The West Faces Economic 'Shutdown', This Asset Has 50% Upside | Steve Hanke
Summary
Gold Market Outlook: Steve Hanky predicts gold will reach $6,000 per ounce, driven by historical trends where gold peaks at 10% of disposable personal income per capita in the U.S.
Economic Uncertainty: Global uncertainty, including geopolitical tensions and weak European leadership, is contributing to the rising demand for gold as a safe-haven asset.
Equity Market Bubble: Hanky suggests the U.S. equity market is in a bubble, with valuations disconnected from underlying economic realities, leading to potential corrections.
Tariffs and Inflation: The proposed 100% tariff on China by Trump could impact inflation, but Hanky believes the overall inflation risk is mitigated by stable money supply growth.
Monetary Policy: Market expectations indicate potential interest rate cuts by the Federal Reserve, with the Chicago Mercantile Exchange showing high probabilities for cuts in October and December.
Regional Bank Concerns: Rising delinquencies in loans are causing stress in regional banks, highlighting potential vulnerabilities in the financial sector.
Investment Strategy: Hanky advises rebalancing portfolios, especially for older investors, to maintain a balanced asset allocation amidst market uncertainties.
Transcript
China could shut down the the Western world in about six to nine months. I mean, shut it down. That's that's the end. Foreigners don't pay for tariffs placed on foreigners. Americans pay the tariff. Fan favorite Steve Hanky returns the show. He's a professor of applied economics at Johns Hopkins University. A couple weeks ago, Professor Hanky was on the show and he made the call that gold will go to $6,000. We're going to revisit that call because since September 21st, which was the air date of that particular interview, again, check it out. Link down below, gold's gone up $700. We went we went from $3,600 around the time of the interview to now $4,300 today. We'll go over the math behind $6,000 and what Professor Hanky thinks is going on currently with a global economy. Welcome back to the show, Professor Hanky. Good to see you again. >> Yeah, good to see you, David. We'll also be talking about your book, Making Money Work. Some of the themes are very applicable to today's situation concerning monetary policy and uh we'll go over some other uh economic items including the tariffs, the new tariffs that Trump announced on China and what that's going to do to the economy. Let's start with gold. Since we spoke, like I mentioned in the introduction, gold is up $650ish dollars, which is not an inconsequential number. Uh, for gold, for any asset class, that percentage move in that short of time may trouble some people. Does it trouble you how fast it's moving? >> Not really. Um, I think if if I may, >> sure. >> Correlation does not imply causation, but >> Okay. the the minute after your podcast went up, the thing took off like a rocket. So So at any rate, it happens sometimes. As I say, correlation doesn't imply any >> cause the the the people listening to you. >> Yeah. >> So So one thing we didn't really talk about when I made the $6,000 an ounce call is is how you get there. And in simple terms, if you look at the LA all the gold market secular bull peaks, you know, going back to 1980, they always peak out when gold is is around 10% of the value of disposable personal income per capita in the United States. So, so that's the that's the back of the envelope thinking >> and and of of course everyone kept asking they they know I've been long gold. They know I'm a gold bull and they keep asking well how how high is it going? How high is it going? And I said on your show many times I don't care how high it's going. I I'll if you're trading the key thing is to know the direction of things and it's the direction is up. And I'll I'll I'll worry about the peak later on. But finally, I decided I had to fess up and and and give you a number. So, I gave you one. Six six grand an ounce. That's where it'll peak. >> How does that correlate with monetary policy that you're expecting in the future? One theory I've heard that may not be your own theory, but one theory I've heard is that the Fed is going to lose monetary policy. Um, and we're going to have lower rates. We're going to have more money supply. that correlates with a higher gold price. All asset classes, that's exactly what happened in 2020. Are you making the assumption based on your $6,000 forecast that the Fed will inject more liquidity? >> No, that that calculation has nothing to do with foreign wars, monetary policy, the value of the dollar, anything else. It's it's just a calculation ba based on the behavior of past secular bull markets where where they end up. and they end up at around as I say a value of 10 equal to 10% of personal disposable income per capita. So that that's that's the calculation just a mechanical calculation with remember when we when we talked the last time you you talked about a scenario that Goldman had put up where they they had all kinds of things they were assuming and if they assumed the the the war in the Middle East, the war in Ukraine, the the the Fed crashing, the dollar crashing, this that and the other thing, tariffs, if all that stuff happened at once, they they head it would go to 5,000. But that's not the way I made my calculation. It's just looking at past behavior of the market and getting some handle on how high how how high do these secular bulls go relative to income. >> That's the way to think about it. Relative to the income that people have. >> How high has it gone in historical uh measurements on a percentage change basis? >> Again, it depends on where you start. I mean, >> yeah, >> every one of these bulls starts at a lower level and then peaks out, but the but in in the meantime, starting at the bull and ending at the peak, the disposable income per capita was a lot lower then. So, the price is a lot lower, but the the percentage is 10%. >> This is an article from the World Gold Council that may support your point, professor. Uh, gold opens his $4,000 per ounce chapter. Uh, gold is only 735 days. This is written, when was this written? This was written a couple of days ago, the 13th of October. But it says gold has only 735 days into this rally. Previous major rallies have lasted on average 1,062 days. But again, previous rallies have not moved up this much in such a short amount of time. The magnitude is a little bit different. This time is different as they say. I mean it is different. Um what let to to understand what's well to make the prediction of what's going to happen in the future. I think it's important to understand what's happening currently. Can you help us understand why there's such a frenzy right now with the gold market? Well, I uh I I think in in general there's a tremendous amount of uncertainty that that really isn't being priced into the into the equity markets or or other markets at all. But but they remember gold is is something that uh you know deals with a so-called tail risk where it kind of sucks in the uncertainty bet. Let's put it that way. Yeah. >> So if if a lot if there's a lot of uncertainty, you got these foreign wars going on. You you've got very weak leadership in Europe, by the way. Europe is a huge place and we have, you know, I I think the three stooges and the prime minister of Great Britain, Starmer, is one of the three stooges. Very unpopular, by the way. Extremely unpopular. And then