Economist Steve Hanke Warns: ‘A Recession Is Baked in the Cake!’

James Connor 0:05
Hi, and welcome to Wealthion. My name is James Connor. And today my guest is Professor Steve Hanke. And Steve is a Professor of Applied Economics at Johns Hopkins University in Baltimore. Steve has done much research on the money supply and its impact on inflation and also economic growth. And by studying the money supply, it can help us determine where the economy is going and also where the asset prices are going. Hi, Steve, thank you very much for joining us today. How are things in Baltimore?

Steve Hanke 0:32
Things are a little bit gloomy, cloudy down here. Kind of chilly, but great to be with you.

James Connor 0:38
Thank you. It’s pretty well, the same thing in Toronto. I don’t think I’ve seen the sun in about six weeks, maybe longer.

Steve Hanke 0:44
Yeah well, we had, fortunately, we had the sun yesterday.

James Connor 0:47
But Steve, before we do the deep dive on the economy, there’s a lot happening in the world right now, both politically and economically. And when we examine all of these events, I want to get your thoughts, are there any specific things that really concern you or anything that keeps you up at night? Well, we

Steve Hanke 1:05
got two hot wars going one in Ukraine and one in in Gaza. And that’s, and the one in Gaza, it keeps escalating and expanding the idea that it’s not a regional conflict as a joke. It is a regional conflict. So So you have a lot going on, because you not only have Gaza, you’ve got Lebanon, Syria, Iraq, Yemen, the Red Sea, Suez Canal, what more I mean, it’s, it’s a big deal, and dangerous.

James Connor 1:44
And it sounds like you’re concerned about expansion or expanding beyond the current countries that the war is happening in.

Steve Hanke 1:52
Yes, it keeps escalating every day and the narrative we’ve been given, you know, the propaganda coming out of the grand Wurlitzer is that it’s, it’s very contain very well managed, et cetera, et cetera. Don’t worry, relax. That’s that’s not the way I see it

James Connor 2:18
Well, Steve, I want to talk about the economy now. And you and your partner, John Greenwood, you’ve done a lot of research on the money supply, and also the quantity theory of money. And I want to start right here. It’s been a while since I was sitting in econ class, so I want you to give me a refresher. And just provide me with a basic overview of the money supply, what it is, how it’s calculated, and also how it pertains to the quantity theory of money.

