Steve Hanke, Professor of Applied Economics at Johns Hopkins University, joins James Connor to reveal the economic and political fallout of the Fed’s monetary missteps. From post-COVID inflation and rising wealth inequality to the 2024 election, Hanke unpacks how these policies reshaped the U.S. economy and secured Trump’s victory. He predicts a 2025 recession driven by money supply contraction and explores geopolitical risks and tensions, including China’s growing dominance in critical global industries.
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James Connor 0:00
And how do you think the Fed is doing their loss?
Steve Hanke 0:02
They’re not looking at the money supply. So I think, you know, they’re just flying blind. The economic activity will start deteriorating, and we probably will see a recession next year and in the United States.
James Connor 0:20
Hi and welcome to wealthion. I’m James Connor. Well, 2024 is coming to a close, and if you want to start 2025 on a strong financial footing, consider having a no obligation discussion with a vetted advisor at wealthion.com/free once again, That’s wealthion.com/free to find out more information. Now onto the show,
James Connor 0:46
Steven. Thank you very much for joining us today. How are things in Baltimore?
Steve Hanke 0:49
Things are fine in Baltimore, but so let’s hope the winter just passes us by this year.
James Connor 0:58
Yes, yes, let’s hope so. So So much has happened since the last time we spoke. I don’t know where to begin, but I’m going to start with the biggest news, and that’s the election. And you said Trump would win by a landslide, and he did. And I want to get your thoughts on what exactly you saw that you thought the Republicans would win so decisively.
Unknown Speaker 1:18
Well, the
Steve Hanke 1:19
main thing I was watching the prediction markets. And the betting markets, they threw up objective information about what the probabilities of an election outcome going one way or another happened to be and and the reason for that is that the people betting have skin in the game. I mean, they’re they’re not just answering a telephone with some pollster on the other end of the line. You know who? You know, God only knows what they would tell them, but, but at any rate, that’s what I was doing. I was watching the betting markets, and then what happened is that Trump actually was was behind, and the probability of him winning, or certainly winning in these swing states and so forth didn’t, didn’t look that great. And then about, with about a month to go, things started changing in the betting markets, and he really had momentum going into the final stage he he basically surged for at least three weeks, maybe a month, something like that. So that was the essence of it now. Now my thinking, though I thought the betting markets were, happened to be right, my intuition and analysis told me that I thought the bettors that were betting on Trump were right, and the reason for that is that what we’ve had in the United States and also in the UK and Europe, with the European Central Bank and Europe and the Bank of England and the UK, obviously, and the Fed in the United States. What happened when COVID hit? They they exploded the money supplies, and they did that because the government’s increased government spending and and the deficits went up tremendously, and those deficits had to be financed by the issuance of Treasury securities, and the central banks bought most of the say in the US, the Fed bought over 90% of the new debt that was issued. Now, when they do that, that creates money. I mean, they literally create money out of thin air to pay for the treasuries that they buy. And then you were reading about it, the balance sheets of the Fed and the Bank of England and the ECB all exploded. And then with with a lag, you get changes in asset prices. Those, those surged up, economic activity surged up, and ultimately we got inflation surging up. So, so that that happened. But money, the creation of money, isn’t neutral. It affects different sectors of the economy and different income groups in a different different ways. And what happened in the United States was that that increase in the money supply, it increased asset prices, the S, p5, 100 zoomed, and so did real estate prices, land prices, all asset prices went up. Well, who owns assets? Well, rich people own assets. So, so the rich became very rich as a as a result of this monetary injection into the system, and as a. Result of inflation. Now, if you look at the billionaires in the United States, you in the start of the COVID, when they started pumping money in, their total wealth was equal to about 14% of GDP. And now today, in September. I just looked at it. It’s 21.2% so their, their, their stock of wealth, went shooting up, but it went shooting up relative to the size of the economy, even so. So it went up in absolute terms, but it went up in relative terms too. This means that the the income distribution was was horribly skewed by this inflation outburst and this monetary explosion that we had so income equality for Forget it. We had a left wing government we have in the United States with Joe Biden. It’s probably the most left wing government we’ve had since World War Two in the United States, and they basically have engineered one of the greatest maldistributions of income in the history of the country. And what does that lead to? It leads to resentment, and this festering resentment, I think, is what really spelled the result on the election. Because what happened? The little guy doesn’t own any assets, so he didn’t, he didn’t take part in this windfall gain dished out by the Fed, all he got was an inflation tax he was still earning income, but the income he was earning wasn’t going up, even as fast as the inflation was going up. And his real income was actually going down. His real income went down and there, and the fat guys got huge increases, and I think that resentment was festering and behind a lot of this now, of course, people on the street aren’t making a kind of calculations I did. They don’t know what the total billionaires wealth is, and they, they don’t, therefore have a number to divide into GDP to figure out that the proportion of billionaires wealth went from 14% to 21.2% but they, they kind of intuitively know that inflation was it was a tax on them, and they knew a lot of people with wealth were getting rich, even richer. So I think that that’s my kind of take on what was going on. It was kind of kind of, shall we say, a revolt against the rich and the elites, the elites in the media, in particular, the elites in Washington, DC, the politicians, the lobbyists in Washington. That’s, that’s, that’s a thumbnail sketch of my take on the election.