you've got uh President Mcronone in France. He's another one of the he's the second of the three stooges and France has just overturned its government. I I can't keep track how fast they're turning over the governments in France under the presidency of Mcronone and they have huge fiscal problems by the way. And then number three, the third stoogge is Mertz, the chancellor of Germany. And uh Germany's just got so many problems. They they they cut themselves off and turned a blind eye to this blow up of Nordstream 2 and cutting the Russians uh gas supply down and and so cheap gas from Russia is is dwindled down to very small percentage of the total and they're planning on cutting cutting it completely off. So what what is substituting for that gas? The Russian gas is liqufied natural natural gas mainly from the United States, but the cost is about three times higher than the than the Russian gas. So they're paying an arm and a leg for this substitute LNG. And it it almost looks like the US blew this thing up on purpose because it it expanded the market for US LNG. I mean, basically, remember that famous quote with President Biden, he basically said they were going to blow it up. And it and it's very clear if you look at Seymour Hersh's investigating re reporting that the the CIA knew all about this blow up before it happened. Probably the German chancellor knew about it before it blew up, too. But at any rate, they're they're paying a lot more for liqufied natural gas than cheap Russian gas. And then there's another catch in the thing that people aren't aware of and that is the Russian contracts are are take or pay contracts. So if they don't take the gas from Russia they have to pay. So they're paying on top of they're paying Russia for the gas that they're not even using with these take or pay contracts. So, so you've got a huge increase in energy prices in Germany that are really forcing Germany to de-industrialize its whole economy. Of course, that's what the Americans, by the way, after World War II, the Secretary of Treasury, Morgan Tho, that's what he wanted. He he wanted a Germany that was kind of a little agrarian bunch of peasants running around with no industry or anything like that. That that was the idea. That was the US post World War II idea. It didn't happen. the Marshall Plan came in and ger Germany industrialized and and the manufacturing sector in Germany uh is is basically in a proportion to GDP about twice as big as most of the manufacturing sectors in in the European countries it's about 23% of GDP and you look at France for example France is about 12 or 13% but Germany shrinking and if you Look at the world economic outlook uh IMF report of this week came out on the 14th. Uh you you essentially have no growth happening in Europe. Germany Germany they're forecasting at 3% this year. Uh 7 for France little a little a little below 1% in the UK. uh German the the Europeans are just on their back. So that fits into the gold picture by the way and the you you've got the US I think which will go into big slowdown if not a recession and gold always does well before hard economic times. Once you get a you get economic slowdowns times get hard. People don't pay their debts. they they they all all kinds of problems start popping up and and gold does well by the way. So So you have a a number of things going on that are very uncertain right now. The environment's very uncertain. It's not showing up in the equity markets or bond markets or anything like that. But what catches it what's like a magnet for people who are worried about uncertainty is gold. Gold and silver have reached historic highs amidst this crazy bull rally, more investors are turning to hard assets to protect their savings. 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What did you mean by that? >> It I I I think the o equity market in the United States, let's talk about the United States is is in a bubble. And that bubble that that means the market's overhyped, overpriced, overvalued. There's a there definitely is a bubble in the equity market in the United States. Everyone is just ignoring all of the uncertainty, all of these potential problems. The equity market just just keeps uh slow walking into I I think what's going to be a a deflating bubble. Now, whether that bubble pops or whether the air comes out slowly is another issue. I don't know. No one knows when these bubbles how how they how they adjust how the markets adjust to more realistic valuations, but it will adjust and the error will come out of it e either with a pop very fast or slowly seeping out and and and we don't know when that's going to start. So So all of that the only thing I know for certain it's in a bubble. I know that, but I but I don't know the rest of the story. And and and no one else does either. >> I had a I had a conversation with another trader just before you, and he was musing. What is a bubble? How do you even define a bubble? How do we know we're in a bubble when we when we when we see it? >> Read my bubble detector articles and the National Review, Forbes magazine. I think even Fortune I have. >> Okay. >> It's it's it's easy to calculate. So let's say let's say you know I gave him this example. Let's say a a stock a company is making $10 a year but its enterprise value is at a million dollars. Well we could safely assume that it's in a bubble. That doesn't make any sense. And then he says well what if it's only 900,000? What if it's only a thousand? You know at what point does a valuation disparity become a bubble? Right. >> Well you you you again you have to relate it like the gold thing. If you look at Dr. X's bubble detector, which is my bubble detector. And the reason it's the reason it's Dr. X is that a Nobel laureate in economics who didn't have time to finish the thing gave it gave it to me and and and I, as a courtesy, I'm not I'm not going to name who it is because he he wasn't there when I when I finished it. >> Yeah. So I I I can't say who it is, but I but but the origin was a Nobel laureate in economics who handed the thing off to me. I finished it and dealt with it. It's a very good indicator of when the when the market's in a bubble and and it's related to the value of things relative to income and and that relative to income means what intuitively how long it takes you to buy an asset or how long it takes you to buy yield and then you look at the yield how long it takes you in the bond market and how long it takes you in the stock market and the thing is very in balance now it it takes you a lot longer to to purchase a given amount of yield in the stock market than the bond market. I mean, that that's the in that's the intuition behind it. But but go to go to Hanky's articles on Dr. X's bubble detector and and and all the all these people spin these yarns and hypotheticals and you know the thing you started going through this nonsensical BS. Basically, it it's all related to in income and it's all related to how long does it take you to buy yield. And and if it takes you an excessively amount of time to buy yield, you you you can bet your bottom dollar you're in a bubble. And how do you know it's excessive? Well, you have two huge markets. One's a bond market and the other is a stock market. And if it's taking you an inordinate amount of time to buy yield in the stock market relative to the bond market, you know, you got a bubble in the stock market. >> Do you think people are buying stocks despite really high valuations in the