Steve Hanke 2:42
Well, if James, you can define it several ways. But broadly, or narrowly, and broadly, include, obviously, currency notes and coins that are in circulation, that’s a small part of the picture, the big chunk of the money supply, when once you start majoring, broadly, let’s say that the number m two signifies the broadest major that the Federal Reserve uses in the United States. And that roughly, if you deposits in the banking system, make up I’d say about 75%. to I don’t have it right in front of me, but the big, the big bulk of money is really not produced by the central banks, it’s produced by the commercial banks. So so the best way to get a handle on it is think of deposits and banks, or think things that are close to being liquid deposits, you know, deposits and money market funds, that counts in the money supply. So think things that you can use to make transactions with and you can use currency of course, and you can use your checking account. And, and for money market accounts, he, a lot of those are associated with a debit card. So you can use a debit card and draw down your money market funds very quickly for instant transactions or pretty close to you can always just withdraw and deposit money market funds into a checking account, write a check, but so So at any rate, that’s the main thing, the big part of it, and the elephant in the room really is the commercial banking system. That’s that’s where most of the money comes from. When they make a loan to you what happens? They top up your checking account and and you can spend it, it’s money. So and the best way to think about it too, from an economic point of view is broadly measured, the more broadly the major of money, the better. And that indicates the amount of so called money, that it is in the hands of the non bank public, you and me. We’re not banks, but how much money do we have available to spend. And the reason for that is that is really the fuel that fuels the economy. That broad money, however, it whether it’s m two, or in some countries, it gets out m three, a little broader measure, including a few other things, those broad majors are relevant, because that is fuel that makes the economy go around. And we really want to be looking if we use you mentioned the quantity theory of money. If we then look at the quantity theory of money, that theory is really a theory of national income determination. That’s driven by, by by money. And when I say national income determination, that means what it means nominal GDP, and nominal GDP has two components. One is inflation, and the other is real economic activity. So if inflation is loud, you know, but 3% in the United States a little more than 3%. And therefore growing at 3%. That means that not nominal three plus three equals six, the nominal GDP is moving along at about 6%. Of course, some some countries, we’ve got inflation over 1,000% per year in Zimbabwe. So the so even if the real growth in the economy is zero or negative, the nominal GDP would be over 1,000%. And the quantity theory of money helps get a handle on what that nominal GDP is. And, and the formula is the equation of exchange really, and that that is m v, money, whatever that broad major is, times velocity equals P, the price level, times y, the real rate of growth in the economy. So on the right hand side of that identity, the P Y is inflation, and the y is real economic growth. So at any rate, and in short, that’s, that’s it, money, money moves things, inflation, is always in every work caused by changes in the money supply using the quantity theory of money, which is very reliable, as a guide to the course, where nominal national income or nominal GDP is going and the economy and, and by the way, John Greenwood and I, using this quantity theory of money we we have hit the ups and downs in this inflation cycle, almost perfectly in the United States, we said that we we had a forecast, we said inflation might go up to as high as 9%. It actually went up to 9.1%, in June of 2022. And then, and then we set it with the end last year, in December of last year would end between two and 5%. At the end of the 3.4% headlines, consumer price index. So So where is it going? Now we think, given what’s going on with the money supply and unprecedented contraction of the money supply in the United States, next year, we could end up at 2% or below, by the end of the year. I shouldn’t say next year. It’s this year 2024.

James Connor 9:08
And so if I want to clarify or just summarize a lot of what you just said, money and the components of the money supply are the fuel that drive the economy. The more money in the system, the more robust the economy is. And the less the less money in the system, the less robust it is. Well, that right?

Steve Hanke 9:28
Well yeah, but we have to be careful when we say robust economy that that’s robust. The nominal economy is made with prices plus the real component of the economy. So usually, when people talk about how robust the economy is, they talked about just they’re talking about real economic growth, adjusted for inflation, taking inflation away. So if something was robust, they have high real rates of growth, maybe you know, Okay, you’re up there in Canada, or it’s like the United States, a real rate of growth of 3% is pretty good. I mean, the potential, the long term sustained potential in the United States is down closer to 2%. So if it’s growing at 3%, that’s we could say, that’s very robust in the United States, for real economic growth, without inflation in the picture.

James Connor 10:30
And then when we get a change, or a large change in the money supply, we also get a corresponding change in asset prices. Is that correct?

Steve Hanke 10:37
Yes, usually, within about six months, there’s a transmission mechanism, you have sustained changes in the money supply. And then with a lag, you get changes first and asset prices. And so in this last inflation in the United States, what happened? Well, real real estate went booming up, the stock market went booming up, those are asset prices. And, and, and hard assets. Even even during during that boom, you had things like use car prices went through the roof. And those are asset prices. And then the next thing that happens with a longer lag, usually about six to 18 months, is that the real economy that y component in the MV equals p y identity, that starts changing and then even over the longer, like, you get changes in prices, the P part of the equation of exchange inflation. And, and it’s always an everywhere inflation, a function of what’s happening, let’s say a year ago, or two years ago with the money supply. And a great book written in the 70s, about inflation was written by Gottfried hodler. And humbler investigated the scene and said that he found no place where there was sustained inflation in the world 4% or more for years or more in which you had had prior to that sustained increases in the money supply, excess money being produced, basically.

James Connor 12:32
Interesting points. And can you take us through other points in history when we had this contraction in money supply and what the result was or how the economy responded to that?

