Steve Hanke: Shrinking Money Supply = Recession And Sub-2% Inflation By End Of Year

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When I interviewed today's guest expert back in August of 2021, when inflation was 5%, he made the bold prediction that the CPI would eventually hit 9%, a prediction that seemed unthinkable at the time -- but it indeed proved true less than a year later.
He then called for inflation to moderate substantially, which it also then did.
Where does he see inflation headed from here?
To find out, as well as hear his latest outlook on the economy, recession risk, social stability and the markets, we welcome back Steve Hanke professor, of applied economics at the Johns Hopkins University in Baltimore, Maryland
#recession #inflation #moneysupply
0:00 - Macro & Market Overview
5:05 - Loss Of Currency Purchasing Power
18:34 - Money Supply Predicts Recession & Lower Inflation
26:25 - The 10-year UST Looks Attractive
29:00 - Future Monetary & Fiscal Policy
40:00 - The Lag Effect WILL Happen
52:18 - How Bad Is The US Debt Burden?
57:15 - Steve Conclusions
1:00:47 - New Harbor week-in-review
_____________________________________________
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[@adam.taggart]

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[@charlesbrown9213]

Hanke is dogmatic monetarist. Fair enough. But Hanke has been "early" in his prediction for quite some time. That is the same thing as being wrong... Hanke's focus on money supply is directly at odds with Michael Howell's "follow the liquidity". Howell indicates the "liquidity impulse " will continue through at least 2024... Howell's charts/timing strikes me as more persuasive. Its not about "fiscal dominance" or "monetary dominance"... Its about "liquidity dominance"..

[@craigh2222]

Not that anyone will care, but Steve Hanke is my FAVORITE ECONOMIST! (Close second is Peter Schiff). I LOVE this guy. I wish I had a professor in college like this.

[@blobtv7444]

Both wrong on the best asset in the world, bitcoin

[@rudeawakening3833]

Professor Steve Hanke - one of the BEST guest’s anywhere ! Thanks Adam for having him . If I can make a suggestion ; have him on each quarter ! That would give us a front row seat to our economic condition - ESPECIALLY in the next 1-3 years ! Great job , love your new platform .

[@blobtv7444]

He said bitcoin is going to zero..lol

[@rudeawakening3833]

@@blobtv7444 And one day it might … Professor NEVER gives “ dates “

[@rudeawakening3833]

@@blobtv7444 Yeah - but did he say “ when “ ?

[@captkeebz]

I don't gauge misery by comparing against other nations. I've watched my country accelerating in decline the entirety of my adult life. State-backed monopolies dominate the markets at the expense of small businesses, eradication of manufacturing and the middle class, stripping of civil and economic rights, an increasing fire hose of public wealth laundered to the top and out of the country... Many of those other nations have misery issues directly due to actions of the western empire which in no way represents the people

[@captkeebz]

Great guest though. Have him back

[@dailydoseofnews4828]

Look at number of housing units built per year in the US, flat/down last 60 years even tho US population has doubled. Number of cars sold per year has declined 70%. The US population has gone backwards while the top % in the US + the cheap labor in mostly China has done better.

[@1Skeptik1]

I would argue Middle America began to loose purchasing power when our manufacturing base was outsourced about 40 years ago. I was a well paid IE employed with a Fortune 500 Co. 1973-1987 and watched thousands of high paying jobs (both wage and salary) disappear along with the tax base and fringe (pension, health care). You can't replace those jobs with service (will that be super size) with out dire economic consequences. In 1987 our custodians were paid $500 a week plus fringe (over $100,000 today inflation considered.)

[@hedgedrisk6487]

@@1Skeptik1many would argue thats because of labor unions and the corruption there.

[@jorge1170xyz]

Money printing is at the root of many of those things. By having the undeserved privilege of being the reserve currency, the US does not have any external force (like a bond market) forcing politicians to make any tough decisions. The answer to any dilemma is always print more and more. It has "worked" so far, but every time they print it makes the already rich richer, the poor poorer and the middle class just keeps shrinking. That's why all these old timers have been so wrong about their recession calls for years, they don't understand that there's two completely separate Americas now, the one that thrives off the money printing and the one that feels the pain from that printing in the form of inflation and reduced quality of life. In the stats/official data, the two Americas balance each other out and as such no economic malaise is visible, but ask many Americans and they feel it.

[@user-jc7tn5hs6v]

If government wasn’t a part of GDP calculation, where would GDP stand?

[@benfox383]

I actually saw a chart that accounted for this and our GDP without government intervention was something like -20% or something crazy like that

[@InnovativeSustainableSolutions]

Just the 1.7T deficit exceeds the 1.5T in GDP increase

[@prygler]

Recession is the answer. The government deficit spending is almost 7% of GDP. Remove 7% of GDP and you clearly are in recession very fast with high interest rates and QT in the mix.

[@bradw2k]

Hanke is a great guest, knows what he's talking about and isn't some spaz trader.

[@garybennett8880]

Wow the 3rd highest ranked economist. Thoughtful Money is the very best in the industry, most impressive.