same fashion or for the same reason that they're buying gold perhaps that they see all this uncertainty in the world? They don't want to park their money in fiat dollars uh for fear of losing value to inflation or anything else. And so they're buying just anything they can get their hands on. People may not have enough money to buy an ounce of gold or a house. They buy stocks. Does that theory make sense to you? >> No. >> Okay, fair enough. So stocks represent risk is what you're saying. You're you know I I I I can I can tell you you've been in you've been influenced by the people you've been interviewing. I've been well I've been very lucky to be influenced by yourself in some capacity but that is >> you know at least put Hanky in there as a footnote. >> I I I could I I put I quote Hanky's um golden rule quite often um on monetary policy which we'll talk about uh later today. Uh okay. So stocks are in a bubble. Gold currently not yet in the bubble. It's going to take another 60% by the way of gold uh rally to climb to $6,000. Uh >> by the way, I'm I'm not saying that there won't be corrections along the way. >> No, I understand. >> What about silver? By the way, >> that we need we need to talk about silver. $54. I I I I pretty sure my viewers would like you to um attempt to do the same calculation with silver that you've done for gold. This is the historic price of silver going all the way back to the um 1800s. But anyway, you can see that it's only happened three times in history that it's breached $50. And now for the first time in history, it sustained above 50 and now gone to 54. >> Well, you know, we got to go back to 1980 in the Hunt Brothers corner of the silver market to get up that high. Now, one of my friends, um, which I, uh, grew up with in I, rural Iowa, called me the other day. Um, I I'll leave him anonymous. I, he doesn't probably want his name known on on he he's he is a public figure, by the way. That's another reason that I don't want to name him, but he's a he's an old pal of mine. And so, he called me and he said he said, Steve, he says, you know, silver's made a new high. It was it it that's when it went was 51. It went up to 51. He called me and he says he says, "Well, what do you think? Should I sell my my silver?" And I said, "Well, what do you what do you got? You got contracts?" And he says, "Oh, no." He says, "I've got bullion." And then he and then he sent me some photographs. He does have bullion as well as silver coins on it. And I said, "I think I just relax for a little while." I said, "Let it run a little longer. let me think about this. What what what one would do. And I haven't responded to him yet. Actually, I called him this afternoon. Couldn't get a hold of him. Uh we we were going to brainstorm what to do because he's he's got a horde of silver. I mean, a lot, you know, he he he's got enough. Let's put it this way. If you put it in the trunk of the car, the damn car would go to the pavement. probably >> if he were a fund, he probably have a mandate to only own a certain percentage of his portfolio in one asset. Now, that asset, in this case, silver, has ballooned in weight. Um, quite literally, we could probably assume the fund will want to rotate out into something else. But I don't know if that logic applies to the regular person. when something's gone up what 100% in a year um normally if it's anything else one would want to take profit 71%. >> Well he was he he was scratching his head because he said under the presidency he his he prefaced the you know the whole thing with the following. He said well un under the economic policies of of Joe Biden he thought silver would take off and it never really did much of anything. and he says now it's taken off you think I should sell that that's how the conversation started I think this rebalancing of portfolios is actually important uh m maybe maybe not so much and commodities are kind of a separate category but let's take the s the simplest thing the standard plain vanilla stock bond portfolio 6040 >> yes >> and and and I think we've talked about this before. I think people they they asked me, "Well, Hanky, should I be taking money out of the stock market?" And I say, "Not necessarily." And they say, "What do you mean? You just said it was a bubble." And I said, "Yeah, I know. I told you it was a bubble, and I told you I I didn't know when the bubble was either going to pop or seep air out of the thing and adjust." So, I can't predict that. So, they say, "Well, what do you do then? You're you're so smart. Tell me, you know, tell me what I should be doing." And I say, 'L you you you you you had it 10 years ago or five years ago or whatever starting point you want you you had a balanced portfolio. It was 6040 and and I can guarantee you it is no longer 6040. It's probably 8515. So I I I would rebalance on that basis. You see what I mean? >> Yeah. I I think I think a lot of people are probably and and especially I'm talking about you know o older pe people let's say o people over 50 or 55 something like that I I'm I bet all their portfolios are im imbalanced now over overweighted in stock >> just just because of the big run in the stock market. So, so in that case uh I I I would think about well do I do I want to go back to my plain vanilla ratio whatever it is 6040 or 7030 or whatever it happened to be do do I want to adjust or not adjust and I and I would say it's probably prudent to adjust >> adjust into what is the question what would seem relatively more undervalued now >> you if if you're if you have a portfolio with two and you're dealing with two asset classes, stocks and bonds, you lighten up on stocks and put more into bonds. It it depends on the mix of your portfolio. So there there there are other people who would have stocks, bonds, and gold, for example. >> True. All right. We have to talk about um Trump's policy. Speaking of uh the current administration, as you're aware, Trump announced a 100% tariff on China last Friday. He likes to make these announcements after market close. Uh but then he um over the weekend, last weekend, also made posts on social media saying that uh uh the great respected Xi Jinping and himself are currently going to talk it out. China has said that uh they're not going to back down from this new 100% tariff. And since Trump has made that tweet or post on Truth Social over the weekend, markets have rebounded somewhat uh on Monday especially. My question to you is whether or not this is actually going to go through. Apparently, it's going to set um take effect on November 1st, which is coming up in exactly 2 weeks. And a lot depends on what the Chinese do, said US trade representative Jameson Greer. I wonder if this is just theater before the 1st of November or will we actually see an additional 100% tariff slapped on China come the first. What do you think? >> It's it's a little bit hard to say. Let's go walk through this because the the front page of the Financial Times of London yesterday had a huge headline. Secretary of Treasury Besson was going after China and Z chairman Xi for starting a for starting a trade war. >> So this this spin is so ridiculous. I mean the US started the trade war, not China. China's just counterattacking now by putting uh restrictions and bans on the export of certain critical materials, certain rare earths and and and the technology uh that can be used to process these because China controls these things and and people do not realize that and and and I think