Steve Hanke 12:45
Okay, if we now were contracting, we weren’t going up. And, and by the way, the money supply went up went up in the United States, it was unprecedented, it peaked out the growth year over a year was about a little over 27%. Now, to be consistent with the Federal Reserve’s inflation target a 2% per year, the money supply measured by him to that thing that I was talking about earlier, it should be growing at about 6%. That’s hay hankies golden growth rate for the money supply, that in the US that’s consistent with hitting a 2% inflation targets, it’s about 6% per year, it was growing at 27%. So of course, there was a lot of excess money that difference between 6% and 27. It was huge. And that excess money build up, filtered through into asset prices, the economy got goose then, and then we had this inflation pop, now we’re contracting at at a near unprecedented rate. Since March of 2022, the money supply as a fleet contracted by four and a half percent. And, and we haven’t seen a contraction that big since the period 1929 to 1933. And you know what happened then we had something called the Great Depression, followed that contraction, we’ve we’ve actually had only four times in which the money supply is ever contracted in the United States. And they’ve all been followed by recessions. So that’s why Greenwood and I believe that a recession is baked in the cake, because we’ve had this contraction and with a long and variable way, we eventually will get a recession. Now, John, and I originally thought that this would occur or in late 2023? Well, it didn’t occur then. And then we moved it out a little a quarter or two. And as we watched the data, we’ve we’ve now moved to that towards the end of this year 2024. So you say, Well, how can that be? And it’s easy because the money supply changes, but But you have typical, like, of six months to 18 months, and sometimes by the way, the lag can be up to three years. So, so it’s very hard to pinpoint exactly when the recession is going to hit. When you’ve had a contraction, the only thing we know, is that whenever we have had four times a contraction in the money supply in the United States, it’s always been followed by a recession. So that’s why I’m confident that we have one that’s baked in the cake. The cake was baked already. A year ago, a year and a half ago.

James Connor 16:11
In Steve, when you said it could be up to a three year lag, is that from the peak or the trough?

Steve Hanke 16:19
Well, that that would be, again, it’s it’s an art to this would be from the from the end of the sustained increase in the money supply. So major, define the period where you have the sustained money supply, and at the end of that period, start counting, and you’ve got, you know, or an early arrival would be at the six month period, and a later arrival would be at the 18 month period. But that, that that now we’re on the late later side, and and the reason by the way, we changed our mind. The facts changed, and End to John Maynard Keynes when the facts change, I changed my mind. And then Kane said, and what would you do, sir? The facts, what facts changed, that huge build up and access money didn’t drain off and wasn’t spent as fast as we originally had? Thought it would we looked at kind of typical, shall we say drain rates and, and thought that we’d be on the early side of that six to 18 month lag? Well, it didn’t work out that way, the drain was slower than typical. And that’s why we have the facts of change. We’ve changed our minds. What would you do, sir?

James Connor 17:53
And just so I understand you the you’re suggesting that because the money supply is contracting? There’s not people can’t borrow money to buy houses or to buy cars and corporations or businesses can’t borrow money to expand their business?

Steve Hanke 18:08
Yeah it’s that well, I’m not they, the the lawn, the lawn lawn component of commercial banks is actually negative year over a year at about 1%. The level of loans has actually gone down over the last year. So I’m not saying you can’t, people are getting loans. But the total amount that’s being emitted in loans is a little less than it was a year ago. So So in fact, things are fairly tight in a credit markets and through a lot getting down to the practicalities of, of getting getting a loan. You know, the system isn’t awash with loans, like it was at one point. It was it was awash with loans, by the way right after COVID. Remember, that’s one reason that the money supply went shooting up after COVID. In February of 2,021st, the Fed they were pumping. So the Federal Reserve was adding to the money supply m two, but also all corporations and individuals who had credit lines of banks got guts were scared and and they they drew down those credit lines. Now, when they did that and receive loans what happened their checking accounts went up and that means m to the money supply went up. So you had both both engines a commercial bank engine with loans going up and the Fed purchasing treasury bonds and bills from the non bank public and when the when the when the Fed is buying those bills and bonds from the non bank public. What do they do? They they credit your checking account. If they’re if they’re buying, they’re buying something from Anki or Connor. We’re giving them a treasury bill or a bond, and they’re putting money in our checking account. And once that happens, the checking account is part of the money supply.

