Barron's: US Will See Run on Treasurys, Hyperinflation Wednesday, 05 Jan 2011 10:44 AM Article Font Size
By Greg Brown
Investors in U.S. debt around the world are worryingly near a "psychological breaking point" that could force a "run on the bank" against Treasurys.
If that happens, hyperinflation quickly follows and gold will soar much, much higher from its now record-setting levels, argues author and longtime trader Victor Sperandeo in the latest issue of Barron's. Sperandeo has traded for many top investors including George Soros.
Anyone who believes that the United States faces a comparatively mild 1970s-style inflation risk is ignoring history at his own peril, Sperandeo writes in the weekly investment newspaper.
"Unlike normal inflation, which may be attributed to a variety of factors, hyperinflation has a single cause: It occurs when a government cannot borrow money because its debt has risen so much that investors believe they will never be paid back with close to the same purchasing power," he writes.
Historically, he writes, investors lose confidence in government debt when borrowing hits 40 percent of spending over an extended period of years. The telltale sign will be non-annualized inflation of 50 percent or more in a single month.
In 2009, the author notes, the deficit was 44 percent of spending, although not all of it was borrowed. It happened again in 2010. U.S. debt is now more than $13.7 trillion (not counting state and agency debts) and deficits are running $1 trillion a year.
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