Prepare for hyperinflation, says Victor Sperandeo
Source: BI-ME , Author: BI-ME staff
Posted: Fri August 6, 2010 11:39 pm

INTERNATIONAL. Global macro trader and researcher Victor Sperandeo, known as Trader Vic, who has traded for George Soros and Leon Copperman during his 40 years in business has seen almost every kind of market, but he’s now preparing for something that rarely ever happens. He believes hyperinflation is coming.

Appearing in a recent interview on CNBC Fast Money, Sperandeo said there are clear historical evidences for hyperinflation.

"If you research history, there has been 30 occasions of hyperinflation," Sperandeo said.

Not taking pleasure from his austere message, Sperandeo told anchor Melissa Lee "I hope I am wrong because you don't want to see this," adding that "all the numbers that take place 100% of time in all the 30 occasions are here now".

Highlighting one of the numbers, Trader Vic said: "The percentage of money a government borrows of its gross expenditures" and especially if this ratio continues to grow in the future - not a one year event- "that presents a universal case where every single country that had that goes into hyperinflation".

Making his case in a professorial way, Trader Vic explains: "Hyperinflation is the opposite of what you would think of as inflation".

"It comes from deflation. It comes from not enough tax revenue - from lower growth rates - and therefore bond buyers flee".

Graphically, the steps are:

Slow growth => Deficit rises => Bond buyers walk awy => Fed prints money => Hyperinflation

Can the Fed deploy any tools available in its arsenal to avoid hyperinflation?

"Ben [Bernanke] said it is unsustainable," Sperandeo acknowleged.

"But is it really a fiscal issue?" asked Trader Vic. "You've got to reduce spending and you've got to produce more growth".

And how about monetary tools? the CNBC desk asks.

Raising rates has a psychological effect and is anti stmulus, Sperandeo opined.

"The point is unless you produce growth to lower the deficit - and current growth projections of 4.4% for the period 2012-2015 are not going to happen and deficits will go up - at some point bond buyers say I don't want to lend money to the government".

At that point and in her own charming way, Melissa Lee asks "What's the trade on that"

"Gold, silver and managed futures," obliges Trader Vic.

Scary stuff and some would say extreme but Sperando isn't alone preparing for hyperinflation.

Economist and editor of John Williams envisions—and he's by no means looking to the far horizon— a systemic collapse, a hyperinflationary great depression and the cessation of normal commerce.

In an exclusive Energy Report interview, Williams said: "The US government is effectively bankrupt. Using GAAP accounting principles, the annual deficit is running in the range of US$4 trillion to US$5 trillion. That's beyond containment. The government can't cover it with taxes".

"They'd still be in deficit if they took 100% of personal income and corporate profits. They'd also still be in deficit if they cut every penny of government spending except for Social Security and Medicare. Washington lacks the will to slash its social programs severely, to change its approach to ever bigger government," Williams added.

"We've been talking about an economic recession, but we are headed for something far worse.

So while we're not formally in depression, we're certainly seeing it in a number of indicators and I think we'll be in a depression, with GDP down 10%, in the near future.

A contraction greater than 25% peak-to-trough puts you in a great depression. That is what I envision, but we'll be taken there by hyperinflation and a resultant cessation of normal commerce," he said.

Our society is heavily dependent on electronic cash. Say you have a credit card with a US$10,000 limit. In hyperinflation, that US$10,000 might be enough to buy you a loaf of bread.

In an electronic society it's going to take some creative thinking by businesses. I'm sure some people will figure out some ways to accommodate these changes, but it's going to be a painful, costly process that won't be conducive to normal revenue flows—at least not as measured in inflation-adjusted dollars," Williams said.


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