James Connor 20:27
You mentioned earlier that the contraction that we are experiencing right now is on par with what we saw back in 1929. And do you think are useful?

Steve Hanke 20:37
It’s not it’s not quite, it’s not as great as 1929 1933, you have to go back to that point to find one that that’s, that’s that’s as big, as we have experienced March 2022. to Now, negative 4.5%. That contraction was bigger over that 29.33 period. But but there were two little contractions prior to 29.33. But they were smaller than the 4.5%. So that’s why I went all the way back to 29.33.

James Connor 21:17
And so what’s going to be the end result if we have such a severe contraction in the money supply?

Steve Hanke 21:22
Well, I mean, that the will continue to see a disinflation in the economy with a you can forget about inflation going up, it’s going down. And I think if it’s if it’s now running at 3.4%, year over year, Greenwood and I think by the end, by the end of this year, we’ll be down to 2% or something a little bit below 2%. That’s, that’s on the inflation part. That’s part of the nominal income, remember the nominal incomes inflation, plus real growth? So what about real growth? Well, real growth, we think by the end of the year, we’ll probably be in a recession. It’ll be it’ll be it’ll be a negative number.

James Connor 22:10
We’ve seen a lot of layoffs here in the last few months, UPS recently announced they were laying off 12,000 people, Citi Bank, or Citi Group also announced they were laying off 20,000 many other firms, Google Spotify, and many more have announced massive layoffs. Do you think this is an indication of a slowdown in the economy?

Steve Hanke 22:30
Well, yes, but you have to be a little bit careful that the overall the unemployment rate is still pretty low. And the job market generally generally, is looks pretty good at, shall we say, 30,000 feet. But once you start drilling down and looking at what’s going on very carefully, there’s a lot of weakness showing up. And as he as you’ve indicated, some of these big headline layoffs, like the UPS thing, they just came up with the labor deal, you know, not too long ago, another laying off a lot of workers, but that’s consistent with revisions that they’ve done in employment, the last few months, the revisions have all been down, not not up. So when they they originally announced a number, and then a month or so later, they revised the number. But the revisions have all been down suggesting, you know, weaknesses. And and if you look at the overall picture, a lot of the employment is actually been the increase in government employment, not not in the private sector. So so that’s that’s not a particular sign of strength. You’re the the economy is isn’t the government, the economy really is a private sector.

James Connor 23:56
And that’s a very good point. And one other thing that UPS said was that they are encouraging people to go back to work. And with all these layoffs that we’ve seen in the last few months or in the past year, do you think it’s a way for companies to purge those who are working remotely or they don’t want to go back to the office?

Steve Hanke 24:16
They’re starting to, to monitor this more carefully because there’s at least some speculation that the stay at home types engage engaged in a lot of shall we say non work activities while they’re home? Rather than working so so there’s still require more on site and, and you look at the big accounting firms, they’ve just announced some of them that they’re, you know, you’ve got an electronic swipe card where you go to the desk you’ve got, you got to swipe in, you know, to make certain that you’re there. Hit The time clock, you know, in the old days, he had a punch clock. If you were on an hourly basis, he did punch in you record your time. And it’s, it’s a little bit like that just did you show up at the office and the end, and now they can do this with easily with plastic monitoring cards, that kind of thing. So there is there is a move in that regard. But the one thing with labor, that’s important. It’s a real lagging indicator in terms of economic activity, because the last thing a company wants to do is, is fire somebody. And why is that if you hire somebody, you train them, you invest a lot in human capital and training. Um, and you don’t want to, you don’t want to let people go. The the idea that a capitalist in some way is antagonistic to labor, it’s kind of a ridiculous idea. Because if I’m a businessman, I want my labor force to be happy in. And, and I want to train them, I want to increase their human capital, so that they’re what so that they’re what so they’re more effective, more productive, basically, more profitable. And if they’re more productive, I don’t, I don’t even have a problem with paying them more, because they’re producing more. So. So the last thing, what happens is the economy starts slowing down, you have much, much less overtime pay, so overtime, pay starts going down. And, and then maybe, to keep somebody on the job, maybe you would say, Look, I don’t want to let you go, but I really can’t keep you on full time. So we’re going to have to go down to some, you know, reduce reduced, even below the normal working hours. And then at the end, if you still can’t make it and times are tough, you’re gonna have to start letting them go. But, but get the lag thing, if you’re watching the labor market is an indicator that’s going to be one of the last things to go and not one of the first things people don’t fire employees, because they anticipate in a recession. They they let them go when they’re deeply and in the red and the in the middle of a recession.