[@carrimycalifor]

It sounds like a lot of the commenters maybe didn’t listen to the whole interview. Steve Hanke is one of my most favorite guests and, during this interview, clarified so much confusion I had from other guests (also great ones) discussing liquidity, M2 money supply, fiscal vs. monetary dominance, etc, particularly the difference of effect on the economy between the Fed monetizing the debt by buying treasuries vs. not buying the treasuries. THANK YOU!!! It all makes so much more sense. Also, I would love to see a guest talk more about technicals. The way many of the financial advisors talk (like Darius Dale), one would think that all you have to ever do is look at technicals and you’re good. They sort of talk like it’s super easy and obvious, just numbers. I’m just wondering, then why any financial professional with knowledge of and access to technicals like that would ever lose money at all if it’s really just about that? Obviously, I know it’s not that simple, but this is the way many of them make it sound, so I would really love to have someone shed light on when technicals can go wrong. I really haven’t seen anyone go in depth about that. Thank you!!

[@rimor3579]

Adam, you're not alone on the lag effect. I am a long time observer of the markets. The recession will happen when the recession decides to happen, but it will happen when no one is ready for it to happen. P.S. I really like your channel, because almost all your guests come at different angles on how this market behaves.

[@mikedevere]

Yes, bring back Steve and also persuade Darius Dale to give us his views at the beginning of each quarter 💪

[@sbain844]

Well, I agree with Prof. Hanke about the recession part of his prediction, but I see higher inflation by year end, not lower. I don't know how he measures the money supply, but however he's doing it he's doing it wrong. Money circulating in the real economy for goods and services (rather than financial assets) is increasing, not shrinking. The coming recession will arise via rising costs of production and falling productivity. Additionally, we are facing an impending banking crisis that may well hit us this year - the consequences of that will be QE-to-infinity and an eventual collapse of the global financial system via sky-high inflation and a worthless bond-market.

[@issenvan1050]

Monetary policy acts with long lags. & Hanke’s CPI projections have always been accurate! You are wrong. Listen & learn.

[@SunofYork]

ok so you are predicting slumpflation. How do you see that affecting long treasuries ?

[@tagsoneveryting]

@@issenvan1050Henke is wrong on the the direction of money supply. Because he's only looking at M2 and Fed balance sheet. That's not the whole story. Global Liquidity is rising. It has been since Oct 2023. See Micheal Howell's work on this. It explains one good reason markets are up. Long term though I think Henke is right about a recession because the yield curve is still inverted and a ton of money has been printed to float the economy.

[@issenvan1050]

@@tagsoneveryting He is looking at the consolidated balance sheet of commercial banks + the FED’s BS. You are wrong.

[@issenvan1050]

@@tagsoneveryting Inflation is a local phenomenon, not a global one; & even if the liquidity in US were rising now, it’d take a long time for the effects to be seen.

[@Taylor201100]

Always enjoy listening to Steve Hanke.

[@rbhawcroft]

The money supply contraction he is talking about is mainly QT taking out excess reserves, broad bank credit is still growing 2% YoY but is slowing down towards flat or negative in the coming months. Bank loans to businesses are already -3% YoY and that is normally associated with a recession.

[@mattanderson6672]

Thank you or having Steve back!! He's got some brilliant points Love Mike and John's analysis too, two brilliant minds in their own right!

[@wildmountainsky]

Great job as usual Adam. You pulled on some strings, which other recent interviewers with Dr. Hanke failed to touch.

[@NatiaMaisuradze-ey5iq]

Every scenario in financial markets has a pattern of repetition. Artur Grandi's book offers a precise strategy for stabilizing investments, even within the realm of cryptocurrency

[@lfw3733]

Why would the economy ever surge again with very minimal production and piss poor infrastructure?

[@MAMP]

Because if you dump enough fake money on it, the metrics look good sorta ;D

[@SunofYork]

"production" is so Chinese economy.... The west lets them produce manufactured items

[@Erikpdx]

We're investing in chip production. So there's one example

[@Lexman00]

@@MAMPAnd if you dump enough government workers in the data, that also makes the jobs numbers look good.

[@MurphWilds]

I like the bit at the end about educating the college seniors.. amen.

[@douglasstone3813]

There is no way in hell there will be 2% inflation at the end of the year the U.S. Govt. is spending trillions even if you are broke inflation will continue to burn bright. Get ready for an inflationary recession. However some goods will fall in price like housing and fuel but many others like healthcare, insurance, food will continue to increase.

[@issenvan1050]

Do you know what inflation is?

[@Yetified_Mayhem]

Yep.. Inflation bottomed. Fiscal dominance for now.

[@issenvan1050]

@@Yetified_Mayhem Inflation is dead.

[@kauaifishing1365]

2% above 40%. In Hawaii food and gas is 40% above 2020…and it hasn’t dropped at all

[@Jalleur14325]

I can't see it either. I think the government will keep on printing, taxing us via inflation

[@cvrart]

In recent years, corporations have been playing tricks to keep P/E ratios from going too high by buying back shares and, thereby, raising the EPS. So, P/E ratios may be hiding how overvalued corporate stocks are. Other formulas, incorporating other measures such as price-to-sales ratio, price-to-book ratio, tangible book value, debt-to-equity ratio, etc. would be a better way of determining overvaluedness. I think if we formulated such a more holistic measure, we might see a very different picture when viewed on a chart going back 20+ years.

[@williammason352]

For those seeking counsel, "Buy value at fair or more advantageous prices (undervalued)." Simple. If you don't understand what your advisor is buying/recommending, why use them? If you understand it, why use them? This has been my logic, but I know some will disagree. At the end of the day, it's all about financial freedom. If you can attain your financial freedom with help & not alone, by all means, get it. Another solid video by Adam & his guests 👏

[@evgeniiastapov354]

Thank you for the great interview!

