In an interview on October 28, Steve Hanke said he has updated the probability of a U.S. recession to 90%, as he believes the money supply has tightened at an “unprecedented” rate.
Economics professor Steve Hanke says the probability of a U.S. recession is now 90%.
Professor Steve Hanke has been critical of the world’s central banks and on Friday he said that the chances of a recession are very likely. Hanke spoke with Kitco News anchor David Lin, and explained that he has increased his prediction to a 90% chance of a U.S. recession occurring. “Where we go from here is determined by where the money supply goes“, Steve Hanke told David Lin on Friday. “The quantity theory of money is a means of determining the determination of national income.“
The professor of applied economics at Johns Hopkins University added:
The money supply was stimulated in early 2020 when COVID was launched. The money supply grew on average three times faster than it should have in order to meet a 2 percent inflation target. As a result, we had a lot of inflation.
Inflation in the United States has been a problem, and the Federal Reserve’s leading inflation indicator, the Personal Consumption Expenditures (PCE) price index, rose 0.5 percent in September. In addition, the September Consumer Price Index (CPI) report had shown that consumer prices jumped to 8.2%. According to Steve Hanke, quantitative tightening is now an important issue because the money supply has contracted significantly, the economics professor noted in his interview.
“Over the past seven months, the money supply has actually contracted by 1.1%“, Hanke told the Kitco anchor. “This is almost unprecedented. That means, of course, that you have a big change in the money supply and then there is a transmission mechanism. There are lags between the surges in the money supply, whether it’s going up or down, and what’s happening in the real economy“, added Steve Hanke. The economics professor said he believes these factors will lead the U.S. into a full-blown recession.
Hanke added told the news anchor:
Someday, in 2023, we’re going to have a pretty significant recession in the pie. The GDP numbers are a great thing and you can be happy about that today, they are no longer negative, we had a positive number – the big picture shows that the economy has been pretty stable for the last year, but it is going to hit the south.
Steve Hanke, however, is not a fan of crypto-currencies like bitcoin and has criticized the country of El Salvador for adopting bitcoin as a form of legal tender. In June 2021, a few months before bitcoin hit $69,000 per unit, Steve Hanke explained that “with [Nayib] Bukele at the helm“, his country risked “financial ruin“. Bukele hit back at Hanke’s criticism when Bitcoin reached $60K per unit in mid-October 2021.
Steve Hanke is a proponent of currency boards, an idea that relies on the use of a monetary authority to maintain the fixed exchange rate of a currency. Bitcoin, by design, is the antithesis of Hanke’s preferred currency board solution because the BTC network is decentralized and the free market chooses the exchange rate of the crypto currency.