James Connor 27:45
So Steve, let me just summarize a few of the points you made. Just so I understand you. We have the money supply peaked in 2022. Since then, it’s been falling off. And we’ve had we have a contraction now, which means the economy is slowing down. But yeah, when I look at the economy, the GDP, it’s still growing at a solid, I believe 5%, annualized. We already talked about the jobless rate, it’s still pretty low. Right now, CPI has come down from a high of 9%, down to I believe, around 4%. This s&p and the Nasdaq are doing extremely well up 20%. In 2023, the NASDAQ was up I believe, close to 40%. And when you look at all that, like that would indicate to me that things are looking pretty good.

Steve Hanke 28:33
I think you’re right. I think that I think if you if, if you are data dependent, and looking data today, what’s happening today, it all looks pretty good. The problem is that they’re long and variable lags between changes in the money supply, and changes in economic activity, changes in asset prices, changes in inflation. And, and those legs as we went over before, we’re talking about, you know, a year year and a half, two years. So so what you’re seeing now, it’s driven and, and and been caused by changes in the money supply that have happened a long time ago, that people don’t don’t even pay attention to. So if they were paying attention to that, as we’re as we’re talking now, they would say it looks pretty good now, but we got we got a storm brewing. We got problems coming down down the road. And and we know that these problems are very highly likely to occur, because we’ve had this big contraction in the money supply. And and if we look at the United States, we’ve only had four times since the founding of the Federal Reserve in 1913. That We’ve actually had contractions in the money supply before. And all of them are followed by recessions as we would expect. If if model for national income determination, which I think is the best one happens to be the quantity theory of money. It’s all about money. It’s all about the the economy’s fuel. You got you got too much fuel. You got inflation, you got too little fuel, you’re going to slow down and, and have disinflation and maybe even research. Money makes the world go round. Money makes the world go around. Absolutely. And by the way, James, it’s a, it’s a fairly common sensical thing, actually, you don’t really have to take economics 101 to get the course, the way they teach economics 101 Today, you might not get it in that course. But you would, if you’re taking it from me,

James Connor 31:01
I might have to come and sit in on one of your classes.

Steve Hanke 31:03
Well, you’re absolutely welcome to do so. You could give a little guest lecture that would be good. Give it give the students a little rundown on mining and Canada,

James Connor 31:15
by all means, by all means. Steve, a lot of the move we’ve seen in the s&p and the Nasdaq here in recent months, is predicated on the expectation of lower interest rates. And I want to get your thoughts on this. Do you think the Fed is going to start cutting here in the first or second quarter or in I also want to know if you think the Fed is ahead of the curve or behind the curve?

