Follow on:

Professor Steve Hanke reveals why he believes a recession will strike the second half of 2024 and how you can protect your portfolio. In this episode of Wealthion, host Andrew Brill welcomes back Steve Hanke, Professor of Applied Economics at Johns Hopkins University and former advisor to President Reagan. Professor Hanke provides his in-depth analysis of the current economic landscape, breaks down the contraction of the money supply, rising unemployment, and the likelihood of an impending recession. Hanke critiques the Federal Reserve’s recent actions, describing them as significant monetary blunders that have set the stage for an inevitable downturn. He explains how the Fed’s overreaction to early 2020 events led to an unprecedented growth in the money supply, followed by a severe contraction, signaling a challenging period ahead. The conversation also dives into the rising national debt, currently at $35 trillion and increasing, and its potential consequences for future generations.

Steve Hanke  0:00  
I think the economy is basically running on fumes right now. So and that's why you're starting to see this weakness creep in. I mentioned the hurt on the street column to end today's Wall Street Journal. And and that was was revealing because the the narrative in the press has been everything is great. The economy and everyone was fooled the economy is a lot stronger than we think. And we're gonna have a soft landing and, and in you, you name it. But here as we speak today, I can tell you the Wall Street Journal as a big article by Aaron Beck, my former student and the hurt on the street column is June 3, a lot of economic slowdown data are popping up.

Andrew Brill  0:58  
I'd like to welcome Professor Steve Hanke back to wealthion. He's been an adviser to President Reagan on economics. He's taught at several prestigious universities, and is presently a Professor of Applied Economics at Johns Hopkins University professor Hanke stops by often and always has a wealth of knowledge about what is really going up.

Professor Hanke Welcome back.

Steve Hanke  1:24  
Great to be with you, Andrew.

Andrew Brill  1:26  
So I'm gonna start with a loaded question for you What is going on with our economy? I know that that's there's a long winded answer. But what is really going on with our economy?

Steve Hanke  1:38  
I think they the economy is slowing down. One of my former students actually who's the deputy editor of the heard on the street section at the Wall Street Journal has a piece in today's Wall Street Journal. And the nub of it is that all the indicators are kind of flashing yellow things are the economy starting to slow down. Now this, this doesn't surprise me. Because money is what makes the economy go around. That's a fuel for the economy. And the money supply since March of 2022. Is is actually contracted. And we've only had four contractions ever in the history of the Federal Reserve's since 1913. All all those other contractions have led to recessions and economic slowdown. So I'm not surprised that the economy is slowing down.

Andrew Brill  2:41  
 So you mentioned one of your students, why the heck are you still teaching?

Steve Hanke  2:46  
Well, I like to do it. As I said, it's a labor of love. 

Andrew Brill  2:53  
I guess when you do something you love, it's really not a job. So it's you must really love imparting the knowledge.

Steve Hanke  3:01  
You know, the old guy, I've never had a job in my life.

Andrew Brill  3:07  
That's awesome. So since the money supply as you as you put it, and the quantity theory of money and the money supply is is contracting, is what the Fed doing working with the higher interest rates? 

Steve Hanke  3:22  
Well, in a sense, it's working. But remember, we the Feds has we got to we got to put them in the dark here because they they've conducted a I think one of the biggest monetary blunders in the history of the United States since COVID. In early 2,021st, they put the accelerator to the floor, and there was an unprecedented rate of growth in the money supply, it shot up to a high of 27% year over year. And that occurred in February of 2021. So to show you how high that is, number one, it's never reached that magnitude before. Point number one point number two is that Hanke's golden growth rate for the money supply growth that would be consistent with hitting the Feds 2% targets around five or 6%. So 27% You see as it like five times higher than the than the golden growth rate. So they they shot the thing up and and and what did we get? We got by mid 2022, with with a lag with a lag we had inflation peaked out at 9.1%. Then the Fed puts on the brakes, and we have this contraction in the money supply that I mentioned only had four of them historically in the US history before. And so you said, well, is the Fed doing the right thing? Well, it's just been doing the wrong thing all the time. And, and, and it's overdone this breaking. That that's why I think a recession is probably baked in the cake. And I think, but John Greenwood and I who work on this together and apply the quantity theory of money, think that inflation will be down around two and a half 3% By the end of this year, and then going into 25, it'll probably drop down to something below 2%. And the key thing there, Andrew, most people don't realize if you get money dominates, money is the fuel for the economy. But but the reaction to changes in the money supply, they come with long and variable lags after the change occurs. So most people are just completely out of it. They're looking at today's newspaper, and what what is happening with the economic indicators and the financial markets, but they don't realize that that's all caused by something that happened to the money supply, maybe a year and a half ago, two years ago, maybe maybe even three years ago. 

