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January 1, 2013

No Gloom in Doom

The Keynesians have 'fine tuned' us right into a $14 trillion U.S. debt load (Latin American, government, public, corporate, junk bond and consumer, etc.). They have deficit financed the longest 'recovery' in history. We are now seeing the signs of potential inflationary pressures and since 1913 there has never been a reduction in inflation without a recession or depression. The economy is so much more leveraged now than it was in the 1981-1983 recession, that when the Fed finally restricts reserves, as it must, the world will suffer the most turbulent times of this century. All debts have to be paid, either by debtor or creditor if the borrower defaults. Who will pay the price? Inflating our way out of this debt won't work today as it did in 1932. Instead, there will be rampant bankruptcies. Wealth will be destroyed to pay the price for what amounts to irresponsible loans against future production. [IMGCAP(1)]

That was Victor Sperandeo talking. That also was 1992, eight years before the end of the last century, not this one.

"Trader Vic" is a trader, index developer and financial commentator born in Queens and now living in Grapevine, Texas. This "doom and gloom scenario" is from a chapter he wrote in Albert Rubenfeld's search two decades ago for secrets of the best minds on Wall Street, "Super Traders."

Of course, 1992 did set a then-record for an annual deficit in the United States, when the federal budget ended up $290.4 billion in arrears. That put the U.S. portion of the load Sperandeo described at $5.6 trillion.

But there were no rampant bankruptcies. Instead, the nation went into eight years of great expansion. That was when Bill Clinton came into office with the idea that what matters is "the economy, stupid." When he left office, the nation registered the third of four surpluses in a row, at $236.4 billion.

Now, you'd have to think, the rampancy of bankruptcy is much more nigh. The annual deficit peaked at $1.4 trillion in 2009 when the task was saving the nation's economy altogether. It's still expected to hit $900 billion this year. And the U.S. debt has hit $16.3 trillion.

"Doom and gloom" thinking has pervaded trading ever since the broad whack of the financial crisis in 2008 and the specific whack of the Flash Crash in May 2010. Profits are even a fourth of what they were four years ago for the traders who only bet on the future for less than a second.

But that's why we probably should rejoice, as the new year is born. The future has a habit, as Sperandeo's scenario proves out, of obliterating forecasts that the end is at hand.

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