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James Connor 8:56
right? So just to summarize, it was because of the socialist policies that the Democrats were putting forth have resulted in income inequality and also massive inflation, and so because of that, that’s why the Democrats lost by such a landslide,
Steve Hanke 9:11
right? It started. The step is first you have this fiscal thing, the government spending goes out of control, and it was not financed by tax increases. It was the deficit got big, and that deficit was financed mainly by the Federal Reserve and the money supply. Remember, inflation is always and everywhere. Jimmy a monetary phenomenon. If the Fed hadn’t bought those treasuries, there wouldn’t have been any inflation. There wouldn’t have been an uptick, shall we say, in inflation.
James Connor 9:47
You made me, you made mention of the betting pools that you were watching, and this is why you thought the Republicans were going to win. And I think it’s quite interesting when you look at the very. Selection cycles, how each one is different from another one, and this one is so much different from 2020 and it’s quite often. It’s being referred to now as the podcast election. And Donald Trump, in spite of his age, he’s very innovative. I gotta give it to him. I don’t care if you like him or hate him, but the guy is always trying new things, and he did 14 different podcasts on YouTube, which got 124 million views, and that’s just on YouTube. Harris, on the other hand, she only did four or five, and I think she got 4 million views, and I know she was only campaigning for 100 days, but it’s interesting to see, just four or five years ago, these candidates were on CNN and Fox and CBS and ABC, and now they’re not going there the traditional channels. They’re adopting these new media forms. Oh,
Steve Hanke 10:51
yeah, this, this is, this is a great point, and, and a big development, and, and, for example, that’s, that’s one reason that I started doing Twitter about 10 years ago. Roughly, I had no idea what it even was. And my complaint always to my assistants was, you know, I’m turning out this article, that article, that article and and who reads them, you know. I mean, how do you deliver the message? You know, is there a better way? So one of my students suggested that I do Twitter. I didn’t have any idea what it was, and finally, after about a year, he talked me into doing it. So I said, Fine, I’ll do it. You set it up. You get it going, and, and, and we’ll give, give it a shot. So so that that’s how I evolved into the thing and. And then people ask, well, you know, why are you doing podcasts? Well, I’m doing podcasts because, number one, you have enough time in a podcast to actually say something concrete, whereas if you’re on the tube, you got 30 seconds or 60 seconds, or something like that, and, and, and many times the journalist who’s doing the interviewing, they’ll have a narrative, they’ll have a spin they Want to do. And so they do their spinning. They spend most of the time spinning and talking, and then they have somebody like me come on to hopefully give them a little credibility. And I got 15 seconds, 30 seconds or something, to say, whatever I have to say. And it’s, it’s just a loser’s game for any for serious people, it really is pretty much a losing game. And and there’s another problem with the mainstream media. Now, I said the spin and the narrative. If you watch the news, even even credible news, like the BBC or something, the spin meisters are on a lot the the news content in these major media outlets is pretty minimal. They’re basically producing op eds there and and even if you go to the New York Times or a paper paper like the New York Times or Washington Post, and you read a news column, not not an op ed, not an editorial, but a news column. Often it’s, it’s a spin job. It isn’t really news or analysis of news and and you get the same thing with all these fact checkers running around. They’re, they’re basically spinning things so, so this is this. This Trump picked up on this. His intuition, obviously was pretty good on this. He’s experienced with it, but as you pointed out, I mean, he was way over the top relative to Harris and podcasting, Harris wouldn’t do anything. Harris wouldn’t do the podcast unless she controlled the podcast. Yeah, so it would be like me coming on with you, Jimmy, and say, Jimmy, I’ll do the interview with you, but I’m going to give you the script, I’m going to give you the questions, and you ask me the questions, and I’ll give you the answers. I’ll give you my answers. Well, that’s not what we do. I don’t even, I don’t have any idea what you’re gonna ask me. I mean, you’re running that. You’re running the show. I’m not. Yes,