Trump might realize this and come around after threatening China could shut down the Western world in about six to nine months. I mean, shut it down. That's that's the end, baby. Of course, by cutting off all these critical materials. So, think think about it. If if you're facing the chairman of China and and you know he can pull a trigger and blow your head off, are are you going to stay in the fight? >> Are are you going to commit suicide? >> I I would I would get out of the way and find another way to get the critical minerals. >> Yeah. And that's going to take you about 20 years. [Music] >> Think about that. Well, this is what Scott Basent is trying to do to counter that. So, first of all, he's made a series of remarks. You're right. He's saying that they started at He's also saying that the entire uh the entire world is going to decouple from China. Well, I I don't know. He He's starting to speak on behalf of the entire world. Now, Mr. Scott, he's saying the entire world is going to decouple from China. Is that true? The entire world is going to decouple from China. China is going to act as a lone actor. And >> well I he's he's starting to e echo the president president of the United States Donald Trump. I mean Trump Trump thinks he speaks for the world too and Besson is saying the same thing. The the Besson's statement was just absurd. I mean it's factually incorrect by the way but but in the west they spin and the press spins and people believe the spin. You know the public is not The public really are not the sharpest knives in the drawer. >> Well, this came in yesterday. This came in yesterday. Uh wants to put price floors. >> We're going to set price floors in the forward buying to make sure that this doesn't happen again. We're going to do it across a range of industries. Um this is this is in response to this statement. China has driven foreign competitors in the rare earth industry out of business over the past two decades. What happens when the government sets price floors, professor? >> It's a disaster. It's like p either a price ceiling or price floor. It's it's price controls. This is interventionism. Th this is basically these guys are in in a way they're copying China, China's economic model. This is an interventionist model. And and we it used to be called socialism. So, so we we've had in the United States a lot of this going on, but now it's it's really we Biden was in it. That that was a model, the interventionist model with the with the government meddling and everything going on. Now, now with Trump, it's it's on steroids and it's transparent. We we know it. But people are are, as I say, not the sharpest knives in the drawer. And they they don't think through what all this means. What all this means, you've you've got a bunch of politicians in Washington that have their hands on the controls of the e- of of of not only the economy in general, that's fiscal policy, monetary policy, that kind of macroeconomic stuff. They they they are actually saying to certain businesses, we don't like the CEO. Fire the guy. Get rid of him. They're they're telling people people in various sectors of the economy who to hire and who to fire. So this this is this is unbelievable that what's going on. I I I think the term socialism has morphed into interventionism. that that's what we as Austrian economists led Levig von Mises Frederick von Haya it's called interventionism or we we can also label it things that people understand it's politicizing all aspects of life you you can't do anything in business anymore without being looking over your shoulder what Uncle Sam is going to be doing >> best said when you are facing a non-market economy like China then you have to exercise indust industrial policy. He's not calling this socialism or interventionism. He's calling it industrial policy. >> He he this is stupid a statement. He he's basically saying read the first sentence and I'll I'll read the first sentence again. >> When you are facing a non-market economy like China, then you have to exercise industrial policy. He says >> he says then you then you have to then you have to become a non-market economy yourself. Okay, >> that that that's what he's saying basically. And and and by the way, if you look at what's going on in in the United States, we they always say, well, China's copying the United States. China's stealing intellectual capital and technology and that kind of stuff. Well, we're copying the Chinese economic model. We're copying them. They're not copying us. the the the Chinese should be raising cane because we're copying them. >> They Okay, the the notion that you're going to set a price for, how is that different from a bailout? If you're going to set a price for, isn't that just bailing out an industry? >> Of course. >> Okay. So, >> so they could they could just they could just give them money and >> Yeah. Well, they are they are giving them money, too. They're they're they have all kinds of things that they're doing, but it doesn't it it it the these things in the in in in mining, metal energy, and material science, these things don't happen overnight. It takes a long time. It takes a long time to develop a mine, for example. First, you've got to find this stuff. And they they they assume all you do is is get get a good geologist and drive around in the countryside in Montana or Wyoming and you find this stuff, you know, all over the place. It it doesn't happen that way. And once you find it, then then you've got to develop it. But to develop it, you've got to get a thousand permits, not only federal permits, but state and local permits to do it. and and and it and and all this stuff is wrapped up in all kinds of idiotic regulations that the that the US has put in over time and and the reason for that by the way there there is a big difference between China and the United States. Now in China the lower level politicians are you know again not the sharpest knives in the drawer totally corrupt and all they do is spend their time drinking tea and smoking cigarettes. uh and moving a lot of money back cheese around. You got to bribe them to do this that and the other thing. That's that's at the low level, but at the top level it's heavily weighted with highly trained engineers. The top of the hierarchy are highly trained engineers. Now, in the US, the bottom is the same. You got a you got a bunch of dull knives, but at the top you got a problem. Because if you go to Washington DC, what what are the professions of the politicians? They're all lawyers. Why do you think we have so many regulations and red tape? Because that that's what lawyers are trained to do. >> So, could engineers make laws? Now, that's another question for another time. >> At any rate, if you look at what's going on in China, it it's it's it's really rather remarkable. They're they're advancing whether it's AI or any the what I call the three M's, mining, metal energy, and material science. They're they're so far ahead of the United States and moving moving out faster. and and it's because it's because they they place a lot of emphasis on advancement with regard to merit. >> Another reason I brought up China is I want to ask you whether or not the 100% tariff should it go through will have a significant impact on inflation. Take a look at my screen here. This is the uh headline CPR rate. As you know, the last the last number from August was 2.9%. That's a big increase from 2.3 earlier in the year. And this is the uh the the Hank Hankish golden growth rate of 6% is not yet reached. The money supply is not yet growing at 6%. And so help us understand whether or not this rise this temporary rise from 2.3% earlier in the year to 2.9%. Is is transitional or as Jerome Pow would call the transitory. >> Yeah. Okay. Let's let's not get into back into the transitory thing. Okay, fine. >> Remember we had that with co the thing to remember is that inflation is always and everywhere a monetary phenomenon. So basically these aggregate price indices whether it's a CPI or PPI or what what many many indices they they are geared and and and and and move with a lag after things have changed in the money supply and I think I've mentioned before I've looked all over the world at all all the significant inflations. Now hold on to your hat. I know you don't I know you don't have a hat on. Maybe you've got one next to you. You can hold on to that. But 4% is a significant inflation. And Hanky's book of rules. 