Andrew Brill  6:22  
So we're looking at a lag. And there's a report out now by the Cleveland fed, that says 2% may not be achievable and 20 till 2027. Do you see that in your research? Do you see that happening?

Steve Hanke  6:37  
It'll happen by 2025.

Andrew Brill  6:41  
So we'll be down to a 2% and interest rates will will interest rates come down first? Or will

Steve Hanke  6:47  
interest rate interest rates follow inflation. So bond yields follow inflation. So like like the 10 year bond, I haven't looked at it today, but it's, it's more or less like four and a half percent or just a tad maybe above that, that 10 year yield will come down as inflation comes down. So you know, as as a place to park your money, that's a pretty good trade actually. Your your your the yield is, is pretty good, the yield will come down. So in a year, you'll have a nice little capital gain on the long position you have in a 10 year bond. 

Andrew Brill  7:29  
So looking at the stimulus, and we talked about that pandemic, and how much money the government pumped into the economy, not only to people themselves, but the corporations they gave out, you know, they gave out this money to corporations that had a good attorney, they could go or or accountant that could go and ask the government for money, whether they needed it or not. How long does it take for that amount of money, the trillions and trillions of dollars that they pumped in, to actually bleed out and, you know, slow things down because people were still spending this money, even at the end of last year?

Steve Hanke  8:06  
Well, in the bleed out kind of that you had this excessive buildup of money. And and that has been all dissipated. Really was last quarter, it's gone now. 

Andrew Brill  8:22  
So now we're seeing we're seeing actually with the last PCE number that came out that their spending is coming down. But at a very, very slow rate. Should we expect this to pick up because that money is gone now?

Steve Hanke  8:40  
Well, the slowdown or pick up, slowdown will pick up. So I let's put it this way. I think the economy is basically running on fumes right now. So and that's why you're starting to see this weakness creep in. I mentioned the hurt on the street column to end today's Wall Street Journal. And, and that was, was revealing because the the narrative in the press has been everything is great. The economy, everyone was fooled, the economy's a lot stronger than we think. And we're gonna have a soft landing and, and you, you name it. But here as we speak today, I can tell you the Wall Street Journal has a big article by Aaron Beck, my former student, and they're heard on the street column is June 3, a lot of economic slowdown data are popping up.

Andrew Brill  9:45  
So you talked about the Yankees golden growth rate of 6% and at one point it was 27%. Can you elaborate on what that 6% is and I guess to achieve the 2% rate that the Fed is looking for, you need to have a 6% growth rate.

Steve Hanke  10:06  
Right. So you gotta go back to the client quantity theory of money. And this quickly the quit the equation of exchange. And the equation of exchange once the equation of exchange is the following m v money, v is velocity equals P y P is the price level, and y is the real rate of growth in the economy. So, if you just this quickly, if you actually transform that into logarithms and differentiate it, you get something that people can work with. And that is m plus V equals plete p plus y. And if you rearrange that and solve for him, you have m equals p plus y minus v. Now, if you plug the numbers in what's p, p is the target for inflation, that's 2%. Y is the potential growth rate in the US economy, it's about roughly 2%, it's a little over 2%. But this for simple for us, back of the envelope, we're kind of using a, what they call Firm A's method. And Firm A's method is by Enrico Fermi and other famous physicists, he, this is this is what they call firm a back of the envelope kind of calculation. So we we have what we're trying to solve for him that's on the left hand side of the equal sign, then, on the right hand side, we've got P, and that's two to 2% plus y, that's another 2%. Y is the potential growth rate for the economy. And and the velocity is minus two. That's roughly what that is. So so so we have two plus two plus two is equal six.

Andrew Brill  12:15  
All right, so. So if we were to get or keep that 6% growth rate, then inflation will get down to 2%. 

Steve Hanke  12:24  
By the way, let me clarify on the V, the V is actually a minus 2%. But if you switch it and get it on the right hand side of the equation, you got a minus and a minus, turns into a plus. So that's why I got two plus two plus two. just to just people don't get confused. 