James Connor 14:34
and a couple of points I want to make there. First of all, you were talking about CNBC, the business channel. They only get 100,000 views a day, so that’s a dying medium. And with regard to Harris, I don’t know if you saw this, but she did an interview with Oprah Winfrey, and it’s come out here in the last few days that Oprah’s production company called Harpo got paid $2.5 million to do the interview. You.
Steve Hanke 15:00
Well, yeah, this is turning into kind of a scandal. This is a typical political thing. There’s so much money floating around in the political world this. This is another resentment factor. This is this resentment idea. So if people have a lot of resentment, build up when they see all this money in the lobbyist and so forth, they’ll tell they’ll tend to vote for an alternative. They’ll tend to want to get the incumbents out. And if you look at the Western democracies, by the way, then the percentage of incumbents that are falling in these elections has increased tremendously and and it’s all because of this resentment. So
James Connor 15:45
we spoke quite a bit about the US, about US politics, and also this whole, this whole movement of elitism or against elitism, and we’re suffering from the same sort of thing here in Canada with the Trudeau Government. Any thoughts on the Canadian government or the Canadian economy.
Steve Hanke 16:01
Oh, I think, you know, Trudeau is in the tank. Basically,
James Connor 16:10
whenever they call the election, we’re going to get another sweep. I
Steve Hanke 16:12
think he, he’s, he’s a little bit Biden esque. He’s, he’s not the sharpest knife in the drawer, and I don’t think he’s led Canada in the right direction at all. But again, look at the United States. Do I think they’ve been going in the right direction? The answer is no.
James Connor 16:34
So let’s move the conversation toward the economy now. And you have often said that most people don’t pay attention to the money supply, and I have to admit, I’m one of them, so don’t be angry at me, Steven, but maybe you can just provide us with a brief overview of the money supply. And why is it so important, and where does it stand right now? What does it mean for people? Okay,
Steve Hanke 16:56
so I think the best way to think of the money supply, and people can understand this. It’s the fuel for the economy. So if you’re, if you’re putting a lot of, you know, you put, put a fuel injector on the engine and rev it up, you’re going to do what you’re the first thing that happens is that asset prices go up. We had that. Then the next thing that happens, economic activity revs up. We had that. And then the next thing that happens is inflation kicks in. Well, we had that. And then if you, if you take the fuel out and start contracting things and don’t give the engine enough fuel, asset prices go down? Well, asset prices haven’t gone down yet in the United States, but an economic activity hasn’t really slowed yet, and the inflation has, by the way. So so that’s the the idea change the money supply, and ultimately you’re going to with a lag get these changes in asset prices, economic activity and inflation. And in fact, as I look at the record around the world, I I’ve not been able to find one significant inflation that’s ever occurred without a significant in prior increase in the money supply and, and what do I mean by significant? I’m talking about just 4% inflation for over two years. If you have 4% inflation for over two years, I think that’s significant. And, and, and if I use that measure, I find no cases where the money supply hasn’t increased significantly prior to the piercing of the 4% number and the duration for over two years. So, so that’s really the general idea. Now people aren’t looking at that. Oddly enough, it’s amazing the US, by the way, right now to get up to speed, the money supply is growing at 2.6% per year, and to hit the Fed’s inflation target at 2% that money supply should be growing about 6% per year. And and the money supply is actually lower. The stock of money in the US economy is less now than it was in July of 2022 so we’ve had a contraction, actually