[@scotthodor4292]

Marrying the right person is highly underrated but massive impactful on well being. Steve always brings great content. Thanks

[@petergozinya6122]

Thank you Adam

[@BourgeoisRaser]

Wow, Thanks Adam for never leaning into learning

[@leeannjensen2165]

Thank you for your channel. Thank you also to those who you interview.

[@redmanxx73]

Assuming money supply and liquidity are related concepts, I wish Adam had challenged the professor with the views of Michael Howell.

[@stephengerrard6412]

Yes very strange he didn’t

[@_____MANI_____]

Hello Adam. First of all, rhank you for your commitment in sharing knowledge in this very overwhelming field. I always listen to your interviews with the maximum interest, and I so very much appreciate your work. Listening to Steven Hanke made me think that maybe it could be interesting to you and to your audience to also learn about a different opinion on the current situation, from people like Stephanie Kelton and Fadhel Kaboub, both representative of the MMT side of the economy. I feel especially on the "benefits" of the dollarization of a whole country they would have a lot to say.. In any case, thank you again for your important contribution to help everyone understand these topics.

[@paullunkes8383]

Thanks once again for another excellent interview…your continuous hard work is much appreciated!!

[@spikelee1481]

“Be more like buffet and have cash on the side lines”

[@darrenhere5856]

i am not a buffett fan, but i sure do agree with him at this point in the cycle.

[@machoheadgames8854]

Buffett's cash position is around 16%, which is in line with his historical average.

[@charlesbrown9213]

Buffett also owns a lot of equities. Does Berkshire hold more T-Bills or more equities?

[@dixiederivatives]

Adam, nice haircut! Shorter makes us look younger 😊

[@fhowland]

I thought so too.. my gf always said I looked old when I got my hair cut short though lol

[@robertratz5305]

Thanks! Great show.🎉

[@adam.taggart]

Thank you very much!!

[@TomMe-nx8dk]

Great talk

[@jadeluu518]

Awesome guest professor Steve Hanke ...:))) ❤❤❤😊😊😊❤❤❤

[@pjb954]

Excellent guest, excellent video.

[@prashantmandare2875]

I love this channel and most of the folks that Adam brings on. This guy is nothing but another mainstream economist who does not bother to look at second level third level and dig deeper. Most people believe that when Bill Clinton was in office he had a very tight fiscal policy and balanced the budget or had a budget surplus. If that was true then we would have made a down payment on national debt and it would have reduced. Look at the chart of national debt and how much it rose during 8 years of the Clinton administration. Secondly yes the money supply by the traditional narrow measure of M2 has been reducing. However when you add the expansion in consumer credit and rising deficits of US government the broadest measure of liquidity and money supply has been growing for last 15 months or so. So forget about inflation getting down by the end of the year.

[@jasonmeyering4701]

Excellent interview 👍🏻

[@0hub1ot]

Year-over-year inflation stood at 6.5% in December 2022-the lowest that figure has been in more than a year. Inflation was in line with what economists expected and gave many of them a reason to believe that the peak of inflation may be behind us. I have approximately $150k stagnant in my portfolio that needs growth. What is the best way to take advantage of this downturn?

[@jamesbuchanan210]

I’m buying CLEAN-SPARK BLOCK SOFI,PALANTIR,SYMBOTIC. Xmas rally will take pltr to around $50 by early Feb, then sell off to around low $20's then this growth from this point will not stop for years to come.

[@lacyseiler6712]

I'm sure the idea of a consultant might sound generic or controversial to a few, but with the help of my consultant, I've been investing for a while, and I couldn't be happier. Her company offers the broadest financial guidance currently accessible, has given me the best ROI while safeguarding my capital. It never squanders my money on dangerous speculation or poor risk-management techniques.

[@AlexzanderMckenzie]

I've actually been thinking of reaching a portfolio-adviser, my 401k and stocks been losing everything it's gained since 2019, mind if I tap in with the person helping you ?

[@lacyseiler6712]

I work with Camille Anne Hector. Investing with her has been a different ball game entirely so different from the stale methods of managers I’ve worked with in the past. last year was my best ever because I'm over 1m which I really never thought I could reach at the start of the year.

[@AlexzanderMckenzie]

Very much appreciated. Searched her full name on my browser and found her site top search, no bs.. so many years of consistency like that is certainly striking!

[@MichaelHarrington17]

Steve is an excellent monetary economist. I just wonder about the historical relationship between credit liquidity and the money supply these days. Is our definition of the money supply relevant today with shadow banking and global liquidity? I suspect dormant Eurodollars may come rushing back to the US.

[@manfredh.7460]

Sorry, I think a 90-minute program is too long without an outline in the form of time stamps.

[@fhowland]

You don’t have 90 min?

[@ppierodds]

to save time which is dollars 🤣always play back at highest speed disernable 1.50 1.75 2 x use the gear setting button at thebottom right of the video.

[@caseyrindal1815]

All the economic increase is from government spending. Steve should know that.

[@Erikpdx]

Government spending is a reality and increase in economic activity is one of the benefits. If we're going to talk about downsides, like I flation, we should talk about upsides as well

[@seaday123]

Agree. Not a good interview when it starts with the guest saying things are sailing along fine. Without stating the numbers are fueled entirely by the public sectors deficit spending.

