The Fed is tightening the economy to ‘pit’ the economy, leading us into a long recession – John Hathaway
(Kitco News) — John Hathaway, senior portfolio manager at Sprott Asset Management, said the Federal Reserve’s monetary tightening could lead us into “a recession from which we haven’t recovered in two years.”
“[The Fed] He explained that he does not have a disk to adjust economic activity. “They basically have an on switch or an off switch, and the off switch is to make a hole in the economy.” On Wednesday, the Federal Reserve raised interest rates by 75 basis points in response to rising inflation. Last year saw the highest inflation rate in forty years. Core inflation was 8.3 percent in August, while core inflation, excluding food and energy, was 6.3 percent. Currently, the target range for the federal funds rate is between 3 and 3.25 percent. That’s not enough, according to Hathaway, who said the Fed needs to raise its key rate to successfully cut rates. “You need to get 8 per cent on the policy price to crush [inflation]Hathaway spoke with Kitco News host and producer David Lane at the Precious Metals Summit in Beaver Creek, Colorado.
public debt constraints
With US public debt to GDP at 123 per cent, Hathaway said he “cannot imagine” that the Federal Reserve would raise rates high enough to successfully combat inflation.
He referred to the 1970s period of high inflation, which prompted the Federal Reserve to raise interest rates by as much as 20 percent. “The economy today is more fragile than it used to be [in the 1970s]He said, “Public debt to GDP in the 1970s and early 1980s was a small part [of what it is today], like 30 or 40 percent. Today we are between 120 and 130 per cent. “If the Fed raises interest rates, it could impede the ability of the US Treasury to service its debt.” Every 1 percent increase in the interest rate paid on that $30 trillion debt adds $300, he said, “a billion dollars to the budget deficit…there are real limitations.”
the role of gold
Hathaway said inflation hedge isn’t the only reason to hold gold, as she said gold is a hedge against “systemic risk.” “If you look at long periods of time, I’d say gold keeps pace with inflation, but I don’t think that’s a reason to own it,” he said. “It’s finally [a hedge against] Systemic risks and system dysfunction. He cited the 2008 financial crisis as an example of this dysfunction, along with the 1970s period of stagflation. We are now in a more dangerous time than at any time since the 1970s,” he said, “and the reason for this is… the ratio of global debt to GDP is higher than ever.” He added that with such a high level of debt, “ “The usual drugs of raising interest rates and slowing monetary growth” can weaken the economy., and lead to systemic risk of default. “I think we will see a lot of defaults in the next 12 months,” he said. That could turn into a sovereign debt default.”
For a gold price forecast in Hathaway, watch the video above.
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