in the money supply and, and it’s growing very slowly right now. And this, this signals to me two things, one, one is that the inflation rate will be continue to go down. It did pop up a little bit the last reading, it went from 2.4% per year to 2.6% but it’ll, it’ll go down, and I think, go down below the. 2% fed target next year, inflation, I think, will go actually below the target. And the reason for that, we’ve had this contraction in the money supply for a couple years, and the inflation lags behind that change in the money supply by usually 12 to 24 months. So so it’s kind of, as I say, baked in the cake. We I know this because the money supply has been contracting and been very slow for a couple years. So so the inflation will keep going down. I think also it signals that the economic activity will start deteriorating, and we probably will see a recession next year. And in the United States,
James Connor 20:49
politicians love to blame higher prices on supply shocks or shrink flation or greed flation, or whatever you want to call it, but you’re suggesting it’s got nothing to do with that. It has to do with excessive money supply, yeah, money printing, yes,
Steve Hanke 21:01
absolutely, and, and. And the reason they like this spin and narrative, by the way, is that it gets them off the hook. I mean, the central banks are the ones that are responsible for the monitoring and controlling the growth rate of the money supply, whether it’s the Fed or the Bank of Canada or Bank of England or whatever. So so they they they don’t want people to look at the money supply, and they don’t want to be blamed for inflation, because inflation is a tax, and it’s one that people don’t like, and so they want to say, well, there was some exogenous thing that happened. Oil prices went up, or the war in Ukraine, or, as you say, supply chain glitches because of COVID, all of these reasons this, these, this, this narrative, by the way, is in the press all the time. The press just repeats this, you will, you will never find in the press. You really got to search and dig a deep hole to find anything in the press in which they’re talking about changes in the money supply or growth in the money supply and and by the way, even the central banks don’t, don’t look at it. It isn’t that they’re just spinning a narrative to get off the hook about being blamed for inflation, but, but they actually are not looking. They’re looking at interest rates. If you look at the press, and they read the press and remember my 95% rule. 95% of what you read in the press is either wrong or irrelevant. They’ll always be talking about interest rates. Interest rates, what’s, what’s the what’s the Fed going to do with Fed Funds, interest rates and so forth. But monetary policy is not about interest rates. It’s about changes in the money supply. It’s it’s all on the money supply.
James Connor 23:05
So you see prices coming down. You see inflation coming down in 2025 and a possibility of a recession. And I recently saw an interview with Stan Druckenmiller, and he looks at companies from the bottoms up, and he said he doesn’t see any weakness in the economy at this point. He also said he thinks the biggest threat to 2025 is a re acceleration of inflation. And he actually compared it to the 1970s where the Fed thought they had inflation under control. They went from 8% they got it down to 3% and then it took off again, and it just kept climbing. And of course, you know what happened then. But what do you think of that scenario? Do you see the possibility of inflation heating up again in 2025 well,
Steve Hanke 23:49
not, no, not in 2025 because we already know what’s happened to the money supply in the last two years, and we’ve only had four contractions of the money supply in the history of the Fed, since 1913 and each one of those led to a recession. Actually, one of them, the contraction in 1929 to 1933 led to the Great Depression. So, so these, these contractions in the money supply occur, and then later on, they they transmit that negativity into the economy, and the economy slows down and inflation slows down. So I don’t buy the Druckenmiller scenario, although that’s definitely the consensus. That’s what you you, if you’re reading the press, that’s what’s in the press, and and, and that’s what most analysts, that’s, that’s their take on things. But they’re not looking at the fuel and the economy, the money supply and changes in it.
