Steve Hanke: Money Supply Acceleration Could Reignite Asset Bubbles and Inflation
Summary
Monetary Policy: The guest expects money supply growth to accelerate as QT ends, bank regulations ease, and rate-cut pressure rises, risking a resurgence of inflation.
Asset Bubble Risk: He warns that faster money growth could further inflate asset prices across stocks, real estate, and land, with his bubble detector at an all-time high.
Banks and Credit: Removal of the supplemental leverage ratio could add roughly $2.6T in lending capacity, making commercial banks the key engine for broad money growth.
Gold: Bullish view maintained; gold is consolidating around 4,000, options positioning skews to calls, and he sees a secular bull market with potential to reach about $6,000/oz.
Rates and FX: The 10-year sits a bit above 4% and USD/EUR is steady near 1.15–1.16; market-implied odds of a 25 bp cut swung higher amid weakening labor data and Fed communications.
Inequality and Policy: Non-neutral monetary policy has exacerbated wealth inequality, producing a K-shaped recovery and elevating affordability as a key political risk.
Economic Outlook: He is on the fence about recession; labor market softening and policy uncertainty are headwinds, but renewed money supply growth could sustain the expansion.
Tickers Mentioned: No individual public company tickers were pitched by the guest; the focus was on macro policy and gold as a theme.
Transcript
The Fed has decided that it's going to end quantitative tightening, the shrinkage of the balance sheet of the Federal Reserve in December. and this continued pressure from the White House to loosen up, lower the Fed funds rate, that that that's a little bit of a yellow light uh flashing in my eyes when I look at what's going on because what will happen I think maybe is that we'll get an acceleration in the growth rate in the money supply and of course we'll have inflation won't be contained. and >> Professor Steve Hanky, professor of applied economics at John's Hopkins University and the founder and co-director of the Institute for Applied Economics, Global Health and the Study of Business Enterprise and the author of the new book, Making Money Work: How to Rewrite the Rules of Our Financial System. It is so wonderful to welcome you back to the show. Great to see you as always, Professor Hanky. I really appreciate you taking the time today. >> Great to be with you, Julia. It's always a pleasure being with you, Professor Hanky, and this audience loves you. And it's been a while. It's been five months uh since we had you. So, we're definitely due for a check-in, especially as we finish the year here in 2025. And Professor Hanky, since it has been a while, let's start where we always start, big picture, more of that macro view, where we are in the economy, and let's throw markets in there. What are you paying attention to these days? Um what's not getting enough attention, and what's sort of your outlook going forward? And as you know, Professor Hanky, you take all the time you need to set the table. >> Okay, the big picture. Uh let let's just start in the United States. Uh since that that is the capital market of the world. So, and depending on how you measure it, actually, it's the biggest economy in the world, too. And and right now, it's probably the the biggest disruptor from a international policy point of view in the world. So, we have the main thing to focus on is the money supply. What's going on with the money supply? Because that's the fuel for the economy. And the money supplies start started to grow after going up a lot after CO giving us inflation and then contracting and slowing the inflation way down. And now now the money supply started going up. So it's still a little bit on the anemic side. It's growing at about 4.5% per year. Uh my golden growth rate a rate consistent with hitting a 2% inflation target is 6%. So, but it's but it's accelerating and the thing to watch is where where the acceleration is going to go is this are we going to be on another roller coaster ride and and we we might be that's that's really what concerns me because there's a lot of pressure on the Federal Reserve to loosen up and and open the open the money supply spots, shall we say. And when you look at that, we we already have the following things that are tipping us off about where we might be going. And one of those is that the Fed has decided that it's going to end quantitative tightening, the shrinkage of the balance sheet of the Federal Reserve in December, next month, a few short days actually. So, so that will loosen things up. The other big thing uh and and something that Natirky and I talk a lot about in the the book that you held up making money work is that bank regulations bank regulations they they don't change that often but they have an enormous impact on the growth rate in the money supply and the capacity of commercial banks to actually extend credit and once they extend credit of course that increases a greater growth in the money supply. So what what what has happened is that there's something called the um special liquidity ratio supplemental excuse me supplemental liquidity ratio and and that that was imposed on banks after the great financial crisis in 2008 and they're going to remove that now by removing that and dereg regulating, shall we say, that will have an enormous impact on the capacity of commercial banks to to make loans. It'll give them a lot more potential firepower. Uh the estimates are around $2.6 trillion dollar in capacity. So, so that's a big change that that no one pays much attention to, but it's big. And that along with quantitative tightening and this continued pressure from the White House to loosen up lower the Fed funds rate that that that's a little bit of a yellow light flashing in my eyes when I look at what's going on because what will happen I think maybe is that we'll get an acceleration in the growth rate in the money supply and of course we'll inflation won't be contained. >> Uh and and uh by the way, the the bubble in the stock market will continue to expand because if you if you have acceleration in in the money supply, just like we had the last time in 2020 and 2021, Julia, what happened? The first thing that happens with a lag is that asset prices go up, real estate goes up, land prices go up, the stock market goes up, all all assets inflate. >> So, so that's the that's my concern. So, the right right now everything seems to be running relatively smoothly. the in the US the the labor market's getting a little weaker. And and by the way, that also is another tip off as to what the Fed will do because the Fed historically has always kept his eye more on the labor market than anything else. And and now, by the way, they don't keep their eye on the money supply at all. They they poo pooed the quantity theory of money and the whole idea that there's a connection between changes in the money supply and changes in asset prices, changes in economic activity, changes in