As we wrap up the year and celebrate the festive season, we wanted to share some of our favorite moments from one of your favorite Wealthion interviews from 2024: Steve Hanke with James Connor. Enjoy!
All the best for a happy, healthy, and prosperous New Year
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Original interview aired Nov 21, 2024: https://youtu.be/vzrq6JM9Ud8
Andrew Brill 0:00
Happy Holidays. From all of us here at wealthion to all of you, I’m one of your hosts here at wealthion. Andrew brill, we took a look back at this year, and hope you enjoy these favorite guest moments from one of our best interviews of 2024
James Connor 0:18
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. Well,
Steve Hanke 0:29
the 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 happen 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 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 governments 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 a 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 kind of intuitively know that inflation was 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,
James Connor 7:24
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 7:41
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, in inflation is always in everywhere. Jimmy a monetary phenomenon. If the 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 8:17
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 various election 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 got to 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 9:21
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. 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 then people ask, well, you know, why are you doing podcasts while 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, 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 in 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. I his 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 going to ask me. I mean, you’re running that, you’re running the show. I’m not, yes,
James Connor 13:04
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.
Steve Hanke 13:30
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 they’ll tell they’ll tend to vote for an alternative. They’ll tend they 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 it’s all because of this resentment. So
James Connor 14:15
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 14:30
Oh, I think, you know, Trudeau is in the tank. Basically,
James Connor 14:39
whenever they call the election, we’re going to get another sweep.
Steve Hanke 14:41
I think 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, and
James Connor 15:05
Trump said he’s going to impose a number of tariffs. What do you think that’s going to do to the economy? Well,
Steve Hanke 15:14
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 on all those items that are being imported. So, as you know, if you tax something, you bring that demand for whatever it is down 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 is going to lose X. So it’s zero sum trade. Is not a zero sum game. It’s a positive sum 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 gain as a buyer, or I wouldn’t agree to fork over the money and pay Jimmy for it. So it’s a positive sum game. All Trades are positive. They’re not zero. And and some people, by the way, actually think foreign trades a negative sum game.
James Connor 17:05
So if it’s negative for the economy, why do you think he wants to impose these tariffs? Because
Steve Hanke 17:10
he’s thinking the way I just described it. He He thinks trades actually a negative some game that is bad, that that that on, on balance, they’re 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 dent will depend on what the nature of the tariffs are and so forth. But it’s, it’s bad, bad news. Okay,
James Connor 18:01
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, I think it’s 25% I
Steve Hanke 18:13
think the S P is, 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 not that’s not priced into the market at all. I mean, you know, they’re shooting long range missiles, not today, for any from Ukraine into Russia. That’s not priced into the market whatsoever. And and and then. 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 they’re 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. It controls the commodity markets. And this, this relates not only the United States, but all the Western world, and 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 and 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, or even hydroxide, you gotta, you gotta send it to China to get it processed.
James Connor 20:51
No, very good points and, and,
Steve Hanke 20:53
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 going to 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 it, 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 that 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?
Andrew Brill 23:06
Thanks again for watching these favorite moments of 2024 and we hope we can continue to provide you with information that will help you invest wisely and be financially resilient. Wishing all of you a healthy, happy, safe and prosperous 2025.