James Connor 24:57
And Stephen, one of the other things that stands out to me. Um, are all these unions that are renegotiating these excessive pay packages, and I understand why they’re doing it. It’s because of inflation that we’ve just been discussing. But the Longshoremen on the West Coast, for example, they got a 32% pay increase. East Coast longshoremen 60% pay increase. Boeing mechanics just negotiated a 38% pay increase. What about all of these unions? And I know there’s many people who aren’t in unions and they’re not getting these big pay raises, but do you think at some point these higher wages are going to trickle down into the economy and it’s going to result in higher prices?
Steve Hanke 25:38
No, that’s that’s that’s the cost push or wage push theory of inflation, and it’s been debunked completely. So it’s all about changes in the money supply. That’s what causes it, but, but this, this cost push inflation, by the way, it is. It is another theory of inflation, but it doesn’t hold water. So that’s that’s basically my reaction to that. It the the headline thing, and the narrative kind of makes sense. I mean, you you gave the numbers these big increases, and you say, well, that’s going to create inflation. It’s a little bit like oil prices going up create inflation. It’s another nonsensical thing. And to get a handle on that, my my favorite example is to look at Japan in the 1970s you spoke of the 1970s Well, 111, factor in the 1970s that led to a burst in inflation. People say, or they, they make an assertion about it is that we had, remember, we had two oil crises in the 1970s one in 1973 and one in 1979 oil prices shot up. We had the embargo. Remember, in 73 oil prices shot up. And in Japan, the Bank of Japan, like many other central banks, said, Well, they’re going to accommodate that increase in the oil price shock with by increasing letting the money supply increase, and of course, they added more inflation in 73 the 79 go around, there was an oil crisis. The prices went up again in oil, but the Bank of Japan says we’re not going to play ball this time. We’re not going to accommodate that by increasing the money supply. And Japan didn’t have inflation. They had a relative price increase in oil, but they didn’t have an overall increase of everything in the consumer price index in Japan. And the reason for that is that the Bank of Japan more or less kept the money supply controlled so again, these are examples. You got to keep your eye on the ball and and the only reliable model for what they call national income determination is the quantity theory of money, looking at the money supply, what’s happening to the quantity of money and and what is national income determination? What are you trying to do? You’re trying to forecast changes that will occur in nominal national nominal GDP, nominal GDP. Now, what’s nominal GDP? Well, nominal GDP is real. GDP plus inflation, that’s the nominal number. So it has two components in it, real, real economic activity, which doesn’t change all that much in most cases, and the other thing is inflation, which can change quite a bit.
James Connor 29:01
Okay, so we got to talk about the Fed. Now, another favorite topic of yours, we can’t we can’t allow this conversation to escape. Jay Powell, but he cut 50 basis points in September, another 25 in November, one more meeting coming up in December. What do you think they do?
Steve Hanke 29:17
Well, again, it’s like the betting markets or the prediction markets, I like to look at markets to see what the what the probabilities of something have might be. And you can do this with the Fed Funds, because there’s a Fed Funds Futures market in the Chicago Mercantile Exchange and the December meeting, by the way, they the probabilities are right now, 38% that there’ll be no change at all, and 62% that they’ll have a 25 basis point reduction. If we go on out and to the January then meeting, what do we say? Okay, well, it looks like they think from now there’ll be a 25 basis point reduction, so that’s 54% and then you go on out through, you go up to March. There’s a March contract and so forth. But the one coming up that you want to know about is December, December 18 meeting. And it looks to me like everybody a little over 50% we have 62% think there’ll be a 25 basis point reduction, but a significant probability there’ll be no no change. 30 38%
James Connor 30:43
and how do you think the Fed is doing? Do you think they’re ahead of the curve or behind the curve?
Steve Hanke 30:48
They’re lost. They’re not looking at the money supply. So I think you know, they’re just flying blind. They’re flying blind. They’re not looking at the money supply. Period that see the end of the story. And Powell has testified and said over and over again, they’re not looking at the money supply. So what they’ve what they did, they goosed the thing way too much when COVID hit and and and, and, by the way, COVID hit in, you know, March of 2020 by February of 2021 the money supply was growing a little over 18% year over year, and that’s a record rate of growth. So they goosed it. We, of course, eventually got inflation. Now they put the thing in reverse, and they’ve contracted the money supply and and the inflation is falling like a stone, and I think will probably fall below the 2% target of the Fed next year. So the fed by not looking at the money supply and letting the money supply measured by him too, which is the broadest measure the Fed has by by not keeping that at about 6% hankies, golden growth rate, that’s consistent with the Fed’s 2% inflation target, they’re giving us a roller coaster ride. Up down, up down, up down. That. That’s what happens if you don’t keep the money supply growing at hankies, golden growth rate. You’re going to be all over the place.