inflation. The the chairman Powell is has rejected all of that in in even in testimony. >> That's because as we've talked about, they have uh all the Neocians are over at the Fed. maybe more monitorist. >> You you you you've got the neocanesians in charge and uh and the the focus is on things that the neocanesian focus on and if you look at their macroeconomic models they they don't include a variable for the money supply by the way but they do include interest rates. So we have this obsession with what's going to happen with the Fed funds rate. What's going to happen with the Fed funds? And it looks like, by the way, what the the the probability of a 25 basis point Fed funds reduction at the December 10th Federal Open Market Committee meeting. That's been fluctuating all over the place. Crazy. a month ago that it the probability was about 99% that there would be a 25 basis uh point cut and and and then uh about a week ago it it was about for it had dropped to about 40%. And and now I haven't looked at it today but it's up around 70%. I think that's right. Or I think I even saw a headline from Reuters overnight. It was like 80% but it's like all the feds speak that um yeah it's it is fluctuating. >> So that so this is and and it and it fluctuates depending on what the members of the Federal Open Market Committee if they give a a speech someplace or they're on a podcast with you Julia. >> Oh we haven't had any Fed governors on the pod but >> if they say something well it jumps around. So the the last one uh Waller who's one of the Fed governors in indicate who's who's tended to be a little bit on the hawkish side indicated that he thought maybe a 25 basis point cut was was in the cards and and boom all of a sudden the probability of that rate cut uh interest rate cut by 25 basis point zoomed up from 40 to you you say it's 80 now >> I think it is I don't don't quote told me on it, but I'm pretty sure that's the headline I saw. But >> so, so at any rate, th this this this is part of the the the overall message that I I want to get into the picture and and that is if you focus on the quantity theory of money, it's steady as you go. You you keep the money supply growing at about 6% per year and you will end up with about a 2% inflation. But we we don't pay any attention to the quantity theory of money. We have all these ad hoc theories, postc Keynesian models and so forth and and we have up and down up and down and and and it comes in even in in the micro kind of thing where daytoday the probability of what they're going to do with the Fed funds. It's it shifts around every 24 hours and and that is because the Fed is what they call data dependent. They watch the daily data and and the guy guy guy guy guy guy guy guy guy guy guy guy guy guy guy guy guy guy guy guy guy guy on the street it's a finger in your wind in the wind kind of approach if if the wind's blowing one way uh one day that's the policy orientation. If if it shifts and blows the other way the next day the policy orientation shifts and blows the other way. So it as a result of this data dependency um you you have ba basically a lot of instability >> and and by not looking at the quantity theory of money you get this flying blind kind of approach too. you if you're not looking at the money supply and paying any attention to it because you don't think it affects asset prices, real economic activity or inflation, well, you're you're flying blind as far as >> we should send them a copy of your book, too. >> Well, I've done that. >> Yeah. Okay. Well, they need to read it. Um, Professor Hanky, I want to explore something with you because you got my attention. We were talking about this kind of roller coaster yellow light flashing the resurgence in inflation because you and John Greenwood accurately predicted that surge we saw in inflation. Um, really exactly the 9% we saw. Um, and so when I hear you talk about inflation, I want to pay attention and listen. And it sounds to me like there's this real risk that we could see the resurgence, that increase in the money supply, which pushes the asset prices higher, like land, real estate, stocks. It makes me wonder, well, one, I want to hear more on the thought on where we could head. But it also just makes me wonder, we're going to only exacerbate more inequality. And the Fed says they like serve the public interest of like the American people. It seems like that that I mean that's who it hurts the most is inflation hurts the most. It doesn't it doesn't really hurt the asset holders. It's the everyday Americans. But I would just love to hear more of your thoughts on inflation and the concerns there. >> That that's a a a great point that you bring up, Julia. the the in in the book uh that that Matt Sukurki and I co-authored, Making Money Work, we we have a a a long uh elaboration about the importance of the monetary policy being neutral and and and and no one really pays much attention to this. Uh it it turns out in interestingly enough uh in the last issue of the international economy, Secretary of Treasury Besson uh went on about this point that you're raising about quantitative easing what what did it do? Well, it made income inequality. It exaggerated the inequality. It led to more inequality. He didn't he didn't label this as as we do in the book from a technical point of view. We we we it it is neutrality and when and what we've had is non-neutral monetary policy. In other words, you you should have a monetary policy that that isn't distorting things and favoring one sector of the economy or one group of industries or or one group of people. And and the best way to get a handle on this to show you what the Fed has done with income inequality is to look at the percent of GDP accounted for by the wealth of the billionaires in the United States in January of 2020. And and that percentage was 14.1%. Billionaire's wealth as a percent of GDP was 14.1%. Now a after we had this gooseing of the money supply the asset price inflation general in inflation measured by the consumer price index now it's 22.7%. the so so the income inequality has has been uh almost manufactured by the Fed and and this this turns out to be a a real problem because we we have an economy now and another thing I'm very concerned about is what they call a K-shaped recovery. You have the the the top line on the K the the the rich have gotten very rich as I just indicated and what are they doing? They're doing what they always do. They spend a lot of money. They have a lot of money and they spend a lot of money. So twothirds of gross national product is made up of consumption. Mhm. >> And 50% of that consumption is accounted for by the top 10% of earners in the United States. So the the consumption is is a big part of GDP and it's basically driven half of it by the top 10% of wage of income earners in the United States. And what happens at the bottom part, as you indicated before, the the bottom part of the K is is is in a slump because what happened with inflation is that wages