On Wednesday, President Joe Biden announced new programs to fight climate change, including $2.3 billion to help communities retrofit buildings and build flood defenses. In fact, governments and companies around the world are employing ESG (environmental social governance) policies to deal with concerns about climate change.
However, the “emotional” response to climate change has weakened economic growth and caused inflation, said Frank Holmes, CEO of US Global Investors and executive chairman of HIVE Blockchain.
“Climate change is basically embedding inflation,” Holmes said. “Many [inflation] has to do with energy inflation in Europe, panic nuclear shutdowns in Spain and Germany, and taxation of cars and trucks.”
Holmes, who correctly predicted a market boom in 2020, now predicts that the Federal Reserve will reverse course on its monetary tightening and cut interest rates by Thanksgiving.
He spoke to David Lin, host and producer at Kitco News.
ESG and climate change
Holmes suggested that ill-conceived ESG policies are leading to supply shortages and more cash printing as governments seek capital for green energy plans. This in turn leads to inflation.
Citing the recent political upheavals in Sri Lanka, he said: “They have forced organic food all over Sri Lanka and they have seen a 20 to 30 percent drop in production. Inflation has gone through the roof and there is already huge rioting in the streets.”
Last April, the Sri Lankan government banned synthetic fertilizers and pesticides and ordered the country’s 2 million farmers to switch to organic. Domestic rice production fell 20 percent and the price of rice rose 50 percent.
Holmes added that markets are sensitive to Fed rate hikes due to climate regulations.
“Climate change regulations are not synchronized,” he said. “They’re just panic buttons being pushed everywhere… These regulations are stifling around the world.”
A Fed Pivot?
There have been global protests over higher prices and cost of living concerns. Holmes said civil unrest could prompt the Fed to cut interest rates.
“All we have to do is get a big protest like they have in Europe… there’s a trend that’s going on in countries around the world,” he explained.
He predicted that the Federal Reserve would hit the “panic button” and ease monetary policy “by Thanksgiving.”
Holmes tracks the Producers’ Manufacturing Index (PMI), which he believes is a leading indicator of overall economic health.
“PMI is shrinking globally,” he said. “If the world [economy] suddenly starts to shrink, panic buttons will go off and there will be a faucet open with more money being printed.”
Watch the video above for Holmes’ prospects for gold.
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