James Connor 32:24
And why do you think the US is going to go into a recession in q1
Steve Hanke 32:29
well, I’m not certain whether it’s going to be q1 I think. And this i I must admit, I thought we would go into a recession earlier than this. So John Greenwood and I work on this quantity theory of money, and predicted, by the way, exactly what happened with inflation. We said it would go up to as high as 9% well, it went up to 9.1% in the United States now, we said, well, by the end of the year, we forecasted that it would be 2.5 to 3% Well, it’s 2.6 right now. It looks like we’re going to hit that right on the nail on the head, but we have not been able to accurately predict when the slowdown is going to occur. We thought it would occur earlier than it has occurred. And the main reason that we were off is because there was such a huge buildup of excess money in the system, and it took longer to drain that out of the system than Greenwood and I thought would occur. And now, by the way, it is all drained out. So we, I think we’re, we’re really running on fumes right now, and I
James Connor 33:50
guess a lot of it just has to do with the fact that the Biden administration was spending trillions of dollars to keep the economy going, so with the, I guess, the intent of getting a positive election result?
Steve Hanke 34:00
Well, yeah, they, they were, but as I say, if you, if you actually look at the at the amount of money people were holding relative to GDP, if you look at, if you look at that ratio, it’s basically burned off in the summer. So it’s, it’s gone. The excess is gone. Now we’re just, we’re a little below the trend rate of growth in that, in that variable, which would be m2 divided by GDP. That, that’s, that’s how you calculate the excess and and the excess was huge, of course, after the monetary injection, because the m2 went up, that’s a numerator, it went skyrocketing. And GDP actually went down for a while,
James Connor 34:55
and Trump said he’s going to impose a number of tariffs. I. What do you think that’s going to do to the economy? Well,
Steve Hanke 35:05
it’s going to slow it down, because that’s a tax. It’s like a sales tax, a tariff is like a sales tax on all those items that are being imported. So, as you know, if you tax something, you you you bring that demand for whatever it is down people, people don’t want to buy as much of it, so it’ll slow things down. And and trade is something that, unfortunately, the politicians, including Trump, of course, and most businessmen, which, I mean, let’s face it, Trump, Trump’s a real estate guy. He’s a business guy. So most businessmen think like that, like this. They think trades a zero sum game. And what that means Jimmy is that if, if Jimmy’s selling hanky something and and the exchange takes place, it’s a zero sum game, because one of us is going to gain x and the and the other guy’s going to lose X. So it’s zero sum trade. Is not a zero sum game. It’s a positive some game, if, if Jimmy sells hanky something, there’s and we have the terms worked out in the price and the what you’re selling and all the rest of it, you gain. Otherwise you wouldn’t agree to sell a thing and I, I gain be as a buyer, or I wouldn’t agree to fork over the money and pay Jimmy for it. So so it’s a positive sum game. All Trades are positive. They’re not zero. And some people, by the way, actually think foreign trade is a negative sum game.
James Connor 36:57
So if it’s negative for the economy, why do you think he wants to impose these tariffs because
Steve Hanke 37:01
he’s thinking the way I just described it. He he thinks trades actually a negative sum game. That is bad, that that that on, on balance there they’re more negative number. The negative number is greater than the positive number. It isn’t it isn’t reality, though. The reality is that it’s all positive, that the seller has to gain otherwise he wouldn’t sell, and the buyer has to gain otherwise he wouldn’t buy. So it’s this wrong headed thinking and and it will be a dent in the economy. How big a debt will depend on what the nature of the tariffs are and so forth. But it’s, it’s bad, bad news.
