except this is no ordinary trade. It's a high-conviction bet that U.S. debt is headed for disaster. And Druckemiller isn't simply betting against the U.S. economy. With the election of President Donald Trump, two of Druckenmiller's former apprentices now influence U.S. economic policy. One, Scott Bessent, is the Treasury Secretary, and, as I wrote previously, a leading candidate to become the next Federal Reserve chief. The other, Kevin Warsh - a former Fed governor - is on the shortlist to replace Bessent at Treasury in that event.

Breaking the bank

But first, a market history lesson: It's September 1992. If you were Druckenmiller, sitting in your Manhattan office at Soros Fund Management looking at currency charts, you saw what every smart guy on the Street saw but was afraid to say: The Brits were bluffing with a pair of deuces. The European Exchange Rate Mechanism, one of those Brussels ideas that sounds good after a few martinis, had the British pound sterling $(GBPUSD.FOREX)$ welded to the deutsche mark. The problem was that Germany's economy was Mike Tyson and Britain's was your cousin Jerry who thinks he's tough after three beers.

Now imagine Druckenmiller turning to his young apprentice Bessent and saying, "Ten billion says they fold."

Next thing you know, George Soros and his team are counting on a billion in profit while the Bank of England is looking for its teeth on the floor. Black Wednesday, they called it. Though I'm betting Druckenmiller called it Christmas.

Now it's 2025, and the band is getting back together. Except this time, they're not content with just raiding the casino. They want to run it.

A word about Druckenmiller for those who don't follow hedge fund royalty: In more than four decades of running his hedge fund and later his family office, he's never had a losing year. As Bessent puts it, "In macro, there's Stan and then there's everybody else."

Bessent, who was riding shotgun when they broke the Bank of England, is frequently mentioned as the successor to current Fed Chair Jerome Powell. Yes, the same Bessent who learned at Druckenmiller's knee that governments defending the indefensible make wonderful piñatas.

Warsh, a partner at Druckenmiller's Duquesne Family Office, is being talked about as a potential successor to Bessent at Treasury if he moves to the Fed. Warsh is literally helping to run a portfolio that's massively short the bonds he would be issuing if he became Treasury secretary. This is like making your bookie the NBA commissioner while he's still taking bets on the games he's scheduling.

The trade: It's complicated (but also kind of not)

Druckenmiller is shorting Treasurys like a man selling fire insurance in hell. But here's where it gets clever: he's simultaneously long 2-year Treasury notes with massive leverage.

Why opposite bets? Because Druckenmiller sees stagflation ahead: weak economic growth and persistently high inflation. If the economy cracks, the Fed slashes short rates and his two-year longs rally. If inflation surges, long bonds collapse and his shorts pay off. If both happen (hello, 1970s), he wins twice.

Here's the math: America has $37 trillion in debt, of which $7.3 trillion must be refinanced this year. Foreign central banks? They've flipped from buying $200 billion annually to selling $111 billion. The Fed's solution is to force U.S. banks to buy Treasurys by changing capital rules. When you need regulatory tricks to sell your debt, you're already broke.

Since 2008, the U.S. money supply has grown 7.3% annually. Not 2% like the Fed's inflation target. Not 3% like your raise. Seven point three percent. Every year. Compounding.

Pull up the Fed's own data: M2 money supply went from $7.5 trillion to $21.9 trillion. That's not monetary policy. That's monetary incontinence.

Now add actual inflation, another 2%-3%, and you need 10% returns just to tread water. The 30-year Treasury BX:TMUBMUSD30Y pays 5%.

You're guaranteed to lose 5% annually. For 30 years. This is like signing up for a gym membership that makes you fatter.

Debt, debasement - and your wallet

Debasement means your dollars DXY buy less each year - not just from inflation, but from a swelling money supply that outpaces growth. It's the slow, systemic dilution of your purchasing power.

Since 2008, debasement in prices you recognize:

-- Median home: $230,000 to $441,526 (92% increase)

-- Health insurance: $3,800 to $7,452 annually (96% increase)

-- Public college with room & board: Up 47%

The graph below from the Atlanta Fed shows the brutal reality: housing now eats 46% of median income, far above the 30% considered "affordable." This isn't a housing bubble. It's currency debasement that's crushing America's middle class.

If you would been a "responsible" saver in 10-year Treasurys BX:TMUBMUSD10Y, your $100,000 from 2008 would be worth about $165,000 today. But to keep up with a 190% expansion in money supply, that $100,000 needed to become $290,000. In actuality, you're 43% poorer in real terms. Congratulations on your responsible poverty.

The S&P 500 SPX barely breaks even after debasement, and that's only because it contains the so-called Magnificent Seven tech stocks. Strip them out, and the other 493 companies are wealth destroyers. And the traditional 60/40 stock/bond portfolio? It's now a wealth destruction machine. It isn't safety. It's guaranteed mediocrity in a world where mediocrity means poverty. What should you do instead? That's a harder question and one I'll take on in a future column.

But if you want to follow Druckenmiller's actual bet, the one he's risking his own money on, there is a way.

How to bet with Druckenmiller (without going broke)

Don't blindly copy Druckenmiller's trade. Copy his paranoia. Copy his discipline.

1. Before doing anything, ask yourself why: Look, betting against long-term U.S. bonds might sound sophisticated, but that isn't the point. The point is recognizing that the U.S. government spends money like it's somebody else's (hint: yours), and the Fed is cornered by politics and wishful thinking. If that logic doesn't ring true, put your wallet away and stick to fantasy football.

2. ETFs open the door: You want to short the long end of the Treasury market, take a look at ProShares Short 20+ Year Treasury TBF if you like things relatively calm, or ProShares UltraShort 20+ Year Treasury TBT and Direxion Daily 20+ Year Treasury Bear 3X SharesTMV if you think you're fast enough to handle leverage. But let me tell you, leverage isn't casual. It's like carrying a loaded gun. You'd better know exactly what you're doing.

To go long on short-term Treasurys, look at iShares 1-3 Year Treasury Bond ETF SHY, Vanguard Short-Term Treasury ETF VGSH and SPDR Bloomberg 1-3 Month T-Bill ETF BIL. Safe as mom's meatloaf. Just don't expect it to taste like filet mignon.

3. Beware of leverage: Leveraged ETFs are the financial equivalent of chain saws, useful in capable hands, catastrophic otherwise. Check on them like a teenager checks Instagram: frequently, obsessively and without shame.

4. Forget "set and forget": No autopilot allowed with this trade. Check your numbers. Watch the Fed. When markets change, you change.

5. Position size matters: Never let a trade get big enough to kill you. The graveyard's full of traders who thought they knew better.

6. Know when to fold: It's ok to be wrong. What's dumb is staying wrong. Set your exit point going in. If you hit it, don't think - just leave.

What Druckenmiller's trade really means

If U.S. inflation stays stubborn, long bonds will dive. If the economy tanks, short bonds will jump. That's called "asymmetric," which is finance-speak for "heads I win, tails I don't lose too much." But you know what? It won't always be neat and clean. Sometimes you lose money waiting. That's just part of it.

The bottom line: Discipline beats genius every time. Don't blindly copy Druckenmiller's trade. Copy his paranoia. Copy his discipline. Money is serious business. Treat it accordingly.