4% lasting two two years or more. That that qualifies as a significant inflation in Hanky's book. And we have never seen a significant inflation any place in the world unless there wasn't a prior significant increase in the money supply. Never. So, back to your question, David, I I I'm rather relaxed about where the inflation is going because we've had since April of 2022, the the money supply was contracting. Stock of money was going down, down, down, down, and it it bottomed out in the summer, this this past summer, and now it's come up a little bit. So, so the stock of money is is not much higher than it was back in the beginning of 2022. So, I'm not and and as you said, the golden growth rate for the money supply measured by M2 and consistent with hitting inflation target of 2% is about 6%. Just a tad over 6%. Let's just call it six. And it's growing a little bit under six now. M >> so I'm uh I I'm not in in the camp that says the tariffs are going to be the end of the world with inflation. Tariffs will impose a sales tax on Americans for goods that they're importing. There's no question about it. Now those imported goods will go up in price relative to everything else. And and the only way the everything else could be coming up is if the money supply would be going up and the money in the hands of the non-bank public would be increasing to allow them to to be spending more. If they're spending more in the imports, David, they have less income to spend on other things. I think that's what people mean by we're experiencing a lot of inflation because a lot of the things that you're talking about like the imports being affected those are the things that are people that the regular person is consuming more of. Think about everything we're using in our everyday lives is coming from China and other places. So >> this is this is exactly the point you you you've nailed it. When people think about inflation, re remember eggs when remember when the egg inflation occurred, we had the aven flu and so forth. This is with within the last year. Eggs are pretty still pretty damn expensive, by the way. But they were they were a lot higher. So people would go to the grocery store and they'd say, "Oh, the egg price. Oh my word. Whoa, man. We've really got inflation. I just went and bought eggs." I mean, you know, Yeah, you're you're somebody would go to the store and what would they do? They'd walk out of the grocery store it was sticker shock saying, "Gee, I I used to be every time I'd go to the grocery store, I'd be spending $200. The bill was $250 this time. We've got huge inflation." Well, yeah, groceries were going up relative to everything else. They they weren't telling you that, oh, computer prices were actually going down. iPhones were actually going down. >> Right. >> So, >> right. >> So, the the perception is that inflation is still a big problem and part of that is that imported goods are definitely going up. By the way, the the imports uh I I I can't remember the exact metric and measurement, but but it was like imports were going up at a 4% peranom rate and and all the regular stuff was going up like 2%. I I I I can't remember the exact metric, but it was import prices are are in short going up about twice as fast as other goods and services. And that that that doesn't surprise me because the imports the Americans that pay a sales tax on that for forget the spin and propaganda coming out of Washington. Foreigners don't pay for tariffs placed on foreigners. Americans pay the tariff. When when the import comes into the customs office in the United States, the tariff is paid in the United States at the tariff office by Americans. >> Well, I I'd like to close off on two things. First, what the Fed's going to do in response. Right now the markets bond market still pricing in one cut in late October and then another cut in December but suppose we have import prices go all the way up then the Fed may need to reconsider. I'm thinking I don't know what's your what's your take on how the Fed will react to >> My take is is exactly on what you have with those charts. The only objective measure we have for what the Fed's going to do with federal funds is to go to the Chicago Merkantal Exchange and look at those charts that you just put up there. What was the percentage for the October meeting and and the December? What were they? >> Both pretty high. October is 97% of a cut, 25 basis point cut. And um December is basically 100% 83% chance of one cut uh sorry a 25 basis point cut and then a 16.7% chance of a 50 basis point cut. >> Okay. Now you asked me a question related to those. You say well what's my take on it? Well my take is the market's take. My take is exactly what you just gave. >> And and and that's what people should pay attention to. They should pay attention to market prices. Market prices are objective. They're they're the accumulation of all the subjective all all the knowit alls. Everybody who has an idea about where the Fed funds rates are going to be going and they have money they want to put on the line gets skin in the game. All of those people, supply and demand, they come in and the market determines the price and that price is my price. >> I want to finish off on uh this news, professor. We have a few minutes left. Regional banks are showing signs of cracking. You remember how you mentioned earlier that there's a valuation bubble in the stock market? Well, here's one sector that's showing some cracks right now. Shares of regional banks and investment bank Jeff tumbled on Thursday. Zion's Bank Corporation dropped more than 13% midday. Western Alliance Bank fell more than 10%. Um the index that tracks this, the SBDR regional banking ETF KRE lost around 6% in one day. Uh latest signs of trouble came when Zion said Wednesday evening it faced it faced a sizable charge because of BAT loans to a couple of borrowers. The bankruptcies of two auto industry related companies this year have raised concerns about loose lending practices. Sounds like their lending p practices are coming to surface in the news. Professor, um, we have to follow this story. It's a developing story. What's your immediate reaction to what I just read? >> Well, my immediate reaction, this doesn't surprise me because we're we're we we've been seeing the uh delinquency on mortgages and and loans and things going up up up for for some time. By the way, >> this this has been going on for a long time now. It it comes to specific banks who are fessing up because they have to give guidance and and