James Connor 37:52
Okay, so you’re looking for a slowdown in the economy in 2025 a possible recession. What does this mean for the S P? The S P is at 50 906,000 give or take,
Steve Hanke 38:03
I think it’s, I think the S P is, shall we say, pretty pricey right now, there are a number of things that aren’t being included. Number one is, what the effects of tariffs will be. That’s not included, what the effects of this, these wars and Ukraine in the Middle East, that’s, that’s not priced into the market at all. I mean, you know, they’re, they’re shooting long range missiles, not today. And you from Ukraine into Russia, that’s not priced into the market whatsoever. And, and, and the other thing that, the third thing that isn’t priced in is the green transition. Going Green, it’s it’s going to cost an arm and a leg, not priced in and on and on. How about just the political uncertainty? We’re going to have the most important economy in the world that produces the most important currency in the world is the United States, and we have a big regime change coming with a new administration, and no one knows exactly what’s going to happen. I mean, even tariffs, no one, no one knows really what Trump’s going to do. Because on the one hand, he gives a number and he says he’s going to do this, but then a lot of his advisors say, oh, that’s just a bargaining chip because he’s going to use with the Chinese and other people. So it might not really amount to too much, it depends on what kind of deal he cuts with them, but remember, China is not going to sit back and do nothing, and China controls the commodity markets. And this, this relates not only the United States, but all the Western world. And I. Obviously Canada, big time. I mean, if you look at all the critical materials are controlled by China, they and people think, oh, that means they have all the mines and deposits of these things, the rare earth. No, it’s processing these things. It takes very sophisticated chemical processes to process and make, make a rare earth usable for something, and even if you’re, even if you’re producing something like lithium, spot I mean, or even hydroxide, you gotta, you gotta send it to China to get it processed.
James Connor 40:42
No, very good points and and,
Steve Hanke 40:44
by the way, by the way, China has made it very clear they’re there if, if you the Chinese are basically saying, You punch me, fella, I’m gonna punch you back. So that’s, that’s what the West has a totally stupid idea about this, by the way, and it’s a little bit like the war in Ukraine. NATO goes in there on the side of Ukraine, and we clearly have Western military people in Ukraine, by the way, they’re under the radar, but they’re there one way or another. And we have Western armaments being used openly, these long range missiles now and other things. And in the West, they complain because the Russians have brought North Korean troops, and they say, oh, you can’t do that. Oh, and you can’t, you can’t get armaments from North Korea and China that that’s a, that’s a, that’s a bad deal. You’re not supposed to do that, that the West that that’s the way they talk. I mean, it’s like a kindergarten type thing. The Russians are basically saying, you know, Buzz off. Well, we’re in a war, and we’re in a war. Why or why are we in the war? Because the West went over the red line. We told the West that the red line was that Ukraine would not have an entry to NATO. And in 2008 the West said, well, NATO, they could enter NATO and and then, you know, it’s just gone downhill ever since. But you have to put these things into context that that’s my point. You don’t just start from today. Day one. The news will all be about these rockets going into or missiles going into Russia, but, but there’s, there’s a bigger story. Well, how did the whole thing start?
James Connor 42:58
Yeah, you raised a very interesting point about China, and China is so far ahead of the curve when it comes to so many things, including battery metals and battery chemistries, and they were on top of this 15 or 20 years ago when no one in the West was even thinking about it. Now, if you’re an EV maker, you have to go to China to get your batteries. There’s no
Steve Hanke 43:20
question about or silicone, for example, or you just name one critical material after another. If you look at what I call a three M’s, mining, metallurgy and material science, which, of course, people in Canada should know something about the three M’s, and you look at the schools where the rankings in the three M’s, mining, metallurgy and material science, China is dominates the top 10 in those three M’s. If you if you look at all those, all the universities and schools around the world, China dominates those if you look at other fields, China isn’t even in the top 500 so, so they, they’ve been at this for a while. They put a lot of resources into it and and they’re just, as you say, way ahead of the curve. There’s, there’s nothing in the West that comes close.
James Connor 44:18
And we didn’t even touch on Taiwan. They controlled 90% of the advanced semiconductor manufacturing, right? Imagine what would happen to Apple or Nvidia.