[@wasdwasdedsf]

@@Erikpdx real economic growth is not one of its benefits

[@Erikpdx]

@@wasdwasdedsf is we're building chip plants, highways, and power plants, it's real growth. Its a source of production. Sorry if you can't accept that. It doesn't matter if the government initiated it or private capital

[@wasdwasdedsf]

@@Erikpdx "is we're building chip plants, highways, and power plants, it's real growth" dont know what you mean, you type as if its arbritrary. if musk builds plants with his investments, i have one estimate of the effeciency per dollar used to do it with... "Sorry if you can't accept that. It doesn't matter if the government initiated it or private capital" i understand. so if china wanted to beat america to the moon and started a moon program in 1948, ten years before the americans even started, you would have said that would have been a perfectly effecient use of money, given the fact that when achieved, a lot of inventions would have came out of such a moonmission?

[@shortwarstories9792]

I just wish I knew of GDP-type measures for the US that incorporated effects from dollar-dependent economies like in the Persian Gulf. Maybe the return on effort isn't there, but I know the ratio of US debt (and US money supply) to US GDP are skewed in one way or another by China, one way or another by Latin American countries, and heavily by GCC (Persian Gulf) countries because of their saving and spending in dollars and dollar instruments. Other than that, I totally agree with John's message: especially after putting up the charts toward the end of the presentation (made Dr. Hanke's commentary so much more tangible: thanks a ton for that). Chris

[@subsidiarity8839]

We're into the realm of astrology at this point. Pure speculation in uncharted waters.

[@riverraven7359]

There are some things that you can reasonably plan for in the long term, it's trying to see the future in less than one year that trips people up.

[@rickpearl1529]

I'm confused, if the money supply is shrinking the interest rates i.e. savings, CDs, loans, etc should be climbing. Bankers should be begging me to put my money in their vault.

[@jeffreyestrada5935]

Banks are offering 2 year CDs that are about 5.2% yield while 2 year Treasuries are only 4.67. Risk premium on CDs suggests banks are in trouble.

[@rickpearl1529]

@@jeffreyestrada5935 True and I have several CDs at 5-5.15% but the current trend is that they are dropping, especially longer term CDs.

[@commissarcarr2463]

That’s the issue. There is no money anymore just numbers on a screen. If government doesn’t like a few key strokes and all good. 😂😂😂

[@noztik1649]

Please bring Steve back asap Adam. Great interview 👍 👏 🙏 ❤️. Happy Easter and cheers 🍻 all. ⚛️🕉✡️☸️☯️✝️☦️☪️🛐☮️🕎🔯🪯

[@jorisdorsman2532]

Love your interviews Adam. Very insightful across a lot of experts. Perhaps you could keep them a bit more snappy. Max 45mins feels perfect for me, so I can actually follow most of them. I can imagine others might struggle to follow all your episodes if they are 60-90min.

[@georgetodd481]

So, let me get this straight. the Treasury is issuing record amounts of debt (3 Trillion this year) but that does not increase the money supply or cause inflation? Really??? Just because the FED is not buying all that debt? The Treasury is sending out over $1 Trillion this year in interest payments from money that is being printed! Real inflation rates are over 5%. Prof Steve needs to get out into the real world and see what is really going on.

[@patrickkassen5932]

Prof. Hanke provides a great intellectual framework. I believe monetarism has lost some of it weight because the velocity of money has become more variable than when Friedman was so influential. I would be curious to hear the Prof's views of the velocity of money and whether he considers it. Thanks

[@Hanginglimbs1]

if you asked me to draw someone who would predict a recession in , i would draw this guy

[@rupertsmith6097]

Lol. Mr Misery index.

[@wasdwasdedsf]

ishe known for that?

[@standinginthegap7118]

We have to begin actually producing things of value again pure and simple. We have to start manufacturing, extracting minerals, farming etc. Otherwise we will implode because we can’t get something from nothing. We have to focus on blue collar rather than white collar jobs

[@James-bb8xs]

Great interview of steve by Professor Taggart here!

[@7minutosconlabiblia145]

Great interview. The professor is one of best economist !!!

[@johnfkeating]

Adam, very grateful to your channel. With all respect sir the guest has lost touch with reality. You know inflation is so much higher than it’s being said. CPI. Don’t forget the first letter stands for consumer. The consumer is over leveraged and broke. Bankers and corporations can not hold this up.

[@dagsterblaster4973]

US Stock Market Capitalization has hit 200% of National GDP. In the last all time high, Y2K, it was about 160%. US Housing now trades at 7x US HHLD income, in 2007 in the "housing bubble" it was 6x. Corporate Tax rates are the lowest since 1939..... Dogecoin has almost tripled recently... The alarm bells are so loud as to instead sound like "cheering". We are likely on the eve of a crash that equals 1929, 2000, and 2008 all wrapped up in one.

[@marciobastos7145]

I think you are right. Just not sure on the timing.

[@carloschu7127]

The next President is going to open the money printer and stock market cap going to be bigger. Housing trading might be higher 10x ? We are going to live in RVs. Dont forget utilities bills going up as well.

[@dagsterblaster4973]

@@carloschu7127 Imagine you retired 10 yrs ago, now living on a fixed income. Purchasing power from that fixed income has put you in jeapordy of being able to survive without bankruptcy, and or selling your home. Dark times ahead unless we can extend and pretend for all our eternity.

