Gold drifts lower as markets wrestle with rising rates, stepped-up QT
Hanke warns of a ‘whopper recession,’ sustained high inflation into 2024

(USAGOLD – 8/30/2022) – Gold drifted lower in early trading as financial markets continued to wrestle with the ramifications of rising rates and stepped-up quantitative tightening scheduled to begin in September. It is down $5 at $1735. Silver is down 8¢ at $18.77. The gold market’s reaction to Powell’s comments Friday has been somewhat subdued compared to other markets, perhaps signaling that investors believe significant instability still lies ahead. Steve Hanke, an economics professor at Johns Hopkins University who has helped several countries establish new currency regimes, told CNBC yesterday that the United States is headed for a “whopper” of a recession in 2023 coupled with a high inflation rate that will persist into 2024.

He blames “sustained inflation” on “excess growth” in the money supply and the predicted recession on its subsequent contraction. (Please see the chart below.) “The bottom line,” he says, “is we’re going to have stagflation — we’re going to have the inflation because of this excess that’s now coming into the system. The problem we have is that the [Fed Chair Jerome Powell] does not understand, even at this point, what the causes of inflation are and were. He’s still going on about supply-side glitches… [and] failed to tell us that inflation is always caused by excess growth in the money supply, turning the printing presses on.”

M2 Money Supply
(Year over year change, billions of dollars)
linr chart showing year over year growth in the money supply in billions of dollars 2012 to present
Sources: St. Louis Federal Reserve [FRED], Board of Governors of the Federal Reserve System

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