didn't keep up with inflation. >> So adjusted for inflation, wages at real wages as we call them, actually went down and slumped for the for the people at the lower end. So you you have this K-shaped recovery. It's it's not a neutral recovery. It's not a straight line going across. You got the top of the K going way up and the bottom part of the K slumping and going down. And and that's why this political issue and another thing to keep your eye on is this affordability thing. >> Yep. >> We we we have a new govern a new mayor that will be >> M Donnie. Yeah. New York City. big big time and and and Trump you see has picked up on this. Why why do you think all of a sudden from calling Mandami a communist uh he he was in a love fest with the guy last week be because Trump he he he he he has his finger in the wind too and he knows that this affordability thing is is is a big deal. >> Do you think it's reaching like a crisis point affordability? I I I I'm I wouldn't I I don't like to use words like crisis and the sky is falling and that kind of thing, but it is it is a real political problem and it's because of the the downside on the K and and and and where does that come from? Well, again, it a lot of it comes back to the to the Fed. Now also the Congress is on the hook for this because what what why did the Fed goose the money supply? They goose the money supply because when COVID hit the government shut down, economy shuts down, taxes go way down, government spending goes way up, the deficit gets huge. And where did they how did they finance that deficit? They they sold treasuries to the Fed. And and that meant what? The money supply was increased because over 90% of the deficit was what they we call monetized by the Fed. The treasuries were were sold to the Fed when when the Fed extended credit to buy those. that increases the money supply and that's why the money supply shot up so fast. So ultimately the the Congress is in in in in bed with this thing too and and making money work the book goes into this. you you have to pay attention to what's going on not not just at the Fed, but what's going on in the fiscal side of things because it can if the Fed allows it, it can slop over and affect the rate of growth and the money supply depending on what the Fed does. >> This episode is brought to you by Van X Rare Earth and Strategic Metals ETF, ticker symbol REMX. Rare earths are the hidden backbone of modern technology and defense, powering everything from smartphones and electric vehicles to fighter jets and wind turbines. Van recognized this early, launching the rare earth and strategic metals ETF, ticker symbol REMX, 15 years ago, well before supply chain security became a global priority. Today, China dominates the production and refining capacity of rare earths, creating real challenges for global supply chain security, as these materials are essential for technological innovation, clean energy, and national security. That's why countries all around the world are racing to build their own supply chains and reduce reliance on China. As this global shift continues, investment in the rare earth ecosystem is growing rapidly. From mining to advanced manufacturing, investors can gain access to this powerful trend through REMX. Visit vanck.com/remxjiulia to learn more. Professor Hanky um you had mentioned earlier too um this market this asset price bubble um that it could even it can grow even more. I know you as someone who also has your bubble detector. Um, where do you see things right now as it relates to the market, asset prices, these valuations? Where do you see things headed? What kind of concerns you right now? >> Well, the the uh right right now we we are at the bubble detector might Dr. X's bubble detector mine is is at at all-time high right now. So, uh the the question is well is it going to go higher? And I'm I'm not predicting now. I I'm I'm saying there is a plausible scenario as I say with this if if the Fed allows this loosening to occur uh then then we could have a bigger bubble. >> Okay. Do what what based on the quantity theory of money um what do you think the Fed should do? Should they just hold tight? I mean, I mean, I get we're just talking about Fed funds rate and monetary policy. One of the things I learned in your book, it is so much bigger than uh the Fed funds rate, but what what do you think the Fed should be doing um from a monetary policy standpoint right now that would make the most sense based on where we are in the economy? >> Well, I think they they actually have done two things that that I've uh proposed for a long time. And they they finally have done them. I think they should have done them a year, year and a half, maybe two years ago. And that is the stop quantitative tightening. Okay, that's one thing. And this bank deregulation, the supplemental liquidity ratio. I've been opposed to that as of course all all the bankers are opposed to it too. So So two two things have happened. >> The bankers like the deregulation part, right? Well, they like the deregulation part because they don't have to hold as much capital relative to the uh credit that they are extending. I mean, it gives them more capacity. It gives them more firepower basically. >> Okay. >> And and so yes, they like it. Uh and and I I think the supplemental liquidity ratio was was a binding constraint and and and and unnecessary. I I think it was un unnecessary and and should have should have never been put in in the first place. One one reason, by the way, that we came out of the great financial crisis so slowly is because of the DoddFrank Act, which this supplemental liquidity thing came in. The the the noose that Congress put around the banks, squeezing the banks. Remember the banks supposedly caused the great financial crisis. So we had DoddFrank and and more constraints put on the banks, more bank regulation and and that actually put us in a situation where for a short period of time the the banks were actually not contributing to the growth in the money supply. they were reducing their contribution and that was very important because commercial banks produce about 80% of broad money in the United States measured by M2. The the elephant in the room in terms of producing money is it's commercial banks. So that's that's one reason that Sukerki and I spend so much time on bank regulation in our book making money work because the banks are in fact the elephant in the room. So if if you change the way they're regula regulated it will change the capacity that they have to make loans. They might not necessarily make them that that depends on business conditions and business confidence and so forth. Even if even if banks have now with this removal of the supplemental liquidity ratio, if they have let's say $2.6 trillion more in capacity, they they might not actually use much of that if business conditions are bad because there has to be a demand for the loan before a bank will make a loan. And the banks have to have good prospects. They they