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US Needs Austerity Too: Hedge Fund Strategist
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Deputy News Editor, CNBC.com
An overhaul of public spending in the US is needed, as spending on the health-care program is too high, according to Scala.
President Barack Obama's health-care reform law was passed by Democrats in Congress after a protracted political fight but around 20 US states are trying to overturn the reform in court, saying it will force massive new spending.
Lawmakers could choose not to fund the program and it "will wither and die," Scala said.
Apart from this, the US should reduce taxes on capital gains to stimulate investment and create tax incentives for the use of natural gas, to improve the country's trade position, he said.
Scala added that another reform needed to boost the economy would be bringing back accelerated depreciation on commercial property, which is experiencing its worst liquidity challenge in almost 20 years, according to the National Association of Realtors.
"Right now, if you were to do that, you'd incite a lot of investors in the commercial market," he said.
Austerity is needed to cut the debt burden because the risk is that it will be financed by more debt or by printing money, which would in turn cause inflation as investors will take refuge in commodities, Scala explained.
"I'm afraid we'll see inflation like in the 70s, at some point," he said.
For the moment, inflation is under control because unemployment is high and commodities are sold to pay off debt, according to Scala.
He said that the euro [EUR=X
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] is likely to keep falling and reach $1.05 if problems in Europe continue.
"Civil unrest is the risk. I do see unions and strikes and a very nasty summer, as people are being told they are going to lose their entitlements," Scala said.
His hedge fund is selling the euro on rallies and "will continue to do so until things change," he added.
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Data is a real-time snapshot *Data is delayed at least 15 minutes
