Einhorn warns U.S. policies creating enormous risks

NEW YORK Thu Oct 25, 2012 1:53pm EDT

NEW YORK (Reuters) - The monetary and fiscal policies in the United States are creating enormous risks and the Federal Reserve's actions in particular are now harming the economy, influential hedge fund manager David Einhorn said on Thursday.

The founder of Greenlight Capital, which manages $7.7 billion, repeated his criticism of the Fed's very easy monetary policy, arguing at a conference that it now has "negative returns."

The Fed's policy easing is "slowing down our recovery" by "denying individuals interest on savings," which is driving down consumption and hurting the economy, Einhorn argued at a conference hosted by The Economist magazine.

Responding to the worst recession in decades, the U.S. central bank has kept rates near zero since late 2008 and expects to keep them there until mid-2015. Last month, it launched a third, massive asset-purchase plan known as quantitative easing (QE), meant to lower longer-term rates.

The U.S. government's initial response to the recession and financial crisis - which eventually sent the unemployment rate up to 10 percent - was big increases in public spending to kick-start economic growth.

"We've actually passed the point where the incremental easing of the Federal Reserve policy actually acts as a headwind for the economy and it's actually slowing down our recovery," Einhorn said.

"I'm alarmed by what I consider to be the reflexive group-think of the leaders, which is, if we want a stronger economy we have to accommodate" with lower rates and more QE.

Since Greenlight's inception in 1996, Einhorn has provided investors with average annual returns of 20 percent. He is one of the best known managers in the more than $2 trillion hedge fund industry.

Einhorn added that, if the U.S. wants "more jobs, more consumption and more growth, we are way better off doing the opposite of current monetary policy."

(Reporting By Katya Wachtel and Jonathan Spicer. Editing by Andre Grenon)

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