The Fed squeezes the economy into the crater, driving us into a long recession – John Hathaway

(Kitco News) – The Federal Reserve’s monetary tightening could lead us to a “recession from which we will not recover for a couple of years,” said John Hathaway, Senior Portfolio Manager at Sprott Asset Management.

“[The Fed] it doesn’t have a dial to modulate economic activity, “he explained.” Basically they have an on or off switch, and the off switch serves to block the economy. “On Wednesday, the Fed raised rates by 75 bps in response to high inflation. Last year was the highest inflation of the last forty years. Headline inflation was 8.3 per cent in August, while core inflation, which excludes food and energy, was 6.3 percent, between 3 and 3.25 percent. enough, according to Hathaway, who said the Fed needs to raise its key interest rate higher to lower prices successfully. [inflation]Hathaway spoke to David Lin, host and producer of Kitco News, at the Precious Metals Summit in Beaver Creek, Colorado.

Public debt constraints

With US public debt-to-GDP ratio at 123 percent, Hathaway said he “can’t imagine” that the Fed will raise rates high enough to successfully fight inflation.

He mentioned the period of high inflation of the 1970s, which led the Fed to raise rates by up to 20%. “Today the economy is more fragile than before [in the 1970s]”he said.” Public debt to GDP in the 1970s and early 1980s was a fraction [of what it is today], like 30 or 40 percent. Today we are between 120 and 130 percent. “If the Fed were to raise rates, it could hinder the US Treasury’s ability to service its debt.” Every 1 percent increase in the interest rate paid on that $ 30 trillion of debt adds $ 300 billion to the budget deficit, “he said.” There are real constraints. ”

The role of gold

Hedging inflation isn’t the only reason to hold gold, said Hathaway, who said gold hedges against a broader “systemic risk”. “If you look at long periods of time, I’d say gold has kept pace with inflation, but I don’t think that’s a reason to own it,” she said. “Definitely [a hedge against] systemic risk and system dysfunction. “He pointed to the 2008 financial crisis as an example of such dysfunction, along with the stagflation period of the 1970s.” We are now at a time that is more precarious than any other period since the 1970s. “he said.” The reason is … the global debt-to-GDP ratio is higher than ever. “He added that with such a high level of debt, the” usual antidotes to rising interest rates and slowing of monetary growth “could weaken the economy, and lead to systemic risks of default.” I think we will see a lot of defaults in the next twelve months, “he said.” This could lead to a sovereign debt default. ”

To find out the prospects for Hathaway’s gold price, watch the video above.

Follow David Lin on Twitter: @davidlin_TV

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee this accuracy. This article is for informational purposes only. It is not a solicitation to trade in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article disclaim any liability for loss and / or damage resulting from the use of this publication.


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