[@dagsterblaster4973]

@@marciobastos7145 Walking financial dead then right? An investor today is tempted to continue doing imprudent things because "number go up". I've been an advisor for 32 years, and the rhetoric, media, client interactions are just like 1999. The rest of this year may very well see a blow off top in a mind blowing fashion, but when the tipping point hits it's going to be a 3 years slide that could bring US equity valuations down as much as 75%. (Should stocks trade at 50% of GDP like they have done in past corrections).

[@carloschu7127]

@@dagsterblaster4973 That is why we should never leave the stock market. Better returns than Tbills or Bonds. Uncle Sam is becoming insolvent ( increasing debt ), when fiscal policy is something like a dinosaur, the goverment should increase taxes, decrease goverment spending and debts and sadly 401ks. Something we are very close, also due to older demographics. Unless the World Economic Forum ( WEF ) decides, time to banish money and financial system. ( 😈 Klauss Schwab )

[@pamdemic7848]

My favorite guest. But you’ve got to let him run.

[@dustindavid5094]

Adam, what is the difference between the liquidity that Michael Howell talks about and then M2, what professor hanke measures?

[@cvrart]

The most compelling benefit from buying into treasuries now, including through such vehicles as TLT, VGLT, EDV, would be the near term increase in principle value if we enter a recession later this year or early next year, and if a lower inflation rate allows the Fed room to cut rates down by a good amount (maybe down to 2% or a bit lower). Considering all the challenges with funding interest payments and defaults associated with higher-for-longer, it seems the cards are stacked in favor of rates dropping back down again - at least for a period - to respond to financial stresses from the lag effects as they hit like a tsunami across the global financial system. And, if it takes longer, then just be content to collect the interest and lie in wait for the crisis to arise.

[@cvrart]

Well, I commented this early on in the interview, and then you guys expressed basically exactly the same idea, so I feel vindicated in adopting this strategy.

[@EduardoMartinez-ys6fb]

That is my strategy. Consumers and businesses are struggling at interest rates at these levels. They will pay down their debts or go bust, both of which are deflationary. Interest rates and yield on government debt will follow, downwards. Get the capital appreciation and enjoy the 4+% while you wait. Look at Japan for your future.

[@prophetxx4854]

Great Interview.

[@altondrew]

Great interview...

[@issenvan1050]

As always.

[@JamesG1126]

+40% followed by -2% isn't a shrinkage in money supply.

[@MariuszKarch-yz7wc]

Healthy money supply is 6% per year. In 2020 we had 40% (34% above) and none since... In 2025 if nothing changes we will have money supply below long term healthy growth.

[@issenvan1050]

It is about the RATE of increase in money supply!

[@jcgoogle1808]

@@issenvan1050 No it's not. That's not even what Hanke claims.

[@jcgoogle1808]

Exactly. 34:20 Man it's annoying to watch Hanke ignorantly repeatedly claim monetary theory is the sole driver of inflation,.. That "ONLY monetary policy matters",.. implying that the government can continue to deficit spend like drunken sailors all they want,.. no problem. When we see all kinds of reality that says it's not. And then he says the economy is sailing along pretty well. Yeah,.. Never mind the $2 to $3 trillion annual deficits it's being artificially inflated (literally) on. LOL Inflation in the periods between 2009 and 2019, the pandemic up to now and even the late 90's he mentions during Clinton's second term when Gingrich forced him to balance the budget are examples of why Hanke is absolutely wrong,... NOT examples of why he right as he deliriously seems to think. First, monetary policy follows fiscal policy. Ie, monetary policy reacts to fiscal. The Fed doesn't force this insane senile ole joe admin and the demcorats to unnecessarily continue to spend 50% more in 2021, 22, 23, 24,.. years after the pandemic is over than was spent the year before it started,.. while we're not even in a recession or a WW to justify this unprecedented criminal fiscal deficit spending. I mean even Keynesians don't even believe this. Hanke's monetary theory model doesn't work. And if Friedman were alive today to see what the senile ole joe admin is doing to the country, he would agree with me. Hanke thinks the economy is "sailing along pretty smoothly A. You can't any more predict inflation from MV=PQ than the man in the moon. The money supply went up about 30% between 2020 and 2022 and inflation went to 9%. The money supply has fallen from that extreme height a mere 4 or 5% and inflation is still 4%. According to Hanke,.. a shrinking money supply should cause deflation. We're far from deflation, Of course the reported inflation numbers aren't accurate,.. the real much higher numbers. M2 doubled between 2009 and 2019 and inflation averaged 2% per year. M2 went up 30% between 2020 and 2022 and we got 9%. Something is amiss. And that's because,.. 2. Inflation has to do with supply and demand The supply and demand of commodities, equipment, energy, labor,.. etc and MAYBE most importantly the supply and demand of money,.. but the Hanke sees it,.. but where money supply has 2 components,.. 1. monetary policy, where if the Fed juices the banks to lend more, they do so with reserve creation (expanding M2) (possibly through QE as was done between 2009 and 2019) that remains in the banking system backed by assets and an obligation to repay the loans (not necessarily inflationary) and 2. fiscal policy, deficit spending, printing (expanding M1) and sending checks directly to consumers where there is no asset or obligation to repay the loan.(extremely inflationary) These 2 components are analogous to real (fiscal policy) and imaginary (monetary policy) numbers in trig or phasors in electricity or 2 or 3 dimensional vectors in mechanics. Where the latter (2. fiscal policy) aligns more in the vertical direction of the phasor diagram and the former (1. monetary policy) aligns more along the horizontal axis. The more the component aligns with the vertical axis, the more it contributes directly to inflation. I mean how do they determine CPI? They add up all of the price changes from hundreds if not thousands of different things produced and bought. They don't solve MV=PQ for P. And what are the prices changes of these things dependent on??? Supply and demand,.. The supply and demand of commodities, equipment, energy, labor,.. etc and maybe most importantly the supply and demand of money where money supply has 2 components,..... In developing nations (where Hanke gets his anecdotal info) where they print money out the Wazoo, yes,... it would seem MV=PQ may work perfectly fine. But I'm guessing these countries don't have a fractional reserve banking system (or much of a bond market)... where money supply waxes and wanes through loan generation,.. and an obligation for repayment,.. upon which the money generated out of thin air, returns to thin air (less interest),... because the interest on the loan and/or bond would be astronomically high. And this overwhelms the supply and demand of the other variables,.. commodities,. etc And therefore inflation is dominated by money supply or more importantly as Adam said,... (M1 and M2) money supply increased by fiscal abuse. The central banks in these countries aren't forcing these governments to deficit spend like drunken sailors. The central banks in these countries (as they are in the US) are only reacting to the irresponsible criminal fiscal abuse.

