U.S. Hyperinflation Risk Mounts, Expert Warns

LAS VEGAS–The United States is racking up so much debt as a percentage of its Gross Domestic Product (GDP) that it seems to be headed toward hyperinflation, a key financial adviser told attendees at FreedomFest here.

The United States may well follow countries such as Brazil, Argentina and Hungary that have endured extraordinarily high inflation, if the U.S. government’s propensity for huge deficit-spending is not curbed soon, said Victor Sperandeo, president and CEO of Alpha Financial Technologies LLC, of Grapevine, Texas. Hyperinflation is “extremely bad,” since prices rise so fast that people do not know the true worth of anything and tend to stop buying, he added.

“It [hyperinflation] will come when GDP slows and bond buyers back away from funding the follies of our government,” Sperandeo said. “This occurs due to the loss of confidence in a nation’s ability to repay debt.”

Statistics demonstrate “clearly” that government deficits of 40% or more of annual expenditures cannot be sustained, said Sperandeo, who is nicknamed “Trader Vic.” He added that countries with hyperinflation have had annual government deficits of more than 20% of GDP, except for unusual instances in Belarus, Turkmenistan, Poland and Yugoslavia.

“All cases of hyperinflation have been connected with huge budget deficits,” Sperandeo said. The typical threshold when hyperinflation becomes a risk occurs as government spending exceeds GDP by at least 40% annually, he added.

However, Sperandeo acknowledged that the federal debt-ceiling that is expected to be hit on Aug. 2 needs to be addressed soon.

“If we don’t raise the debt limit, people on Social Security will not get their checks,”

The government has a direct role in affecting the growth and hiring of businesses through regulations; restrictions; requirements; health-care policies; laws about union activity; price controls; the creation of new agencies; and a minimum wage that has risen 4.3% in the past three years, Sperandeo said.

Unemployment will never come down until the minimum wage is limited to a “more reasonable” number, Sperandeo said. President Obama’s proposed minimum wage of more than $9.00 an hour will really “kill the worker,” Sperandeo said.

Another move that should not be pursued is a bailout of the deficit-ridden government in Greece by Germany and the more fiscally sound governments in Europe, Sperandeo said.

“You have to let Greece go,” Sperandeo said. “If they were smart, they would have done it a long time ago.”

A proposed financial rescue of Greece may occur anyway because of concerns among European leaders about the “risk of contagion,” Sperandeo said.

In addition, excess federal spending hurts economic growth rather than stimulates it, Sperandeo said. The more the government spends, the less GDP that the economy produces, he added.
If the Consumer Price Index (CPI), which measures the average change in the prices paid by urban consumers for a market basket of consumer goods and services, was calculated today the same way that it was in 1980, it would be 11.6%. Instead, the U.S. Bureau of Labor Statistics reported on Friday, July 15, that the index rose 3.6% during the past 12 months, before seasonal adjustments.

“You can’t believe the government numbers at all,” Sperandeo said. “They fudge those numbers.”