Steve Hanke 44:29
Lot. A lot of things are out in Asia, and the and the US seems to be itching to go to war
James Connor 44:40
in in Asia. So it sounds like 2000 different
Steve Hanke 44:44
narrative, a lot of the narrative, by the way, of of some, some of the, not, not only the the elites in Washington. It, and it’s kind of a bipartisan thing. It isn’t one party or another. They, they, they advertise it. China is the enemy of the United States. And somehow, you know, to put a bluntly, a lot of them are, if you really get get them talking, they’ll say, you know, it’s time for us to go to war with China and put put that back in the bottle before it gets too dangerous.
James Connor 45:23
So we touched on a lot of things today. We touched on politics and geopolitics and the economy, but we have yet to talk about your new book, and you, along with Leland Yeager, at least a new book. It’s called capital interest in waiting. Tell us about the book.
Steve Hanke 45:37
The book in a nutshell, at kind of 30,000 feet, the reason waiting is in the title, it capital, interest and waiting. And the reason for waiting being in there is that if you take a basic economics course, you have you learn about a production function and to produce something you need land, labor and capital. What this book demonstrates is that no you need land labor, capital and waiting. Somebody has to forego current consumption and and and save and and wait to receive a reward or return, and then maybe consume at some later time to make the whole process go. If you don’t have waiting, you’re not going to produce anything. Yeah, and you’re not, and you’re not going to grow. So, so that’s the essence of it, and, and what’s the price of waiting? It’s the interest rate you receive. If you didn’t receive an interest rate, you wouldn’t wait. You just consume everything today. Why? Why save if you’re not going to get a return on your savings? So that’s, that’s the, the broad picture of the thing. And there’s been tremendous confusion and the economics sphere for hundreds of years on this topic, by the way, and many economists haven’t even looked at it so, so we’ve added this new element and a new way to look at the production function or economic activity, and then it gets into a lot of practical matters. Well, how does this affect things like the yield curve, and how does this affect monetary policy? So if people are interested in those topics, this, this is, I think we’ve broken new ground. We might have even broken a little glass by doing it. But Yeager, by the way, I’m delighted that the book has come out. Palgrave MacMillan’s a publisher. Yeager would have been 100 years of age this year. And, by the way, next Monday, the southern Economics Association is meeting in Washington, DC, we’re having a special session on Leland Yeager. Leland yeagers life. He’s a very distinguished economist, made lots of contributions, and I think this contribution is something that he was not able to finish because he the Grim Reaper met up with him when he was 93 and I had always promised him, if something happened and he couldn’t finish the book, which I’d been helping him with, anyway I’d finish it. So took me six years and I got it done. Well,
James Connor 48:42
congratulations. And if somebody has an interest in the book, where can they go and find it?
Steve Hanke 48:48
If Palgrave Macmillan or look at the Springer website, I think you have that link, maybe you can put that up the Springer website, or it’s Amazon or, you know, Walmart, or many, many places that sell books online, sell this book. It’s, it’s just come out. It’s, it’s been out about three weeks.
James Connor 49:12
Well, once again, congratulations and Steve, you mentioned that you’re very active on X or Twitter. What’s your handle
Steve Hanke 49:19
at Steve, underscore, hanky, H, A, n, k, e,
James Connor 49:25
I’m a follower, by the way. I always enjoy your insights. Great. Well, Steve, once again, thank you. I always enjoy these conversations. Well,
Steve Hanke 49:33
soon, Jimmy, thank you very much for having me. Well, I
James Connor 49:37
hope you enjoyed that discussion with Steve. 2025 is just around the corner. And if you’ve been neglecting your finances because you’re too busy or you don’t have time, consider having a discussion with a vetted financial advisor at wealthion.com/free. It will only take a few minutes of your time, and there’s no obligation whatsoever on your part to work with these financial advisors. It’s a free service that wealthion all. Efforts to anyone who has an interest. Once again, you can find out more information@wealthion.com slash free. If you have any suggestions on anyone else you want to see on the channel, let us know in the comment section below. We’re always looking for new guests. Once again, thank you very much for being with us today. And if you want to check out some more content on wealthion, check out this video now.