[@issenvan1050]

@@jcgoogle1808 That’s what inflation is.

[@originalintent6916]

M2 has gone down but how much USD has been repatriated from BRICS+ and others? Sure in the long run, money supply ultimately matters, but the amount circulating INSIDE the U.S. and the velocity of money matter in the short term.

[@taratong9074]

I really did enjoy this interview. I would like to see what he has to say in about 6 to 7 months to see where the data in the charts are.

[@noelkelly4354]

'Recession And Sub-2% Inflation', so we're going for the early 90's recession.

[@mine0002]

Money supply yes is big, but if you have low productivity, low actual production of goods, food, services then money supply becomes mere paper...you can't eat paper..you can't keep an economy without people producing tangible edibles and products needed to sustain infrastructure, transportation, farming, machinery, etc...

[@user-bj9dc3or4w]

Yes you can, it's called debt. Duh. Borrow money to import what you need even though you don't produce it. The us has been doing this ever since they outsourced production to china

[@debbino4249]

right, and it is time to pay the piper. @@user-bj9dc3or4w

[@Jalleur14325]

Another great guest but I would find it really helpful for someone to explain what is the difference between monetary policy and fiscal policy. I had always understood fiscal as taxes but maybe that's a very basic understanding. Re. Deflation - how I wish we would get inflation, it would give us all a break. But that ain't gonna happen. I can't see how QT doesn't stop, and QE ramps up to try and save Biden.

[@mackakiwinz4353]

Love Steve thanks guys

[@user-eb2xp5ej9k]

❤ Thank you

[@dubhsith5993]

I think Hanke focuses on "monitary policy driving the *economy*" while many of us are focused on "liquidity driving the *marketts*"

[@Hueyck]

Yes I’d like to hear hanke’s views vs Michael Howell. Because it sounds like Howell disagrees that the money supply is contracting since last year. So hanke could be right but completely wrong because he is only using a partial measure of liquidity.

[@dubhsith5993]

@@Hueyck Exactly. What would be interesting is knowing the "money supply" equation. I track a BS-TGA-OvernightRepo for liquidity... (I'm seeing indications that's trending down-FYI) but what does Henkie or Howell measure those?

[@mattg8431]

Adam, I wish you asked prof Henkel about the rising liquidity that Michael Howell is talking, how is it different from shrinking money supply?

[@timfatout7082]

Don't buy the money supply reduction argument. The reason why is the money supply was dramatically increased in 2020-2021. The decrease Hanke is referring to is 1) in a short more recent time frame and 2) is way smaller than the increase since 2020, so given a more realistic time frame the money supply has still increased a great deal. - Hanke's argument is like the price of gas going from $2 to $10, then saying a drop to $9 is a big price reduction - no, the price has still gone up by $7.

[@brianoleson9224]

it is a big deal becasue it has only happened one other time at this magnitude since the year 1900... its huge and it started to happened in 2022

[@MrFargo1001]

When it comes to Inflation, the Velocity of money is much more important than Quantity. M1 fluctuates around $2 Trillion and has always been inconsequential in the equation. M2, which affectively feeds the Stock Market, is enormously the biggest factor and is easily manipulated by the Powers that be.

[@jdedad]

Other countries problems is interesting but I don’t care for micro details high level good enough I’m Concerned about the USA

[@LPJCP]

This gentleman seems not to care about the monetary equivalency MV = PT. If it was only the money supply the nominal GDP would already be negative. The velocity of money (V, in the equation) has risen faster than the money supply has fallen. Hence, we've seen strong nominal GDP (PT, in the equation).

[@issenvan1050]

So, Hanke predicts ~2% CPI with two consecutive quarters of negative nominal growth or negative real growth?

[@glendawson1271]

Interesting comments from a very wise man. But, looking ahead, it is hard to see how the Fed is not going to be FORCED to start buying Treasuries because nobody else will want them, except at unacceptably high interest rates. So, looking ahead, it is hard to see how inflation is not going to come back. That is why fiscal dominance is where we are heading, and that is what we should be thinking about, not claiming that inflation is heading to 2% or below. Prestigious PhD economists have a miserable track record of predicting interest rates, inflation, oil prices, or anything else for that matter. That being said, I like this guy a lot and think he is a very wise man. In the long run, it is all about the money supply. Our politicians, as usual, are using magical thinking and ignoring the basic facts of economics.