have to have somebody that's, you know, they think they're going to get paid back, that's got good collateral and all the rest of it. >> They they have to have in short what what Matt Sukurki and I call bankable projects. >> Yes. Yes. >> And and if they if they do, by the way, they they'll they'll use that and expand the rate of growth and credit and and that will expand the money supply. Right. Right now, by the way, just to give you an idea, the commercial bank credit is growing at 5.1% year-over-year. The the grow the growth in the overall money supply is 4.5%. The the the Fed is actually con not not contributing. It's it's basically flatlined. It's it's not contributing to the overall growth. the commercial banks are are the engine that's driving things. But that's that's not unexpected because the banks, as I say, are the elephant in the room anyway. >> Mhm. Hey there. I just want to take a quick moment to thank you for watching this video. And I would really love for you to subscribe to this channel if you like this content. Over 70% of our viewers are not yet subscribed and we are on a mission to hit 100,000 subscribers. So, if you could just take a quick moment, hit subscribe. Thank you so much for your support. We appreciate you. And back to the video. Before I let you go, Professor Hanky, a couple of other things. Our last conversation, which was 5 months ago, um you said at the end that we should watch the price of gold, which is I think it's up about 700 800 bucks since our last conversation. It's looking today it is, where are we today? Uh just north of 4,100 today. Okay. It's been kind of consolidating around the 4,000 range, but it's up uh today. Curious maybe your thoughts on gold just watching it. What has it been signaling to you? And just more curious like Yeah. What is gold kind of sniffing out? >> Well, it it's still it's it is consolidating around 4,000. It seems to be stuck in, you know, like like flies on fly paper around 4,000 and and consolidating pretty well. But if you look at the expectations, the the call contracts, the the options for calls are greater than the puts by a considerable amount and that signals that it's it's going up. People in the market think it's going to go up in the options market. So that that would be one point. Fundamentally, I think we're we are in a secular bull market and and I I've indicated I think the top is probably around $6,000 an ounce. So, it's it's got it's got a ways to go. >> Yeah, certainly. You also said to pay attention to the 10-year yield and the US dollar versus euro. I think that was the other thing. Those were the things you told us to pay attention to. Any thoughts there? >> They they've been very very steady. Uh the the dollar euro rates been very very stable and not not moving very much. And the 10-year uh is is just a tad over 4% now. It's it's been pretty steady too for not not all the time since we talked, not for five months, but certainly for the last month or two, it's been >> it's been hanging in there just around four, a little a little over four. So the the markets have th those markets uh if we if we look at gold since it pulled back from it its high it's been steady at around 4,000 and consolidating. The 10, this is for, let's say, the last month. And the 10-year has been around 4% that that's pretty steady, just a little over four, four.1. And and the dollar euros, you know, it's around 115 116. >> Pretty pretty steady. >> Pretty steady. Yeah. What's the probability of a recession for you today? Like what is that probability maybe in the next 12 months? like has that shifted or changed? >> Well, my out of out of all all the things that uh that Greenwood and I predicted, we we we we got the the boom and the and a after co and as you said, we also got inflation after CO. So, those two we got right. We we said the economy would boom, asset prices would boom, and we'd have inflation. We got them. And then the money supply started contracting and and we said well the in inflation is is going to come down and which it did and we got right on that but we thought that we we'd end up with a a slowdown in the real economy and and and it just never panned out. We we didn't get that. And and now my thinking is I I'm I I'm thinking we we we we we might make it make it through without much of a slowdown if if this acceleration in the money supply that we talked about earlier if that actually occurs. Mhm. >> I'm kind of I'm kind of in in terms of the real economy, I'm kind of on the fence right now because I number one I I I've missed the slowdown part of the thing and and and but but there's still some things in there that that that make me watch and that that's what's going on in the labor market. the labor market is getting weaker and and that's what's concerning some of the people at the Fed too. The Fed's reading, by the way, the labor market is more or less consistent with my own. But but if so so so that's that's the kind of yeah maybe we'll slow down and we have the all the uncertainty associated with the the Trump tariffs and so forth and and just the the general uncertainty the regime uncertainty with everything from a policy point of view in Washington changing all the time and Trump changes his mind you know every 24 hours. So you all all of that is kind of on the slowdown side, >> but on the acceleration side, I I've got this thing I'm concerned about, and that's a significant increase in the rate of growth in the money supply. So that that's why I'm kind of on the fence. >> Interesting. So >> I I think we're in I for me for me it's it's a it's a difficult call. >> Yeah, certainly. So on the labor side though, then it that would justify the 25 basis point rate cut then. >> Yes. And I and I think that's I think that's why these probabilities for the rate cut have swung around >> tremendously uh uh in the last week >> because you in fact the uh just yesterday the um the uh president of the San Francisco Fed indicated that she thought the she thought that the labor market was looking weak. and and that meant a 25 basis point rate cut would be justified on the December 10th meeting at the December 10th meeting. So, >> so so they're they're they're more or less reading the the labor market the same way I am. It's >> it's not bad, but it's getting weaker. >> Well, Professor Hanky, I have to say I always enjoy having you on the show. This audience absolutely loves you, too. I want to encourage everyone to go pick up a copy of your book, your book with Matt Sir, Making Money Work. Um, send it to your friends. Um, get those folks at the Fed to read it. But, Professor Hanky, really appreciate you. So grateful for all of your knowledge, your wisdom, helping us all learn, get better. Um, thank you so much for being a friend of this show, and I wish you and your family a happy Thanksgiving, and I look forward to our next conversation. Thanks again, Professor Hanky. >> Well, thank you, Julia. We certainly wish you a happy Thanksgiving, too. >> Thank you so much.