Steve Hanke 31:41
Well, the Fed really doesn’t know where the curve is, because they don’t look at the money supply. It’s all about the money supply. Monetary policy, as Milton Friedman once said, is not about interest rates, it’s about changes in the money supply. So so the Fed is is really flying blind in the sense that they’re not looking at the money supply, it would be like flying an aeroplane, and just having nothing on the altimeter. It should the money supply should be on the altimeter, but they’re not looking at it. So. So that’s one point this the second point is that the Fed is is data dependent. And they look at things like the financial conditions, indices, what’s what’s happening today with interest rates, interest rate, spreads, inflation, unemployment, labor, force participation, all these current things. And all those things are lagging indicators. They lag behind what’s been going on with the money supply. So in that sense, they’re they’re behind the curve, because they’re looking at lagging indicators. And, and once, for example, the recession, the economy really starts slowing down. I think the Fed will pivot. And when the Fed pivot, say they usually pivot big. So so so we can anticipate that the one thing that they utilize in terms of what they think is important money supply as the federal funds rate, the interest rate, and it doesn’t look like the market thinks that they’re going to lower much until the second half of the year. That’s that’s what the markets think right now. And if the recession occurs in the second half of the year, believe me they they will pivot, and they might come in with bigger in decreases in the federal funds rates in the market expects right now. The markets expecting federal funds rates to come down, but they kind of have it coming later. Not these next two meetings of the Fed, but maybe maybe in May, maybe the main meeting.

James Connor 34:13
And when you say the Feds going to pivot and he could pivot big. Do you think that’ll be an indication because they see things now that are maybe what you’re talking about when things are looking pretty severe?

Steve Hanke 34:25
I think I think it will come in the labor market. If the labor market starts really looking sour. I think the Fed will pivot.

James Connor 34:34
And how do you think the financial markets will react to that?

Steve Hanke 34:38
Well, you got two forces going on the one hand interest rates are coming down and you know, just using a simple discounted cash flow model, if you’re discounting cash flow, at a lower interest rate, the present value is higher. So that’s, that boosts ox valuations. But if you If, if if you’re going into recession and earnings are going down, that that, that that that is a negative in that free cash flow model, the free cash flow is flowing as is as strongly as it was before a recession. And so you’re discounting less cash flow, and that’s a negative. I happen to think, on balance. If we run into a recession, I think the P E ratios are pretty high in the stock market right now. They’re very high. Actually, I think they’ll come down, I think the valuations will come down. So I think the P E ratios will come down and earnings will be lower. So that means what it means is, it means this, the stock market could be in for a spill.

James Connor 35:49
And when we take all of this into consideration, how do we protect ourselves? How do we protect our wealth?

Steve Hanke 35:56
Well, I’ve set that’s that’s a, that’s a tricky question. The one. The one thing this is this is on the safe side, this we’re not talking really about speculative assets much, but if you look at them, probably the most important interest rate, if you were to just pick one in the United States would be the yield on the 10 year bond. And, and that, that yields pretty high right now, I haven’t actually looked this morning, it’s a little over 4% which is, which is high. And if we look ahead, we know Greenwood and I think inflation is coming down. And if inflation comes down yields come down. So that would suggest that the yield which will be driven by lower inflation, and a slowing economy will come down on the 10 year. And that means what you would you would want to be from a trade anyway, long a 10 year because if the yields come down, the price of the 10 year will go up. So if you were long now you you know and held the thing to maturity, you’d be getting a little over 4%, if you were just trading, which would be the position I would take, you would you would want to be buying the 10 year and anticipating a capital gain on that selling at at some point for a trade. But but in the meantime, you’ve got to you’ve got to save asset and safe assets are going going to be you’re getting paid a little something to hold, and you’ve got a pretty good chance of getting a capital gain a nice capital gain.

James Connor 37:50
So don’t put your money into Bitcoin.

Steve Hanke 37:52
Well, no I said that that’s a speculative asset. Not not a, you said how would you protect your bitcoin is highly speculative. That’s a little bit like going to Las Vegas if you if you’d like to go to Vegas, that’s, that’s fine. But if, if you’re not inclined to go to the roulette wheel, I would stay away from Bitcoin. Gold is another thing, by the way that it usually does quite well on recessions. And it’s been quite steady recently gold has an I, I happen to be positive on gold, because I see I anticipate a recession coming. Gold does pretty well in recession. So gold would be another thing like the 10 year, you asked the question, Jamie said, Well, how do you protect yourself? So so the main thing, you don’t want to lose capital? And that’s why Bitcoin is a speculative asset with no fundamental value. And if you want to protect your assets, that’s that’s not where you want to be. If you want to speculate as low, that’s fine. By the way, the studies that have been done at Morningstar did one study about a year ago, if you even if you put a tiny bit of Bitcoin in your portfolio, one or 2%, you increase the risk of that portfolio tremendously. It has a very big multiple effect. So if you if you want to make your portfolio a lot more risky than it is put one or 2% of it into Bitcoin.