[@davedupree4965]

Sovereign Debt Swaps between countries will become a thing...we swap our debt to say Japan for their debt at an agreed exchange rate. Bondholders get paid early at par, and the exchanged debts are cancelled at settlement.

[@insomniactravels6185]

De-globalization and reshoring will introduce friction and increase costs in supply chains, - which is inflationary. As well, already existing sanctions, trade wars, and kinetic wars will continue to escalate in an amorphous multipolar world. These too are inflationary. Inflation is not just monetary, there is (physical) economic inflation too! Sorry but this is definitely not one of this show's better guests.

[@1Skeptik1]

Help me. How much of the GDP is welfare/government spending? I recently heard it mentioned such spending is counted on the asset side of the balance sheet. Yes? Anyone?

[@larryh9525]

I only got as far as the intro clip and decided this was another person predicting gloom and doom. Without a policy mistake or a black swan event, the balance of this year will likely parallel 2017, which indicates its got another 10% to the upside to 5,700. (On Sunday night the ES and NQ futures have gapped higher and are straight up.) At present, Powell just told the market he expects 3 cuts this year, even though the dot plot is leaning toward two. I think Michael Howell from CBC has it correct, and what matters is liquidity. Some credible people have missed this rally (Mike Wilson and David Rosenberg for staters). This market reminds me of 2006 when it just kept going higher until it didn't. At this point, Powell cares a bit less about controlling inflation and a bit more about the unemployment rate, because if the unemployment rate starts edging higher and inflation stays constant, then he will have a bigger problem. I have no doubt that at some point, the chickens in this economy will come home to roost. Until then, your guest predicting gloom and doom won't get much love from the audience.

[@felicisimo-wy3hs]

Awesome - Professor Steve Hanke is one of the few experts who know the value of money supply.

[@nevillokapi3617]

Every Single Empire from Rome to the British Empire have ALL FALLEN..REAL currency = Real Hard assets.. GOLD,PLATINUM AND PALLADIUM 🙏🙏❤❤❤

[@rhwinner]

Those books in back of Steve look like they've been read many times.

[@debbino4249]

It is staged lol

[@donmarek7001]

We should have listened to Ron Paul years ago.

[@johnbirman5840]

I was Surprised Gold was not mentioned. I expect, unless a Biggish drop occurs in Stocks, Gold to continue to increase - as the Risk increases, especially regarding the anticipated drop in interest rates, which when it occurs will be bad for the Dollar. I expect (if there is no flight to safety brought on by a Stock drop) that Gold will increase as rates drop. But it is inevitable that When the Market drops, Gold will also drop. Margin Calls are a Bitch. That is when Gold should be bought plus perhaps Stocks. Gold Now. Bonds Now. Sell Gold at the rate drop. Sell Bonds at the rate drop.

[@byduhlusional]

The Fed admits the hiring market is "strong" but that the hiring rate is low. I think the labor hoarding is here already. I don't think massive layoffs are quite here yet (at least not to a degree where they impact the data), but I think we're in the labor hoarding phase. A lot of companies have hiring freezes too. Remainder of the year should be interesting.

[@tonymanos363]

I like how both gentlemen worked to find better, less alarming words than a “grenade” in the python. It’s best to use words which do not unduly scare others.

[@lynnesews9725]

Yes there are small children watching😂

[@tonymanos363]

😅 when retirees run to the exits in the next downturn Adam and Steve can really reflect on how to keep the herd calm 😅😂

[@simonmaverick7018]

I’d be interested to understand how money in flows from the world have driven the US markets higher as opposed to just the US money supply. It feels like the US mega caps have become disconnected from the US economy and the small caps is more reflective of the US economy.

[@mehditaba6303]

2% rising in costs is a pipedream.

[@MAMP]

I think Hanke is wrong. He bases this entire premise on the public facing M2 measurement. I think we're in the beginning of hyperinflation and its just that some people are starting to catch on.

[@jcgoogle1808]