Steve Hanke: Money Supply Acceleration Could Reignite Asset Bubbles and Inflation
Summary
Transcript
The Fed has decided that it's going to end quantitative tightening, the shrinkage of the balance sheet of the Federal Reserve in December. and this continued pressure from the White House to loosen up, lower the Fed funds rate, that that that's a little bit of a yellow light uh flashing in my eyes when I look at what's going on because what will happen I think maybe is that we'll get an acceleration in the growth rate in the money supply and of course we'll have inflation won't be contained. and >> Professor Steve Hanky, professor of applied economics at John's Hopkins University and the founder and co-director of the Institute for Applied Economics, Global Health and the Study of Business Enterprise and the author of the new book, Making Money Work: How to Rewrite the Rules of Our Financial System. It is so wonderful to welcome you back to the show. Great to see you as always, Professor Hanky. I really appreciate you taking the time today. >> Great to be with you, Julia. It's always a pleasure being with you, Professor Hanky, and this audience loves you. And it's been a while. It's been five months uh since we had you. So, we're definitely due for a check-in, especially as we finish the year here in 2025. And Professor Hanky, since it has been a while, let's start where we always start, big picture, more of that macro view, where we are in the economy, and let's throw markets in there. What are you paying attention to these days? Um what's not getting enough attention, and what's sort of your outlook going forward? And as you know, Professor Hanky, you take all the time you need to set the table. >> Okay, the big picture. Uh let let's just start in the United States. Uh since that that is the capital market of the world. So, and depending on how you measure it, actually, it's the biggest economy in the world, too. And and right now, it's probably the the biggest disruptor from a international policy point of view in the world. So, we have the main thing to focus on is the money supply. What's going on with the money supply? Because that's the fuel for the economy. And the money supplies start started to grow after going up a lot after CO giving us inflation and then contracting and slowing the inflation way down. And now now the money supply started going up. So it's still a little bit on the anemic side. It's growing at about 4.5% per year. Uh my golden growth rate a rate consistent with hitting a 2% inflation target is 6%. So, but it's but it's accelerating and the thing to watch is where where the acceleration is going to go is this are we going to be on another roller coaster ride and and we we might be that's that's really what concerns me because there's a lot of pressure on the Federal Reserve to loosen up and and open the open the money supply spots, shall we say. And when you look at that, we we already have the following things that are tipping us off about where we might be going. And one of those is that the Fed has decided that it's going to end quantitative tightening, the shrinkage of the balance sheet of the Federal Reserve in December, next month, a few short days actually. So, so that will loosen things up. The other big thing uh and and something that Natirky and I talk a lot about in the the book that you held up making money work is that bank regulations bank regulations they they don't change that often but they have an enormous impact on the growth rate in the money supply and the capacity of commercial banks to actually extend credit and once they extend credit of course that increases a greater growth in the money supply. So what what what has happened is that there's something called the um special liquidity ratio supplemental excuse me supplemental liquidity ratio and and that that was imposed on banks after the great financial crisis in 2008 and they're going to remove that now by removing that and dereg regulating, shall we say, that will have an enormous impact on the capacity of commercial banks to to make loans. It'll give them a lot more potential firepower. Uh the estimates are around $2.6 trillion dollar in capacity. So, so that's a big change that that no one pays much attention to, but it's big. And that along with quantitative tightening and this continued pressure from the White House to loosen up lower the Fed funds rate that that that's a little bit of a yellow light flashing in my eyes when I look at what's going on because what will happen I think maybe is that we'll get an acceleration in the growth rate in the money supply and of course we'll inflation won't be contained. >> Uh and and uh by the way, the the bubble in the stock market will continue to expand because if you if you have acceleration in in the money supply, just like we had the last time in 2020 and 2021, Julia, what happened? The first thing that happens with a lag is that asset prices go up, real estate goes up, land prices go up, the stock market goes up, all all assets inflate. >> So, so that's the that's my concern. So, the right right now everything seems to be running relatively smoothly. the in the US the the labor market's getting a little weaker. And and by the way, that also is another tip off as to what the Fed will do because the Fed historically has always kept his eye more on the labor market than anything else. And and now, by the way, they don't keep their eye on the money supply at all. They they poo pooed the quantity theory of money and the whole idea that there's a connection between changes in the money supply and changes in asset prices, changes in economic activity, changes in inflation. The the chairman Powell is has rejected all of that in in even in testimony. >> That's because as we've talked about, they have uh all the Neocians are over at the Fed. maybe more monitorist. >> You you you you've got the neocanesians in charge and uh and the the focus is on things that the neocanesian focus on and if you look at their macroeconomic models they they don't include a variable for the money supply by the way but they do include interest rates. So we have this obsession with what's going to happen with the Fed funds rate. What's going to happen with the Fed funds? And it looks like, by the way, what the the the probability of a 25 basis point Fed funds reduction at the December 10th Federal Open Market Committee meeting. That's been fluctuating all over the place. Crazy. a month ago that it the probability was about 99% that there would be a 25 basis uh point cut and and and then uh about a week ago it it was about for it had dropped to about 40%. And and now I haven't looked