Trader, commodities expert, and index developer Victor Sperandeo warns that a panic over U.S. Treasury debt and hyperinflation are serious risks that shouldn't be discounted by investors despite the apparent economic recovery.
Sperandeo, known as “Trader Vic,” has worked for George Soros and is now president and CEO of Alpha Financial Technologies. He takes issue with major investment banks such as Goldman Sachs, which now forecast a stronger than expected recovery.
Whatever growth we are seeing now is temporary, he says, driven by “gimmicks” like the housing credit, Cash for Clunkers, and now, the Federal Reserve’s second round of money printing, called quantitative easing.
“These are all temporary fixes. These are all, if you will, little shots of adrenalin and then, and once they die we don't know what the economy is going to do,” he tells Newsmax.TV.
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The only real answer is a combination of actual growth, which would increase tax collection, coupled with significant spending reduction, which Sperandeo argues is the opposite of what the Obama administration really wants.
“That's not in the cards because the people in power don't want people making money. If you don't make money, you won’t create jobs,” he says. Sperandeo proposes zero capital gains taxes to spur job creation.
There’s a fundamental difference between the inflation the United States experienced in the 1970s and what we are seeing now. First and foremost, the inflation isn’t across the board: Food and energy prices are creeping higher, but wages and housing are stagnant or falling.
“It's different than the '70s because really everything was moving up and that's really the general definition of inflation — everything moves up,” Sperandeo says. “In this case there's a lag because our housing problems and the fact that the wage base has priced itself out of the market.”
Meanwhile, the risk is rising that America’s politicians will try to exit the conundrum by printing money with abandon, causing foreign investors to lose faith in Treasurys. That would spark a panic sale and, with it, uncontrollable hyperinflation, he says.
“We've had three years in a row where the government has borrowed 40-plus percent of what it spends. Now, in all of the history of other hyperinflations, there have been 30 occasions, every occasion has that number or more. So we're headed in that direction,” he says.
Any number of factors might trigger a panic, but the cause will be same, he says. Borrowers will begin to doubt the ability of the United States to pay back its debt and fear that, instead, it will print money to pay the debt, devaluing the dollar rapidly in the process.
If the dollar crashes and burns, expect gold and silver to “do extremely well,” Sperandeo says. He declined to predict an ultimate price for gold, but he defended the metal from its critics, who have pointed out its decline since the beginning of the year.
Sperandeo calculates that gold rose more than 22 percent since the low in July and the most recent high in January. Since then, he says, gold has sold off about 7.5 percent.
“Now, 7.5 percent in a world-traded commodity that is leveraged up to 20-to-1 is like, you know, is like you sneezing and not even having a cold,” Sperandeo says. “It doesn't mean anything. It's noise.”
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