I think you're right. Hanke is wrong. 34:20 Man it's annoying to watch Hanke ignorantly repeatedly claim monetary theory is the sole driver of inflation,.. That "ONLY monetary policy matters",.. implying that the government can continue to deficit spend like drunken sailors all they want,.. no problem. When we see all kinds of reality that says it's not. And then he says the economy is sailing along pretty well. Yeah,.. Never mind the $2 to $3 trillion annual deficits it's being artificially inflated (literally) on. LOL Inflation in the periods between 2009 and 2019, the pandemic up to now and even the late 90's he mentions during Clinton's second term when Gingrich forced him to balance the budget are examples of why Hanke is absolutely wrong,... NOT examples of why he's right as he deliriously seems to think. First, monetary policy follows fiscal policy. Ie, monetary policy reacts to fiscal. The Fed doesn't force this insane senile ole joe admin and the demcorats to unnecessarily continue to spend 50% more in 2021, 22, 23, 24,.. years after the pandemic is over than was spent the year before it started,.. while we're not even in a recession or a WW to justify this unprecedented criminal fiscal deficit spending. I mean even Keynesians don't even believe this. Hanke's monetary theory model doesn't work. And if Friedman were alive today to see what the senile ole joe admin is doing to the country, he would agree with me. Hanke thinks the economy is "sailing along pretty smoothly A. You can't any more predict inflation from MV=PQ than the man in the moon. The money supply went up about 30% between 2020 and 2022 and inflation went to 9%. The money supply has fallen from that extreme height a mere 4 or 5% and inflation is still 4%. According to Hanke,.. a shrinking money supply should cause deflation. We're far from deflation, Of course the reported inflation numbers aren't accurate,.. the real much higher numbers. M2 doubled between 2009 and 2019 and inflation averaged 2% per year. M2 went up 30% between 2020 and 2022 and we got 9%. Something is amiss. And that's because,.. 2. Inflation has to do with supply and demand The supply and demand of commodities, equipment, energy, labor,.. etc and MAYBE most importantly the supply and demand of money,.. but the Hanke sees it,.. but where money supply has 2 components,.. 1. monetary policy, where if the Fed juices the banks to lend more, they do so with reserve creation (expanding M2) (possibly through QE as was done between 2009 and 2019) that remains in the banking system backed by assets and an obligation to repay the loans (not necessarily inflationary) and 2. fiscal policy, deficit spending, printing (expanding M1) and sending checks directly to consumers where there is no asset or obligation to repay the loan.(extremely inflationary) These 2 components are analogous to real (fiscal policy) and imaginary (monetary policy) numbers in trig or phasors in electricity or 2 or 3 dimensional vectors in mechanics. Where the latter (2. fiscal policy) aligns more in the vertical direction of the phasor diagram and the former (1. monetary policy) aligns more along the horizontal axis. The more the component aligns with the vertical axis, the more it contributes directly to inflation. I mean how do they determine CPI? They add up all of the price changes from hundreds if not thousands of different things produced and bought. They don't solve MV=PQ for P. And what are the prices changes of these things dependent on??? Supply and demand,.. The supply and demand of commodities, equipment, energy, labor,.. etc and maybe most importantly the supply and demand of money where money supply has 2 components,..... In developing nations (where Hanke gets his anecdotal info) where they print money out the Wazoo, yes,... it would seem MV=PQ may work perfectly fine. But I'm guessing these countries don't have a fractional reserve banking system (or much of a bond market)... where money supply waxes and wanes through loan generation,.. and an obligation for repayment,.. upon which the money generated out of thin air, returns to thin air (less interest),... because the interest on the loan and/or bond would be astronomically high. And this overwhelms the supply and demand of the other variables,.. commodities,. etc And therefore inflation is dominated by money supply or more importantly as Adam said,... (M1 and M2) money supply increased by fiscal abuse. The central banks in these countries aren't forcing these governments to deficit spend like drunken sailors. The central banks in these countries (as they are in the US) are only reacting to the irresponsible criminal fiscal abuse.

[@kevintran5035]

I heard so many expert said we are enter bull cycle. Oh well, bull with base all debts? I never seen any bull cycle built with full debts Remember, debts is fine if you borrow 1 and produce 1.1. Right now, we borrow 10 but make only 8, maybe less

[@putty360]

Not sure I agree with assessment his of Argentina. I know his resume, but I think he has incorrect numbers. Gross reserves are dwarfed by Argentina's monetary bass and federal reserve balance sheet. They simply do not have the reserves to dollarize at this point unless they try an extreme debt issuance program. Four months is not enough time to assess Milei. He has produced two monthly budget surpluses, has Argentina as a net energy producer for several months straight, and devalued the Peso to am ore realistic level that makes the debt more manageable. We'll see if he can produce consistent current account balances by next year and start building more reserves while paying off debt.

[@duncancampbell5761]

Steve makes no mention of the level of deficit spending by the government on the misery index that he has created and its effect on inflation or the power of the consumer's decision making. Milton Friedman mentioned that the deficit spending was an important metric for the power of the non-governmental economic participants...

[@glennpesti6519]

Nice job guys

[@yuriengland1]

M2 is higher now than a year ago so it looks like it bottomed and the stock market is on fire oil is rising and debt is going up a lot so how does the cpi drop with the feds refusing to cut?

[@MAMP]

Yes. Who knows what the CPI will do, but real street level inflation is coming. Wave #2 is about to hit the beach.

[@c8089923]

A Constitutional Convention is NOT required to amend the Constitution. The Constitution provides that an amendment may be proposed EITHER BY the Congress with a two-thirds majority vote in both the House of Representatives and the Senate OR BY a constitutional convention. A Constitutional Convention is a REALLY BAD IDEA. Special interest groups on the far Left and Right will make our Constitution unrecognizable once Pandora's box is opened. Amending the Constitution with a very specifically worded amendment is a much safer approach.

[@timmusick9875]

Adam with a wife who's a marriage counselor do you ever stand a chance of winning an argument? She might say there is a third choice between Prof. Hanke's binary choices, spending cuts along with tax increases. The pain of each path make compromise inevitable.

[@RobertSmith-dt5gi]

Money supply is growing

[@deanliu5378]

What happens if there is negative inflation? So countries in deflation are the happiest?

[@danfarrand9072]

Its hard to imagine that Interest Rates can decline in the face of 2 or 3 trillion dollar/year Federal deficits. Somebody has to buy that debt and the debt that represents interest payments on the ever growing debt. Perhaps money supply is shrinking because bank lending is contracting under pressure from the government that wants to ensure that it's needs are met first. Everyone imagines that the FED will turn around and start buying Federal debt again. Maybe so, but maybe offshore buyers will just take that as an opportunity to sell US debt. So I guess I question that rates are only dependent on inflation.

[@elliotthovanetz1945]

We won't have a recession until after November