at it today but it's up around 70%. I think that's right. Or I think I even saw a headline from Reuters overnight. It was like 80% but it's like all the feds speak that um yeah it's it is fluctuating. >> So that so this is and and it and it fluctuates depending on what the members of the Federal Open Market Committee if they give a a speech someplace or they're on a podcast with you Julia. >> Oh we haven't had any Fed governors on the pod but >> if they say something well it jumps around. So the the last one uh Waller who's one of the Fed governors in indicate who's who's tended to be a little bit on the hawkish side indicated that he thought maybe a 25 basis point cut was was in the cards and and boom all of a sudden the probability of that rate cut uh interest rate cut by 25 basis point zoomed up from 40 to you you say it's 80 now >> I think it is I don't don't quote told me on it, but I'm pretty sure that's the headline I saw. But >> so, so at any rate, th this this this is part of the the the overall message that I I want to get into the picture and and that is if you focus on the quantity theory of money, it's steady as you go. You you keep the money supply growing at about 6% per year and you will end up with about a 2% inflation. But we we don't pay any attention to the quantity theory of money. We have all these ad hoc theories, postc Keynesian models and so forth and and we have up and down up and down and and and it comes in even in in the micro kind of thing where daytoday the probability of what they're going to do with the Fed funds. It's it shifts around every 24 hours and and that is because the Fed is what they call data dependent. They watch the daily data and and the guy guy guy guy guy guy guy guy guy guy guy guy guy guy guy guy guy guy guy guy guy guy on the street it's a finger in your wind in the wind kind of approach if if the wind's blowing one way uh one day that's the policy orientation. If if it shifts and blows the other way the next day the policy orientation shifts and blows the other way. So it as a result of this data dependency um you you have ba basically a lot of instability >> and and by not looking at the quantity theory of money you get this flying blind kind of approach too. you if you're not looking at the money supply and paying any attention to it because you don't think it affects asset prices, real economic activity or inflation, well, you're you're flying blind as far as >> we should send them a copy of your book, too. >> Well, I've done that. >> Yeah. Okay. Well, they need to read it. Um, Professor Hanky, I want to explore something with you because you got my attention. We were talking about this kind of roller coaster yellow light flashing the resurgence in inflation because you and John Greenwood accurately predicted that surge we saw in inflation. Um, really exactly the 9% we saw. Um, and so when I hear you talk about inflation, I want to pay attention and listen. And it sounds to me like there's this real risk that we could see the resurgence, that increase in the money supply, which pushes the asset prices higher, like land, real estate, stocks. It makes me wonder, well, one, I want to hear more on the thought on where we could head. But it also just makes me wonder, we're going to only exacerbate more inequality. And the Fed says they like serve the public interest of like the American people. It seems like that that I mean that's who it hurts the most is inflation hurts the most. It doesn't it doesn't really hurt the asset holders. It's the everyday Americans. But I would just love to hear more of your thoughts on inflation and the concerns there. >> That that's a a a great point that you bring up, Julia. the the in in the book uh that that Matt Sukurki and I co-authored, Making Money Work, we we have a a a long uh elaboration about the importance of the monetary policy being neutral and and and and no one really pays much attention to this. Uh it it turns out in interestingly enough uh in the last issue of the international economy, Secretary of Treasury Besson uh went on about this point that you're raising about quantitative easing what what did it do? Well, it made income inequality. It exaggerated the inequality. It led to more inequality. He didn't he didn't label this as as we do in the book from a technical point of view. We we we it it is neutrality and when and what we've had is non-neutral monetary policy. In other words, you you should have a monetary policy that that isn't distorting things and favoring one sector of the economy or one group of industries or or one group of people. And and the best way to get a handle on this to show you what the Fed has done with income inequality is to look at the percent of GDP accounted for by the wealth of the billionaires in the United States in January of 2020. And and that percentage was 14.1%. Billionaire's wealth as a percent of GDP was 14.1%. Now a after we had this gooseing of the money supply the asset price inflation general in inflation measured by the consumer price index now it's 22.7%. the so so the income inequality has has been uh almost manufactured by the Fed and and this this turns out to be a a real problem because we we have an economy now and another thing I'm very concerned about is what they call a K-shaped recovery. You have the the the top line on the K the the the rich have gotten very rich as I just indicated and what are they doing? They're doing what they always do. They spend a lot of money. They have a lot of money and they spend a lot of money. So twothirds of gross national product is made up of consumption. Mhm. >> And 50% of that consumption is accounted for by the top 10% of earners in the United States. So the the consumption is is a big part of GDP and it's basically driven half of it by the top 10% of wage of income earners in the United States. And what happens at the bottom part, as you indicated before, the the bottom part of the K is is is in a slump because what happened with inflation is that wages didn't keep up with inflation. >> So adjusted for inflation, wages at real wages as we call them, actually went down and slumped for the for the people at the lower end. So you you have this K-shaped recovery. It's it's not a neutral recovery. It's not a straight line going across. You got the top of the K going way up and the bottom part of the K slumping and going down. And and that's why this political issue and another thing to keep your eye on is this affordability thing. >> Yep. >> We we we have a new govern a new mayor that will be >> M Donnie. Yeah. New York City. big big time and and and Trump you see has picked up on this. Why why do you think all of a