uh issue their financial reports and and and it becomes accentuated. Let's say we we've known this in aggregate. You can go back and you you can pull up a chart for delinquencies and I'm certain you see the thing going up up up and and no one pays any attention. This this is how we started our interview. No one pay is paying any attention to any of these uncertainties in the market until you you get a pin prick and and the pin prick but see the design see that see the delinquencies >> it's gone up but the that the critics of um what you're saying would say well it's still lower than the historical average even though it's shot up. Well, well, it it it it it is and that's why they haven't paid any attention to it. But but we we have two banks that are that are talking about, you know, being forced to reserve more because they they they've been hit and and they issue guidance and they they have to talk about their financials and and then people focus on it. Th this general thing that you've just given me, that's exactly what that goes in the press and the press writes delinquencies are going up, but they're still pretty low. No, nothing to worry about. That that's fine. But now we've had some specific cases that are specific to particular banks and you know there's nothing more important than the balance sheet. So if they're writing off this stuff, >> people pay attention to it. A and the valuations adjust. >> Okay. >> You you you notice all all the banks didn't adjust. >> No, I think Jeff and Zion did did drag everybody down today. I I I'm I'm sure they're all down a little bit. Not as much as Jeff and Zion, but >> Well, there was a bit of a market selloff overall today, but Okay. So, we'll keep tabs on what's happening. Professor, um, good talk today. Let's close it here. Where can we follow you before we uh before we go? Where can we follow you in the meantime? You can follow me on XEve_Hanky. That's the best way in real time. Uh, and I'm just looking now, David, that uh I'm at um 88,500 followers. So, >> wow. >> I'm I'm rated as the third most influential economist in the world on Twitter by by Focus Economics in Barcelona. I mean, it's it's not me saying this. Focus Economics says it. They they raid everybody. >> Okay. Well, let's get you up to number two soon. Uh, so do subscribe or follow Professor Hanky in the uh in the link down below to go to his ex account. Do subscribe to this channel if you haven't already to follow uh regular content and see Professor Hanky's next interview with me. You can always submit questions on the channel itself. Comment down below or write to Professor Hanky. We can put his email down below. I would like to see, we haven't talked about this, we can save this for next time. I I would like to see next time your um hyperinflation tracker. I wonder who's hyperinflating and who's not today. >> Okay, the the two highest, by the way, number one is they're not hyperinflating. Venezuela is inflating very rapidly. And uh also a new one, by the way, that I'm watching closely. North >> don't don't don't tell us. Let's save it for next time so people can tune in. >> Oh, we'll get we'll get into the weeds next time. The only thing >> about following me on X, I since I'm a I'm a free market voluntary behavior kind of guy, I can't mandate anything. I I can't even mandate my students to do things. But but but if I could, I would mandate you to follow me on Twitter. >> All right. You heard it. You heard it there. It's been mandated. You click that follow button. >> Yeah. Now, as as they used to say at the end of Paul Harvey's radio program, now now you know the rest of the story. >> Okay. Yeah. Don't want to disobey the mandate. Bad things will happen. Thank you, professor. We'll speak again soon. >> All right. And thank you for Yeah. Thank you for watching. >> Thank you.
The West Faces Economic 'Shutdown', This Asset Has 50% Upside | Steve Hanke
Summary
Transcript
China could shut down the the Western world in about six to nine months. I mean, shut it down. That's that's the end. Foreigners don't pay for tariffs placed on foreigners. Americans pay the tariff. Fan favorite Steve Hanky returns the show. He's a professor of applied economics at Johns Hopkins University. A couple weeks ago, Professor Hanky was on the show and he made the call that gold will go to $6,000. We're going to revisit that call because since September 21st, which was the air date of that particular interview, again, check it out. Link down below, gold's gone up $700. We went we went from $3,600 around the time of the interview to now $4,300 today. We'll go over the math behind $6,000 and what Professor Hanky thinks is going on currently with a global economy. Welcome back to the show, Professor Hanky. Good to see you again. >> Yeah, good to see you, David. We'll also be talking about your book, Making Money Work. Some of the themes are very applicable to today's situation concerning monetary policy and uh we'll go over some other uh economic items including the tariffs, the new tariffs that Trump announced on China and what that's going to do to the economy. Let's start with gold. Since we spoke, like I mentioned in the introduction, gold is up $650ish dollars, which is not an inconsequential number. Uh, for gold, for any asset class, that percentage move in that short of time may trouble some people. Does it trouble you how fast it's moving? >> Not really. Um, I think if if I may, >> sure. >> Correlation does not imply causation, but >> Okay. the the minute after your podcast went up, the thing took off like a rocket. So So at any rate, it happens sometimes. As I say, correlation doesn't imply any >> cause the the the people listening to you. >> Yeah. >> So So one thing we didn't really talk about when I made the $6,000 an ounce call is is how you get there. And in simple terms, if you look at the LA all the gold market secular bull peaks, you know, going back to 1980, they always peak out when gold is is around 10% of the value of disposable personal income per capita in the United States. So, so that's the that's the back of the envelope thinking >> and and of of course everyone kept asking they they know I've been long gold. They know I'm a gold bull and they keep asking well how how high is it going? How high is it going? And I said on your show many times I don't care how high it's going. I I'll if you're trading the key thing is to know the direction of things and it's the direction is up. And I'll I'll I'll worry about the peak later on. But finally, I decided I had to fess up and and and give you a number. So, I gave you one. Six six grand an ounce. That's where it'll peak. >> How does that correlate with monetary policy that you're expecting in the future? One theory I've heard that may not be your own theory, but one theory I've heard is that the Fed is going to lose monetary policy. Um, and we're going to have lower rates. We're going to have more money supply. that correlates with a higher gold price. All asset classes, that's exactly what happened in 2020. Are you making the assumption based on your $6,000 forecast that the Fed will inject more liquidity? >> No, that that calculation has nothing to do with foreign wars, monetary policy, the value of the dollar, anything else. It's it's just a calculation ba based on the behavior of past secular bull markets where where they end up. and they end up at around as I say a value of 10 equal to 10% of personal disposable income per capita. So that that's that's