Andrew Brill  12:42  
The negative of a negative is a positive. 

Steve Hanke  12:44  
Okay, Andrew's are they taking notes on...

Andrew Brill  12:48  
I was jotting stuff down. But yeah, a negative of a negative is definitely a positive. So yeah.

Steve Hanke  12:55  
Yeah, anyway, go ahead.

Andrew Brill  12:57  
So I have a question about banks. Now, we have a reserve rate right now of 0%. And we're trying to contract the economy. Why doesn't the Fed go to the bank say, okay, you know, what, you need to now have a two or 4% reserve rate, because we want to take money out of that we want you lending less and keeping more in your bank, basically, we want you putting less money out there. Aside, from interest rates.

Steve Hanke  13:24  
that if they did do that, by the way, it would be a disaster because the money supply is already contracting. And most of the money supply is created by commercial banks. Right? Roughly about in a more or less, always between 80 and 90%. Of all abroad, money produced in the United States and most other countries, by the way, is produced by commercial banks. People don't realize this, they they think the Fed produces all the money No, the banks producing almost all the money there. The banks are the elephant in the room. And you're right, it Andrew, if they if they put reserve requirements on the banks, they would loan less than they are right now. And right now, they're barely making any loans. They're not contributing very much to the to the growth in the money supply. Very, very small, and they have been actually negative Loan Loans have have only become positive year over year in the last month or so. So, see, so one, one reason for this, by the way, is that they are doing one thing, they haven't increased reserve requirements or put a positive reserve requirement on but they keep threatening to increase the cap of what they call a capital asset ratio is the amount of capital that banks need. And that that is that slows things down. If we go back to the great The financial crisis, you know, the 2008 post Lehman thing, most people don't understand how the money what was going on. Remember, we had three tranches of quantitative easing, where the Federal Reserve pumped up the money supply, their contribution pumped up, and the balance sheet of the Fed expanded. And everybody said, Oh, we're gonna have a lot of inflation, this is going to be a disaster. Well, that never happened. And the reason why is that the banks, actually were making a negative contribution to the money supply. And the reason they were is that we had Dodd Frank financial regulation, putting a noose around the neck of the banks. And, and we also had, what was called bought the Basel capital asset ratios, Basel three came in increasing the capital asset ratios, and that that caused the constraint. So. So if the Fed hadn't been quantitative easing, we would have had brilliant, huge recession, because the banks weren't producing any money, they were actually contracting money. So most people don't understand that that was a that's a one of the great misunderstandings and what was going on. As a result, the money supply was growing at a very slow rate actually a little below the golden growth rate, it was it for a long period, after the great financial crisis, it was growing at less than 5% per year. And that's why the Recovery took so long. And that's why we never had any inflation, inflation stayed below the 2%. inflation target. So all of that's just total confusion, because people don't understand the quantity theory of money, and they don't understand how to measure money. They don't understand how to slice and dice money and so forth. Why, by the way, if you look at the money supply measured by him to and look at the components of it, you have only 11% is actually produced by the Fed. That's notes and coins, currency by 11% 76%, or liquid deposits and commercial banks. And then we've got a equally split the residual between money market funds, and short term private savings accounts. That's that's, that's those are the components of so. So the huge amount, three quarters of it are liquid deposits of banks, and only around 10% 10 or 11% are notes and coins, you know, what we have in our wallets? 

Andrew Brill  18:00  
Right? And that those liquid deposits is what the commercial banks used to lend out to make loans.

Steve Hanke  18:07  
Well, they know that they are the liabilities of the commercial banks, meaning it's your checking account. It's your it's your money. That's why it's money. I mean, if you go in right now and write a check someplace, you know, that's a transaction, a legitimate transaction, assuming you've got money in the bank. And and what it's like cash, write somebody a check. And they give you a you know, an automobile or whatever, you're writing a check for groceries or you name it. 

Andrew Brill  18:46  
Yeah, I just had to do that this this weekend for my son. So I did write a check. And the bank said, Yep, the checks. Good. And my son got his car. So I understand exactly.

Steve Hanke  18:56  
Yeah, yeah. Yeah. Good. Good for him. Now, he taught that and

Andrew Brill  19:04  
yes, he certainly did. But he deserves it. He's a good a good son. And he's off to medical school. So we're he's in really good shape there. 