James Connor 39:45
Steve, most of our discussion so far has been focused on the US but you’ve done a lot of work on currency reform for various other countries including Argentina. And so you’re well acquainted with this country and it’s a beautiful country. It’s got a great cultures rich and resource CES, but they can’t get it together economically. And according to Bloomberg, inflation was running at over 200%. In 2023, it was up 25% In the month of December alone. But I want to get your thoughts on this, what is going on with Argentina? And why are they continuously getting into economic trouble?

Steve Hanke 40:19
Well, the main thing is their central bank. That’s, that’s why they get into economic trouble. So the new President campaigned on the promise of getting rid of the central bank, getting rid of the peso, and putting them both in museums and replacing the pace of the US dollar, what they call dollarization. Now, I’ve advocated that for a long time. And if you have the central bank, in Argentina, it’s basically like putting a bottle of whiskey next to some, somebody who’s recovered a recovering alcoholic, he’s gonna grab the bottle eventually, and get get into trouble. So that’s the problem with the central bank, even if it was managed temporarily, well, and not producing excess money, eventually, somebody, the politicians will grab for the bottle, they’ll produce too much money, the peso will collapse, you’ll have a currency crisis and exchange rate crisis. And that’s the history of Argentina. So the best way to smash inflation and eliminate the risk of having a currency crisis dollarized. And, and, and by the way, the country is de facto dollarized anyway, because you can’t, everyone saves in dollars a year, they don’t save in pesos. So the real currency of the realm is the US dollar. If you want to buy anything serious. From an appliance to car to house, you have to pay with dollars in Argentina. So the problem is the Malay the newly elected president, he’s put that dollar zation plan on the shelf, he he claims that they’re his minister of finance, Louise compito, is said that they’re not ready, they’re not in a position to dollarized. This is this fault. They have enough reserves to dollar eyes. In fact, the only reserves that they need to dollar eyes are gross reserves. And those grocery stores have to be large enough to cover the exchange peso notes that are outstanding with the dollar reserves that they have. And, and that that ratio of gross foreign reserves to pesos, it’s about 2.5 to one. So they have they have plenty of faces to do this. I don’t think unfortunately, I think they haven’t studied the thing properly, they really have not indicated that they know what they’re doing. And I think inflation will continue. And Malay will get into more and more trouble because the public will be come fed up with him, because he isn’t dealing with the main problem that they’re facing inflation.

James Connor 43:34
Very interesting points. Well, Steve, I want to thank you very much for making time with us today and sharing your views on both the US economy and also Argentina. And if somebody would like to follow you and get your views on happening with the economy, where can they go?

Steve Hanke 43:49
The easiest way is to follow me on Twitter, and that is at Steve underscore Hankey, MJ MJ Lee. I pretty active got 700,000 followers. And that’s that’s the easiest way. If for some reason you, your viewers want to become part of my distribution list. I’ll add, be happy to add them. They just send me an email at hanke@jhu.edu.

James Connor 44:23
Well, that’s great. Thank you very much. And I might see you soon in one of your econ classes. Absolutely.

Steve Hanke 44:28
You’re more than welcome James see in Baltimore. Or who knows, I might get up to Toronto one of these days. See my old friends at the Freebird Merkin do group where I’m chairman emeritus.

James Connor 44:42
Very good. I would love to meet you in person once again, Steve. Thank you.

Steve Hanke 44:47
Thank you. Great to be with you. Thanks.

James Connor 44:50
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