Inflation is over, 'Money Doctor' Steve Hanke says. Now, for the monsters...
Johns Hopkins University economics professor, Steve Hanke, has always been right on the money on broad economic trends.
Over at Fortune magazine, he's actually known as "the money doctor."
Hanke correctly forecast the rise of inflation with Joe Biden's big government spendathon.
Now he says inflation is over, of all things, which sounds like good news -- and is news to most of us, mired as we are in high prices at the grocery and the pump.
But actually, it isn't.
Hanke explains why that's happening, and how to read the economic trends in three new videos.
Inflation is indeed over, now that the Federal Reserve has hiked rates.
But .... that doesn't mean the higher prices we see now are gone, they're still high as a kite, as we all know. They're just not getting higher, but they still remain bad in the absence of income and wage gains.
However, that doesn't mean all is hunky dory and Joe Biden can go back to spending taxpayer money.
The 'how' of how this happened matters, too. Based on how much the money supply was expanded (26% at its peak in 2022) and how swiftly and harshly that was reversed (we are at -4% now) recession by 2024 is "baked into the cake," he said. Economies can't take that kind of whiplash, which seems more like something you see in a banana republic.
Some important points:
One, the Fed doesn't pay attention to money supply even though money supply is the only thing that creates inflation, or, the phenomenon of too much money chasing too few goods.
It pays attention to interest rates, even though rates naturally flow from the money supply no matter what a central bank does. Hanke called that a "very poor indicator of the tenor of monetary policy. It's all about growth in the money supply."
But when money supply increases, it does trigger changes in economic activity. It starts with rises in asset prices and sensitive commodity prices (read: oil). Then 6-18 months later, economic GDP starts changing. Then 12-24 months later, you have a price level change in inflation.
Here is his chart:
Image: Steve Hanke
Contracting the money supply excessively to the level we see today, makes it very hard for the market to read signals, and much of this has to do with these lags in effects (described above) of money supply levels.
A smarter course, would be for the Fed to expand money supply at about a 6% rate per year in order to have a 2% inflation rate, he said. The extra money printed would serve as a vehicle for actual economic growth.
But they are not doing that -- they are uselessly reading interest rates -- and there will be a recession.
The talk show host Julia LaRoche is particularly good at asking the right questions -- and asks how consumers should prepare for these economic shocks -- Hanke then offers a few interesting suggestions to that issue, too.
Image: YouTube screen shot