Steve Hanke  19:13  
Yeah. Good. Yeah. Good for him. 

Andrew Brill  19:17  
Professor Hanke, we had four recessions since the 20s. For contractions since the 20s. That we talked about the biggest one coming in the late 20s, early 30s, which the economy contracted the money supply contract by 39%. That was a pretty lengthy recession nearly three and a half years. How long has or how, what's the contraction this time? 

Steve Hanke  19:47  
it's about 4%. It's about 4%.

Andrew Brill  19:50  
So do you have a formula fro how long

Steve Hanke  19:54  
1929 to 1933, that was that was A mash that that was the Great Depression. There, we've never had anything like that. The other ones, there was one in the late 40s. And there was one, I think 3637. And then there was one, one in the 20s. But all of those were actually not not even as great as this 4% number. But there's only been one really mega mega contraction in the money supply. That was a great depression 29 to 33. And, and the other contractions that I mentioned, there were three others, in addition to that, they were all somewhat less, a little bit less than the current contraction.

Andrew Brill  20:43  
So do we have a perfect storm coming out? I mean, unemployment is relatively low, but it's creeping up. And it seems like unemployment is going to continue to creep up because there's all this talk of layoffs, and stuff like that the economy still doing okay. Is this a perfect storm where we are definitely heading into recession?

Steve Hanke  21:06  
Yes. It's really, it's really baked in the cake. Now that you're talking about the labor market. Everybody says, Oh, the labor markets great, the labor market is great. Unemployment is low. But you did mention something that's important, Andrew, and that is if it's come off the super low and risen, its unemployment is going up. It's still very low. But but it's increased by 5% by a half, a half a percent. Half Half a percentage points. If and when it does that. We always have a recession. So that's the threshold. If we if we have a half a percent increase in the unemployment rate, we end up always fall, it's always followed by a recession. So it isn't it isn't the level. That's it's so important that that gives you one view of the thing. It's always an economics, you know, everything, as they say is always determined at the margin. It's a delta, it's what's changing, and unemployment is becoming more severe.

Andrew Brill  22:24  
So we have somewhat higher unemployment. And we have a recession on its way. How do we explain the stock market just continue the s&p although down off its highs, and the NASDAQ, I, you know, you attribute that to Nvidia and AI a little bit is still reaching new highs. How do we I know that people look and say, Oh, the economy is great. The stock market's doing great, but that's not exactly the case. Even though the stock market... 

Steve Hanke  22:53  
I think we're, I think we're in it. I'm not saying it's, I'm not calling it as an internet bubble like we had bought. We have. If you go back to 1881, and you look at Professor Robert Shiller at Yale's inflation adjusted P E ratios, the way he calculates it, we've we've only had 5% of the time when the when inflation adjusted P E ratios have been this higher above since 1881. So we're in pretty elevated territory. I'm not saying we're in a bubble, I'm just saying. It's very the stock market is very pricey right now. So I think I think there's quite a bit of exuberance that we say, in the in the market. And if you look at somebody like Warren Buffett, for example, what why is Buffett building such a huge pile of cash, and not investing in the market? Not bought Buffett's rule, by the way, which I think makes sense when, when when, when Buffett was looking at Apple to go big time. Berkshire has a huge position on Apple. And at the time, he went into that they had a small position for buffet that was about a billion dollars. And, and and his people came in and they said, Warren, you know this, we might be thinking about putting a little bit more money in their ear to Apple, what do you think? And he said, Well, he said, Let's, I want to I want to know this. He said I want to buy something that's well priced that with a P E ratio 12 month forward earnings 15 or less. So that's one thing 15 or less. And then he said, I also want to know whether whether there's a 90% probability that earnings will go up in the next five yours over the next five years. And the third thing and Buffett's rule is the earnings, he wanted to know if the earnings if there was a 50% chance 50% Chance that the earnings would go up by 7% per year for the next five years. So low p e below below 15. Earnings going up 90% chance for the next five years, and a 50% chance that those earnings would be going up at at least 7% per year. Now, if you apply that rule, and look at stocks, there aren't many out there. I don't think that the cutter. So so that's that's a little bit consistent with with with this thing with Bob Shiller's inflation adjusted P E. observation that it's so so I would characterize the market is, you know, a lot of exuberance, by the way he you mentioned, you know, or implied The Magnificent Seven, the, the bread than the market is not that great, right, you got it, you've got a few techies that are running the market and run it running the averages. But if you really look at the breadth of the thing, a lot of dogs and cats in there that aren't doing much of anything.