sudden from calling Mandami a communist uh he he was in a love fest with the guy last week be because Trump he he he he he has his finger in the wind too and he knows that this affordability thing is is is a big deal. >> Do you think it's reaching like a crisis point affordability? I I I I'm I wouldn't I I don't like to use words like crisis and the sky is falling and that kind of thing, but it is it is a real political problem and it's because of the the downside on the K and and and and where does that come from? Well, again, it a lot of it comes back to the to the Fed. Now also the Congress is on the hook for this because what what why did the Fed goose the money supply? They goose the money supply because when COVID hit the government shut down, economy shuts down, taxes go way down, government spending goes way up, the deficit gets huge. And where did they how did they finance that deficit? They they sold treasuries to the Fed. And and that meant what? The money supply was increased because over 90% of the deficit was what they we call monetized by the Fed. The treasuries were were sold to the Fed when when the Fed extended credit to buy those. that increases the money supply and that's why the money supply shot up so fast. So ultimately the the Congress is in in in in bed with this thing too and and making money work the book goes into this. you you have to pay attention to what's going on not not just at the Fed, but what's going on in the fiscal side of things because it can if the Fed allows it, it can slop over and affect the rate of growth and the money supply depending on what the Fed does. >> This episode is brought to you by Van X Rare Earth and Strategic Metals ETF, ticker symbol REMX. Rare earths are the hidden backbone of modern technology and defense, powering everything from smartphones and electric vehicles to fighter jets and wind turbines. Van recognized this early, launching the rare earth and strategic metals ETF, ticker symbol REMX, 15 years ago, well before supply chain security became a global priority. Today, China dominates the production and refining capacity of rare earths, creating real challenges for global supply chain security, as these materials are essential for technological innovation, clean energy, and national security. That's why countries all around the world are racing to build their own supply chains and reduce reliance on China. As this global shift continues, investment in the rare earth ecosystem is growing rapidly. From mining to advanced manufacturing, investors can gain access to this powerful trend through REMX. Visit vanck.com/remxjiulia to learn more. Professor Hanky um you had mentioned earlier too um this market this asset price bubble um that it could even it can grow even more. I know you as someone who also has your bubble detector. Um, where do you see things right now as it relates to the market, asset prices, these valuations? Where do you see things headed? What kind of concerns you right now? >> Well, the the uh right right now we we are at the bubble detector might Dr. X's bubble detector mine is is at at all-time high right now. So, uh the the question is well is it going to go higher? And I'm I'm not predicting now. I I'm I'm saying there is a plausible scenario as I say with this if if the Fed allows this loosening to occur uh then then we could have a bigger bubble. >> Okay. Do what what based on the quantity theory of money um what do you think the Fed should do? Should they just hold tight? I mean, I mean, I get we're just talking about Fed funds rate and monetary policy. One of the things I learned in your book, it is so much bigger than uh the Fed funds rate, but what what do you think the Fed should be doing um from a monetary policy standpoint right now that would make the most sense based on where we are in the economy? >> Well, I think they they actually have done two things that that I've uh proposed for a long time. And they they finally have done them. I think they should have done them a year, year and a half, maybe two years ago. And that is the stop quantitative tightening. Okay, that's one thing. And this bank deregulation, the supplemental liquidity ratio. I've been opposed to that as of course all all the bankers are opposed to it too. So So two two things have happened. >> The bankers like the deregulation part, right? Well, they like the deregulation part because they don't have to hold as much capital relative to the uh credit that they are extending. I mean, it gives them more capacity. It gives them more firepower basically. >> Okay. >> And and so yes, they like it. Uh and and I I think the supplemental liquidity ratio was was a binding constraint and and and and unnecessary. I I think it was un unnecessary and and should have should have never been put in in the first place. One one reason, by the way, that we came out of the great financial crisis so slowly is because of the DoddFrank Act, which this supplemental liquidity thing came in. The the the noose that Congress put around the banks, squeezing the banks. Remember the banks supposedly caused the great financial crisis. So we had DoddFrank and and more constraints put on the banks, more bank regulation and and that actually put us in a situation where for a short period of time the the banks were actually not contributing to the growth in the money supply. they were reducing their contribution and that was very important because commercial banks produce about 80% of broad money in the United States measured by M2. The the elephant in the room in terms of producing money is it's commercial banks. So that's that's one reason that Sukerki and I spend so much time on bank regulation in our book making money work because the banks are in fact the elephant in the room. So if if you change the way they're regula regulated it will change the capacity that they have to make loans. They might not necessarily make them that that depends on business conditions and business confidence and so forth. Even if even if banks have now with this removal of the supplemental liquidity ratio, if they have let's say $2.6 trillion more in capacity, they they might not actually use much of that if business conditions are bad because there has to be a demand for the loan before a bank will make a loan. And the banks have to have good prospects. They they have to have somebody that's, you know, they think they're going to get paid back, that's got good collateral and all the rest of it. >> They they have to have in short what what Matt Sukurki and I call bankable projects. >> Yes. Yes. >> And and if they if they do, by the way, they they'll they'll use that and expand the rate of growth