(Kitco News) - Warnings of stagflation reminiscent of the 1970s are resurfacing, challenging the prevailing economic optimism. In an interview with Jeremy Szafron, Anchor at Kitco News, David Hay, Co-Chief Investment Officer at Evergreen Gavekal, voiced a critical perspective, warning against complacency in the face of potential economic headwinds. "And kind of the contrarian take I would take on this overall situation is that we could be in a going stag kind of environment as in stagflation, which we really haven't had since the 1970s. And hardly anybody's talked about that," he states, emphasizing the risk of economic downturn alongside persistent inflation, a scenario less considered yet increasingly plausible.
Stagflation in the 1970s was characterized by high inflation, slow economic growth, and high unemployment, challenging the notion that inflation and recession were mutually exclusive. The era saw policies struggling to control inflation without exacerbating unemployment, marking a pivotal moment in economic policy and theory. This period underlines the complexity of managing stagflation, a scenario that David Hay suggested might be on the horizon again.
The transition to green energy often hailed for its environmental benefits, is scrutinized through an economic lens by Hay, who suggests it could inadvertently fuel inflation. "And I think one of those is, frankly, and I know it's not politically correct, but the great green energy transition is quite inflationary," he said, shedding light on the inflationary pressures that accompany large-scale shifts towards sustainable energy sources with things like increased oil and gas prices.
Hay further critiques the illusion of economic strength in the U.S., pointing to substantial federal deficits as evidence of "pseudo prosperity." He said, "Well, we had a $2 trillion deficit last year in a supposedly good economy. And that's like 7% of GDP. That's typically what you get during a war, a really severe recession," challenging the narrative of a robust economy by highlighting the unsustainable fiscal practices currently in place.
For more on David Hays’s take on future investments and his outlook for 2024, please watch the full Kitco News interview above.