Andrew Brill  26:36  
So Professor, I want to touch on pricing a little bit pricing has been up about 18%. And if we head into recession, there was a lot of people that are a lot of companies that were hurting during the pandemic, I don't expect pricing to come down that much. But if people aren't spending money, is it? Is it a cyclical thing, if people aren't spending money, you want to bring the consumer back and you need to lower prices? Do we get this back in line? There's so many things that seem to be so expensive these days? How do I bring this all back in line?

Steve Hanke  27:10  
Yeah, the overall cost of living, as you say, has gone up around a cane a little over 18%. But that's, that's really not coming down, you would have to have a huge depression to bring that overall thing down. Now, there are various things, you know that we've seen some price cutting, going on, you know, and, and that is not all that unusual. But price cutting at one store or one fast food operation is is not the whole index, because fast food as a category, that's this one component have over 300 items in the consumer price index. So So yes, you and there are some things by the way that actually have gone down in price. Some high tech items, for example, have gone down over the last three or four years. Not many, but some. I mean, so the pricing thing depends on the industry, the competitiveness of the industry, supply and demand.

Andrew Brill  28:38  
So but we're we're at a point where, you know, at one point wage growth was was increasing at a nice rate, wage growth has sort of flattened out, but prices haven't come down all that much. So it's going to be tougher and tougher for consumers to spend money, especially with unemployment ticking up. There's fewer people working, that money supply will continue to contract.

Steve Hanke  29:01  
Well yeah, of course, that actually the real wage adjusted for inflation is gone down since the pandemic. That's one one reason people are, you know, they say, Oh, everybody says the economy is great. The stock market is great, but Why is everybody so gloomy about everything? Well, for the for the Average Joe, and I'm not talking about Joe in the White House. They're there real income has gone down. I just saw some numbers this morning, by the way, that the real income adjusted for inflation went went up and Trump's presidency more than it did and George W. Bush's, Obama's and Biden's all put together so that that that, that shows you why, by the way that, you know, some people have have pretty fond memories of the economy during the Trump presidency. I mean, if you put it into context, there were there was a lot of real income went up quite healthy manner.

Andrew Brill  30:22  
And spending didn't spend it didn't come down at all it which is leads me to my next question, what Professor Hanke, we're going to do about this debt, you know, 35 trillion and growing every 100 days, we add a trillion and obviously, with bond prices, it's we're just we're servicing this debt, as it goes, continues to go up. And the last time I think that we that it came down was under President Clinton, and then it continues to go up. I mean, under the Trump presidency, there was spending like it was going out of style. Under the Biden presidency, its spending is crazy. And now that we're in an election year, well, that spending is not going to stop, that's for sure. So we're digging ourselves a bigger and bigger hole?

Steve Hanke  31:09  
Yes.  One thing of though, is debt and interest rates going up. So when they roll over the federal debt, the interest costs go up to put that thing into context. Now, the the interest on the debt is, is now larger than the defense budget. And, and people have to think the interest on the debt, taxpayers, you can argue whether taxpayers really get much for their taxes anyway, but they they get nothing for interest. If they're paying interest, they're getting nothing. So so it's it's a huge burden on the on the taxpayers that the the interest it, the debt is unsustainable. I mean, even the Bipartisan Congressional Budget Office, all our forecasts show that this is not sustainable. We, we can't keep doing this. And the question is, well, how do you stop it? If we can't keep doing it, it will stop. By the way. If something can't continue, it will stop. So the question is, well, what what will make it stop, but one, one possibility is to rein in government spending, that's possible. The other thing is to increase taxes, that's possible. And there are two ways to do that. One is to direct taxes. They, you pay your taxes every April or every quarter when you're estimating your taxes. And they're in if they're if they're increased, you're going to be paying more, the other way to tax is within inflation tax. So, so we have restrain government spending tax you directly or tax you indirectly with an inflation tax. So or some mix of those. So

Andrew Brill  33:12  
Can you elaborate on an inflation tax? 

Steve Hanke  33:14  
Well, we just had, we just had one. I mean, we're in the middle of one right now. I mean, inflation is, is clearly taxing us. I mean,

Andrew Brill  33:27  
So you're just raising the interest rate, and that's the the inflation tax.

