By Richard Blackden
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U.S. Business Editor
America is storing up a second financial crisis by keeping interest rates at record low levels, according to David Einhorn, the hedge fund manager who first publicly warned about the financial catastrophe facing Lehman Brothers.
"The crisis that required zero interest rates has passed," said Mr Einhorn, who co-founded and runs Greenlight Capital, a $6.5bn (£4.2bn) fund. By not raising rates "it increases the chance that governments will over-borrow and fall into a debt trap".
The criticism of the Federal Reserve comes as it embarks on another $600bn (£380bn) of quantitative easing – or printing money – in an effort to fire up a stronger recovery next year.
Interest rates around the western world, including in Britain, have sat at or below 1pc since the near collapse of the financial system in 2008 triggered a global recession.
"If interest rates ever do go up again, you have another crisis," Mr Einhorn told The Sunday Telegraph.
Those in favour of very low interest rates point to the support it has given the real estate market in the US and that, as in the UK, it should encourage politicians to begin to tackle the $1.3 trillion budget deficit without fear of damaging the economy.
Greenlight, which Mr Einhorn founded in 1996 with about $1m, including an investment from his parents, has its single largest position in gold – an asset that many investors have historically turned to during periods of economic uncertainty.
The gold price, which is closing in on a tenth straight year of gains, reached a record $1,432.50 an ounce earlier this month.
Mr Einhorn admits that he is having to pay far more attention to the broader economic picture when making decisions about which companies to invest in than he has ever done. He declined to say what he thought of either the UK or eurozone economies at the moment.
The 42 year-old, already well known within the hedge fund industry, shot to wider prominence in 2008 after using a lecture in May of that year to voice criticisms of how Lehman was valuing its assets. The lecture had echoes of one he gave six years earlier on Allied Capital, a lender which he accused of using misleading accounting practices.
That lecture sparked an almost decade-long battle with Allied, which is recorded in Mr Einhorn's 2008 book Fooling Some of The People All of The Time. The financial crisis, he says, has done little to ensure that the regulators are any better at detecting either fraudulent or financially weak companies.
Both lectures drew stinging criticism from some investors and parts of the media, who accused the fund manager of stirring up concerns because it had short positions in both companies that would see Greenlight benefit if their share prices dropped.
Mr Einhorn has responded that he only holds short positions if he has serious worries about a company.
Though Mr Einhorn is best known as a short seller, Greenlight typically has more long positions than short positions.
Greenlight, which hasn't taken any new money from investors since the early part of this decade, has delivered an average annual return of 21pc since it was started.
Vodafone is currently one of his largest positions and he also owns shares in Apple.