and credit and and that will expand the money supply. Right. Right now, by the way, just to give you an idea, the commercial bank credit is growing at 5.1% year-over-year. The the grow the growth in the overall money supply is 4.5%. The the the Fed is actually con not not contributing. It's it's basically flatlined. It's it's not contributing to the overall growth. the commercial banks are are the engine that's driving things. But that's that's not unexpected because the banks, as I say, are the elephant in the room anyway. >> Mhm. Hey there. I just want to take a quick moment to thank you for watching this video. And I would really love for you to subscribe to this channel if you like this content. Over 70% of our viewers are not yet subscribed and we are on a mission to hit 100,000 subscribers. So, if you could just take a quick moment, hit subscribe. Thank you so much for your support. We appreciate you. And back to the video. Before I let you go, Professor Hanky, a couple of other things. Our last conversation, which was 5 months ago, um you said at the end that we should watch the price of gold, which is I think it's up about 700 800 bucks since our last conversation. It's looking today it is, where are we today? Uh just north of 4,100 today. Okay. It's been kind of consolidating around the 4,000 range, but it's up uh today. Curious maybe your thoughts on gold just watching it. What has it been signaling to you? And just more curious like Yeah. What is gold kind of sniffing out? >> Well, it it's still it's it is consolidating around 4,000. It seems to be stuck in, you know, like like flies on fly paper around 4,000 and and consolidating pretty well. But if you look at the expectations, the the call contracts, the the options for calls are greater than the puts by a considerable amount and that signals that it's it's going up. People in the market think it's going to go up in the options market. So that that would be one point. Fundamentally, I think we're we are in a secular bull market and and I I've indicated I think the top is probably around $6,000 an ounce. So, it's it's got it's got a ways to go. >> Yeah, certainly. You also said to pay attention to the 10-year yield and the US dollar versus euro. I think that was the other thing. Those were the things you told us to pay attention to. Any thoughts there? >> They they've been very very steady. Uh the the dollar euro rates been very very stable and not not moving very much. And the 10-year uh is is just a tad over 4% now. It's it's been pretty steady too for not not all the time since we talked, not for five months, but certainly for the last month or two, it's been >> it's been hanging in there just around four, a little a little over four. So the the markets have th those markets uh if we if we look at gold since it pulled back from it its high it's been steady at around 4,000 and consolidating. The 10, this is for, let's say, the last month. And the 10-year has been around 4% that that's pretty steady, just a little over four, four.1. And and the dollar euros, you know, it's around 115 116. >> Pretty pretty steady. >> Pretty steady. Yeah. What's the probability of a recession for you today? Like what is that probability maybe in the next 12 months? like has that shifted or changed? >> Well, my out of out of all all the things that uh that Greenwood and I predicted, we we we we got the the boom and the and a after co and as you said, we also got inflation after CO. So, those two we got right. We we said the economy would boom, asset prices would boom, and we'd have inflation. We got them. And then the money supply started contracting and and we said well the in inflation is is going to come down and which it did and we got right on that but we thought that we we'd end up with a a slowdown in the real economy and and and it just never panned out. We we didn't get that. And and now my thinking is I I'm I I'm thinking we we we we we might make it make it through without much of a slowdown if if this acceleration in the money supply that we talked about earlier if that actually occurs. Mhm. >> I'm kind of I'm kind of in in terms of the real economy, I'm kind of on the fence right now because I number one I I I've missed the slowdown part of the thing and and and but but there's still some things in there that that that make me watch and that that's what's going on in the labor market. the labor market is getting weaker and and that's what's concerning some of the people at the Fed too. The Fed's reading, by the way, the labor market is more or less consistent with my own. But but if so so so that's that's the kind of yeah maybe we'll slow down and we have the all the uncertainty associated with the the Trump tariffs and so forth and and just the the general uncertainty the regime uncertainty with everything from a policy point of view in Washington changing all the time and Trump changes his mind you know every 24 hours. So you all all of that is kind of on the slowdown side, >> but on the acceleration side, I I've got this thing I'm concerned about, and that's a significant increase in the rate of growth in the money supply. So that that's why I'm kind of on the fence. >> Interesting. So >> I I think we're in I for me for me it's it's a it's a difficult call. >> Yeah, certainly. So on the labor side though, then it that would justify the 25 basis point rate cut then. >> Yes. And I and I think that's I think that's why these probabilities for the rate cut have swung around >> tremendously uh uh in the last week >> because you in fact the uh just yesterday the um the uh president of the San Francisco Fed indicated that she thought the she thought that the labor market was looking weak. and and that meant a 25 basis point rate cut would be justified on the December 10th meeting at the December 10th meeting. So, >> so so they're they're they're more or less reading the the labor market the same way I am. It's >> it's not bad, but it's getting weaker. >> Well, Professor Hanky, I have to say I always enjoy having you on the show. This audience absolutely loves you, too. I want to encourage everyone to go pick up a copy of your book, your book with Matt Sir, Making Money Work. Um, send it to your friends. Um, get those folks at the Fed to read it. But, Professor Hanky, really appreciate you. So grateful for all of your knowledge, your wisdom, helping us all learn, get better. Um, thank you so much for being a friend of this show, and I wish you and your family a happy Thanksgiving, and I look forward to our next conversation. Thanks again, Professor Hanky. >> Well, thank you, Julia. We certainly wish you a happy Thanksgiving, too. >> Thank you so much.