Steve Hanke  33:30  
Well, no, the inflation tax is the cost of living going up. 

Andrew Brill  33:35  

Steve Hanke  33:36  
That's the price of everything going up. And including, by the way, including interest rates, if, if you they changed in 1983, the way that the consumer price index was calculated, in the old days, they used to include interest costs, like mortgage mortgage cost and lending cost in that cost of index. If, if that was included now, and we actually were calculating the way we used to calculate the inflation rate, the consumer price index would be a lot higher than it is but because if because of interest interest have to be included, these mortgage rates would be included in the cost of living or consumer price index calculation. It's not now. So So, so we have an inflation number. That's the way that's the way they're calculating it. If we get what would it would go back to the old 1983 method? It would it would be a lot higher than it is now. And people would say well, hanke why is that? And I would say that's because in the old days, part of the aggregate for the consumer price index number was interest. That was that was that was part of the Cost of living as the interest you have to pay.

Andrew Brill  35:04  
So with all this debt, and with all, you know, the bonds,

Steve Hanke  35:08  
Just a second, let me let me ask how to solve this. So we have three ways to do this, that I just gave you the three components. Now, now, institutionally, you know, you can just you could have arm twisting, log rolling and the usual political process, and they split it up between controlling government spending and the inflation tax and direct taxes. They could be just political bargaining. That's one way. The other way is to put a fiscal rule and a statutory change, like the gramm Rudman statutory change that occurred in the past and that that that would be a rule that would can control a thing, or bring it squeeze it down. The problem is that the statutory changes, they never really last very long and really don't work very well. So that leads to another institutional change that you can do that that I'm for. And that's to have a constitutional convention, under Article Five of the Constitution, and in which you would hopefully put in something like a Swiss debt break and change the US Constitution. So instead of changing a statute, which they don't work very well, the statutory rules, you would actually change the constitution and put in something like a Swiss debt break. Now people say, Well, what's that? The Swiss, the Swiss had a referendum and the Swiss debt break that's in the Constitution says that the government expenditures can't go up any faster than the rate of growth in the economy. So that that controls government spending. And then as far as the deficit is concerned, that Swiss that break, forces them to balance the budget over a fairly short period of time, two to three years and a two to three, there has to be, it can go up a little bit up and down. But over over a two or three year period, it has to balance.

Andrew Brill  37:19  
It's that seems to make a lot of sense. I mean, right now we're spending 126% of GDP, that's clearly not sustainable. And if we could balance that we don't even have a budget, we sort of, you know, Congress votes every few months, about adding more money to pay the, you know, pay for things and it doesn't seem like we have a budget going forward.

Steve Hanke  37:41  
Well, we're operating, in fact, outside what we would term in a normal budgeting process. This has been going on for quite a while. I mean, and and it's very hard for people to follow, actually, what's what's going on? I mean, because as you say, Where's the budget?

Andrew Brill  38:07  
Right, exactly. Yeah, it's like, Look, if you were I were to spend 126%, of what we earn, we would have a very serious problem very quickly. But the government doesn't see it that way. It would be really nice if they could say, okay, you know, we make x, we have extra spend, or we can borrow a little bit more, but 26% More is a lot for the country to handle. 

Steve Hanke  38:34  
Well, yeah, it's a real problem. Because if on a keep the analogy with a personal budget, it would be like running up a huge amount of debt that what happens is that after you die, your son is going to be a medical doctor, hopefully, he is he would, he would pay off all your debts. Somebody's got to pay this idea that the idea that the government can run up deficits and debt, no one pays it's a joke. I mean, this is you learn this in economics textbooks. This kind of rubbish is in there. And and people actually believe it, but but somebody always pays, and it's somebody in the future. So right, so what we're doing. There's there's a moral argument here, and that is how our elected officials today, given the right to actually impose taxes on people who aren't even born yet. Because those people who aren't born are going to be paying for a part of this, Andrew?

Andrew Brill  39:50  
Absolutely. Absolutely.

Steve Hanke  39:53  
How will they pay? They'll either pay in direct taxes, or they will play in an inflation tax. One of the two.

Andrew Brill  40:02  
So are we devaluing the dollar to the point where the dollar you know, the dollar is what kind of rules the world right now are we devaluing the dollar to where, you know, BRICS could possibly be take over or some other currency? That the end?

