Episode 74:

On today’s show I am so honored to be here with Steve Hanke, renowned monetarist economist and professor of Applied Economics at Johns Hopkins University. Professor Hanke gives is the economic reality of our economy, impact of money supply, and FED led inflation and recession. Inflation snuck up on the FED and they thought it was “transitory” when the cause is directly related to the Money Supply.

“Inflation is always and everywhere a monetary phenomenon.”
-Milton Friedman

Chapters:
00:00:00 – Inflation as a Monetary Phenomenon and the 95 Rule of the Press
00:03:03 – The Effect of Changes in Money Supply on Asset Prices, Commodity Prices, Economic Activity, and Inflation
00:06:13 – The Importance of the Money Supply for Inflation and Recession Forecasting
00:09:08 – The Federal Reserve’s Exclusion of the Money Supply in Economic Predictions
00:12:05 – The Fed’s Monetary Policy and the Private Sector’s Role in Creating Money Supply
00:15:07 – The Importance of Commercial Banks in the Money Supply
00:18:10 – Lagging Indicators of the Economy
00:21:09 – Wholesale Prices and Inflation
00:24:00 – The Possibility of a Deep and Prolonged Recession Depending on the Fed’s Actions
00:26:54 – The Golden Growth Rate and Solving for the Money Supply Increase
00:30:04 – The Importance of M2 Money Supply Growth and Commercial Bank Regulation
00:33:05 – The Pro-Cyclical nature of Bank Regulations and Unsustainable Debt Levels
00:35:54 – “Unsustainable” and the Possible End to a Growing Budget Deficit Trend
00:38:49 – The Reality of the Financial Markets and Potential Recession Strategies
00:41:41 – The Hanky-Coughness Gold Sentiment Index and How to Use it for Trading Strategies
00:44:42 – The Importance of High Frequency Trading and the US Dollar’s Position as the Global Reserve Currency
00:47:17 – The State of the US Dollar and Global Inflation
00:50:14 – The Problems with IMF Programs and the Local Nature of Inflation
00:53:14 – Examining the Relationship Between Lockdowns and Mortality
00:56:24 – Lockdowns: The Biggest Public Policy Blunder in Modern Times

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The Federal Reserve, often referred to as the FED, is an important institution in the United States economy. It plays a pivotal role in making monetary policy decisions that can greatly impact the country’s financial stability and growth. However, a recent podcast episode featuring economist Steve Hanke titled “Flying Blind from Inflation to ‘Baked In’ Recession” raises concerns about the FED’s ability to accurately gauge inflation and its potential consequences.

In the episode, Hanke argues that the FED currently “flies blind” because it relies heavily on flawed economic data to make decisions. One major concern is the way the FED calculates inflation. Hanke claims that the official inflation rate, as measured by the Consumer Price Index (CPI), is not accurate and underestimates the true level of inflation in the economy. This is due to the fact that the CPI index does not accurately reflect changes in consumer behavior and the rising costs of goods and services.

Hanke suggests using alternative measures, such as the Hanke-Krus World Inflation Index, to get a more accurate picture of inflation. He argues that this alternative index, which includes a broader range of goods and services, provides a better understanding of the true inflation rate. According to Hanke, the current underestimation of inflation by the FED can have serious consequences. It can lead to wrong policy decisions, such as keeping interest rates too low for too long, thus fueling inflation rather than combating it.

Another important aspect highlighted by Hanke is the potential for a “baked-in” recession. When the FED underestimates inflation and keeps interest rates too low, it can lead to an overheated economy. This can create imbalances, such as excessive borrowing and speculative investment, which can ultimately lead to a sharp economic downturn. In this view, a recession becomes ‘baked-in’ – inevitable and difficult to avoid.

Hanke’s warning about the FED “flying blind” and the potential for a “baked-in” recession serves as a reminder that accurate data and analysis are crucial for making sound monetary policy decisions. The FED needs to rethink its approach to measuring inflation and consider alternative indicators that paint a clearer picture of the true state of price levels in the economy.

Critics may argue that Hanke’s perspective is too pessimistic and his alternative measures may not necessarily be more accurate. They may also point to the FED’s track record of successfully navigating previous economic challenges. However, these concerns should not be dismissed lightly. In an era of rising inflation and economic uncertainties, it is crucial for policymakers to closely scrutinize their data sources and ensure that their decisions are based on accurate and reliable information.

Ultimately, the FED’s ability to accurately assess inflation and make informed policy decisions is of utmost importance to ensure the stability and growth of the U.S. economy. Hanke’s insights highlight the need for careful consideration of alternative measures and the importance of accurate data in order to avoid potential pitfalls such as an overheating economy and a ‘baked-in’ recession. It is imperative for the FED to give serious thought to these concerns and take appropriate action to prevent such eventualities.