the calculation just a mechanical calculation with remember when we when we talked the last time you you talked about a scenario that Goldman had put up where they they had all kinds of things they were assuming and if they assumed the the the war in the Middle East, the war in Ukraine, the the the Fed crashing, the dollar crashing, this that and the other thing, tariffs, if all that stuff happened at once, they they head it would go to 5,000. But that's not the way I made my calculation. It's just looking at past behavior of the market and getting some handle on how high how how high do these secular bulls go relative to income. >> That's the way to think about it. Relative to the income that people have. >> How high has it gone in historical uh measurements on a percentage change basis? >> Again, it depends on where you start. I mean, >> yeah, >> every one of these bulls starts at a lower level and then peaks out, but the but in in the meantime, starting at the bull and ending at the peak, the disposable income per capita was a lot lower then. So, the price is a lot lower, but the the percentage is 10%. >> This is an article from the World Gold Council that may support your point, professor. Uh, gold opens his $4,000 per ounce chapter. Uh, gold is only 735 days. This is written, when was this written? This was written a couple of days ago, the 13th of October. But it says gold has only 735 days into this rally. Previous major rallies have lasted on average 1,062 days. But again, previous rallies have not moved up this much in such a short amount of time. The magnitude is a little bit different. This time is different as they say. I mean it is different. Um what let to to understand what's well to make the prediction of what's going to happen in the future. I think it's important to understand what's happening currently. Can you help us understand why there's such a frenzy right now with the gold market? Well, I uh I I think in in general there's a tremendous amount of uncertainty that that really isn't being priced into the into the equity markets or or other markets at all. But but they remember gold is is something that uh you know deals with a so-called tail risk where it kind of sucks in the uncertainty bet. Let's put it that way. Yeah. >> So if if a lot if there's a lot of uncertainty, you got these foreign wars going on. You you've got very weak leadership in Europe, by the way. Europe is a huge place and we have, you know, I I think the three stooges and the prime minister of Great Britain, Starmer, is one of the three stooges. Very unpopular, by the way. Extremely unpopular. And then you've got uh President Mcronone in France. He's another one of the he's the second of the three stooges and France has just overturned its government. I I can't keep track how fast they're turning over the governments in France under the presidency of Mcronone and they have huge fiscal problems by the way. And then number three, the third stoogge is Mertz, the chancellor of Germany. And uh Germany's just got so many problems. They they they cut themselves off and turned a blind eye to this blow up of Nordstream 2 and cutting the Russians uh gas supply down and and so cheap gas from Russia is is dwindled down to very small percentage of the total and they're planning on cutting cutting it completely off. So what what is substituting for that gas? The Russian gas is liqufied natural natural gas mainly from the United States, but the cost is about three times higher than the than the Russian gas. So they're paying an arm and a leg for this substitute LNG. And it it almost looks like the US blew this thing up on purpose because it it expanded the market for US LNG. I mean, basically, remember that famous quote with President Biden, he basically said they were going to blow it up. And it and it's very clear if you look at Seymour Hersh's investigating re reporting that the the CIA knew all about this blow up before it happened. Probably the German chancellor knew about it before it blew up, too. But at any rate, they're they're paying a lot more for liqufied natural gas than cheap Russian gas. And then there's another catch in the thing that people aren't aware of and that is the Russian contracts are are take or pay contracts. So if they don't take the gas from Russia they have to pay. So they're paying on top of they're paying Russia for the gas that they're not even using with these take or pay contracts. So, so you've got a huge increase in energy prices in Germany that are really forcing Germany to de-industrialize its whole economy. Of course, that's what the Americans, by the way, after World War II, the Secretary of Treasury, Morgan Tho, that's what he wanted. He he wanted a Germany that was kind of a little agrarian bunch of peasants running around with no industry or anything like that. That that was the idea. That was the US post World War II idea. It didn't happen. the Marshall Plan came in and ger Germany industrialized and and the manufacturing sector in Germany uh is is basically in a proportion to GDP about twice as big as most of the manufacturing sectors in in the European countries it's about 23% of GDP and you look at France for example France is about 12 or 13% but Germany shrinking and if you Look at the world economic outlook uh IMF report of this week came out on the 14th. Uh you you essentially have no growth happening in Europe. Germany Germany they're forecasting at 3% this year. Uh 7 for France little a little a little below 1% in the UK. uh German the the Europeans are just on their back. So that fits into the gold picture by the way and the you you've got the US I think which will go into big slowdown if not a recession and gold always does well before hard economic times. Once you get a you get economic slowdowns times get hard. People don't pay their debts. they they they all all kinds of problems start popping up and and gold does well by the way. So So you have a a number of things going on that are very uncertain right now. The environment's very uncertain. It's not showing up in the equity markets or bond markets or anything like that. But what catches it what's like a magnet for people who are worried about uncertainty is gold. Gold and silver have reached historic highs amidst this crazy bull rally, more investors are turning to hard assets to protect their savings. But what if instead of just holding your gold as a savings vehicle, you could actually earn income from it, pay it in gold. So now it's not just in savings, it's also an income vehicle. That's what today's sponsor, Monetary Metals, helps you do. They're changing the way people think about investing in precious metals completely. Rather than letting your gold sit idly or paying fees to store it, now you can get paid to own it. Right now through their marketplace, you can earn up to 4% yield on gold paid monthly in gold. Your savings grow in ounces, not dollars, and stack on top of any price appreciation. Thousands of investors are already earning real yield and physical gold and silver through monetary medals. It's time to see how it works for you. Go to monetary-medals.com/lin link down below or scan the QR code here to learn more. Why should it show up? In what sense should it show up in the equity markets, professor? What do you mean? What did you mean by that? >> It I I I think the o equity market in the United States, let's talk about the United States is is in a bubble. And that bubble that that means the market's