Steve Hanke  40:23  
Okay  we see the de-dollarization. In the press all the time, almost daily, you know, the dollars using value losing its place in the world, it's going to be overtaken by some bricks, currency, or cryptocurrencies or something like that. Well, who's pushing this idea? Number Number one, it is an idea that doesn't comport with what we see in current exchange rates. Because if you look at the trade weighted value of the dollar, it's almost at its all time high, the dollar is very strong, right? You go to Europe, by the way, and you're gonna you're gonna have a great summer because the dollar are good, quite a ways. So

Andrew Brill  41:07  
You just gave me an idea? 

Steve Hanke  41:11  
Yeah, well, exactly so at any rate, it's being pushed a lot there. There are two avenues that this comes the crypto evangelicals push it, because they're pushing crypto. And they're gonna say that, you know, the next thing that's better than sliced bread is a crypto, which was not correct. The second group are basically the enemies of the United States. So you have a big propaganda machine, you know, the bricks crowd. bad mouthing the dollar all the time? Well, if you look at if you look at any BRICS country there, everybody residing and BRICS countries, they want to keep dollars under the mattress.

Andrew Brill  41:57  
Last thing I'll ask you about Professor Hanke, is about gold. And it seems like there's countries around the world China included, that is hurting gold at this particular point in time any idea why?

Steve Hanke  42:10  
Well, it some some of it is really I'm not saying there's nothing to the de-dollarization thing because the US is placing sanctions on people and countries and that they weaponized the US dollar, to the extent that sanctions are tangled up with the US dollar. And and that means what you want, you do want to do dollar rise, it gives you an incentive to de-dollar right now. Now, what do you what do you how do you do that? Well, gold is a good way to do it. Because gold is not issued by a sovereign. It's not a liability of anyone. It's not like fiat money is it's a liability of whoever the issuer is. Or if a bank is making no makes makes a loan. That is also it's on it's on the balance sheet of the bank. That's not the case with gold. So go gold is attractive in that respect, if you Goldust is not issued by the United States.

Andrew Brill  43:27  
So in basically to sum it up Professor Hankey, we got to hold on to our hats. The money supply is contracting. And every time in the money supply is contracting, we end up in a recession. And you believe we're headed there relatively soon.

Steve Hanke  43:43  
I think we'll see one by late this year, early early next year.

Andrew Brill  43:47  
I appreciate you coming on and we always love to hear your insights. So thank you Professor Hanke.

Steve Hanke  43:55  
Thank you, Andrew, great to be with you.

Andrew Brill  43:57  
That's a wrap on another discussion here on wealthion. Thank you for joining us. If you need help being financially resilient, please head over to and sign up for a free no obligation portfolio review with one of our registered investment advisors. And remember to follow us on social media for the latest news and information to help you invest wisely. And if you could like and subscribe to the channel, we'd greatly appreciate it. Don't forget to hit the notification bell to find out when we post new videos to the channel. Thanks again for watching and until next time, stay informed, be empowered and may your investments flourish. And if you like this content, please watch this video next.

The information, opinions, and insights expressed by our guests do not necessarily reflect the views of Wealthion. They are intended to provide a diverse perspective on the economy, investing, and other relevant topics to enrich your understanding of these complex fields.

While we value and appreciate the insights shared by our esteemed guests, they are to be viewed as personal opinions and not as official investment advice or recommendations from Wealthion. These opinions should not replace your own due diligence or the advice of a professional financial advisor.

We strongly encourage all of our audience members to seek out the guidance of a financial advisor who can provide advice based on your individual circumstances and financial goals. Wealthion has a distinguished network of advisors who are available to guide you on your financial journey. However, should you choose to seek guidance elsewhere, we respect and support your decision to do so.

The world of finance and investment is intricate and diverse. It’s our mission at Wealthion to provide you with a variety of insights and perspectives to help you navigate it more effectively. We thank you for your understanding and your trust.

Put these insights into action.

This is why we created Wealthion. To bring you the insights of some of the world’s experienced wealth advisors and then connect you with like-minded, independent financial professionals who will create and manage an investment plan custom-tailored to you. We only recommend products or services that we believe will add value to our audience.  Some links on our website are affiliate links. This means that if you click on them and use the affiliate’s services, we may receive a payment from the vendor at no additional cost to you. 

Schedule a free portfolio evaluation now.