overhyped, overpriced, overvalued. There's a there definitely is a bubble in the equity market in the United States. Everyone is just ignoring all of the uncertainty, all of these potential problems. The equity market just just keeps uh slow walking into I I think what's going to be a a deflating bubble. Now, whether that bubble pops or whether the air comes out slowly is another issue. I don't know. No one knows when these bubbles how how they how they adjust how the markets adjust to more realistic valuations, but it will adjust and the error will come out of it e either with a pop very fast or slowly seeping out and and and we don't know when that's going to start. So So all of that the only thing I know for certain it's in a bubble. I know that, but I but I don't know the rest of the story. And and and no one else does either. >> I had a I had a conversation with another trader just before you, and he was musing. What is a bubble? How do you even define a bubble? How do we know we're in a bubble when we when we when we see it? >> Read my bubble detector articles and the National Review, Forbes magazine. I think even Fortune I have. >> Okay. >> It's it's it's easy to calculate. So let's say let's say you know I gave him this example. Let's say a a stock a company is making $10 a year but its enterprise value is at a million dollars. Well we could safely assume that it's in a bubble. That doesn't make any sense. And then he says well what if it's only 900,000? What if it's only a thousand? You know at what point does a valuation disparity become a bubble? Right. >> Well you you you again you have to relate it like the gold thing. If you look at Dr. X's bubble detector, which is my bubble detector. And the reason it's the reason it's Dr. X is that a Nobel laureate in economics who didn't have time to finish the thing gave it gave it to me and and and I, as a courtesy, I'm not I'm not going to name who it is because he he wasn't there when I when I finished it. >> Yeah. So I I I can't say who it is, but I but but the origin was a Nobel laureate in economics who handed the thing off to me. I finished it and dealt with it. It's a very good indicator of when the when the market's in a bubble and and it's related to the value of things relative to income and and that relative to income means what intuitively how long it takes you to buy an asset or how long it takes you to buy yield and then you look at the yield how long it takes you in the bond market and how long it takes you in the stock market and the thing is very in balance now it it takes you a lot longer to to purchase a given amount of yield in the stock market than the bond market. I mean, that that's the in that's the intuition behind it. But but go to go to Hanky's articles on Dr. X's bubble detector and and and all the all these people spin these yarns and hypotheticals and you know the thing you started going through this nonsensical BS. Basically, it it's all related to in income and it's all related to how long does it take you to buy yield. And and if it takes you an excessively amount of time to buy yield, you you you can bet your bottom dollar you're in a bubble. And how do you know it's excessive? Well, you have two huge markets. One's a bond market and the other is a stock market. And if it's taking you an inordinate amount of time to buy yield in the stock market relative to the bond market, you know, you got a bubble in the stock market. >> Do you think people are buying stocks despite really high valuations in the same fashion or for the same reason that they're buying gold perhaps that they see all this uncertainty in the world? They don't want to park their money in fiat dollars uh for fear of losing value to inflation or anything else. And so they're buying just anything they can get their hands on. People may not have enough money to buy an ounce of gold or a house. They buy stocks. Does that theory make sense to you? >> No. >> Okay, fair enough. So stocks represent risk is what you're saying. You're you know I I I I can I can tell you you've been in you've been influenced by the people you've been interviewing. I've been well I've been very lucky to be influenced by yourself in some capacity but that is >> you know at least put Hanky in there as a footnote. >> I I I could I I put I quote Hanky's um golden rule quite often um on monetary policy which we'll talk about uh later today. Uh okay. So stocks are in a bubble. Gold currently not yet in the bubble. It's going to take another 60% by the way of gold uh rally to climb to $6,000. Uh >> by the way, I'm I'm not saying that there won't be corrections along the way. >> No, I understand. >> What about silver? By the way, >> that we need we need to talk about silver. $54. I I I I pretty sure my viewers would like you to um attempt to do the same calculation with silver that you've done for gold. This is the historic price of silver going all the way back to the um 1800s. But anyway, you can see that it's only happened three times in history that it's breached $50. And now for the first time in history, it sustained above 50 and now gone to 54. >> Well, you know, we got to go back to 1980 in the Hunt Brothers corner of the silver market to get up that high. Now, one of my friends, um, which I, uh, grew up with in I, rural Iowa, called me the other day. Um, I I'll leave him anonymous. I, he doesn't probably want his name known on on he he's he is a public figure, by the way. That's another reason that I don't want to name him, but he's a he's an old pal of mine. And so, he called me and he said he said, Steve, he says, you know, silver's made a new high. It was it it that's when it went was 51. It went up to 51. He called me and he says he says, "Well, what do you think? Should I sell my my silver?" And I said, "Well, what do you what do you got? You got contracts?" And he says, "Oh, no." He says, "I've got bullion." And then he and then he sent me some photographs. He does have bullion as well as silver coins on it. And I said, "I think I just relax for a little while." I said, "Let it run a little longer. let me think about this. What what what one would do. And I haven't responded to him yet. Actually, I called him this afternoon. Couldn't get a hold of him. Uh we we were going to brainstorm what to do because he's he's got a horde of silver. I mean, a lot, you know, he he he's got enough. Let's put it this way. If you put it in the trunk of the car, the damn car would go to the pavement. probably >> if he were a fund, he probably have a mandate to only own a certain percentage of his portfolio in one asset. Now, that asset, in this case, silver, has ballooned in weight. Um, quite literally, we could probably assume the fund will want to rotate out into something else. But I don't know if that logic applies to the regular person. when something's gone up what 100% in a year um normally if it's anything else one would want to take profit 71%. >> Well he was he he was scratching his head because he said under the presidency he his he prefaced the you know the whole thing with the following. He said well un under the economic policies of of Joe Biden he thought silver would take off and it never really did much of anything. and he says now it's taken off you think I should sell that that's how the conversation started I think this rebalancing of portfolios is actually important uh m maybe maybe not so much and commodities are kind of a separate category but let's take the s the simplest thing the standard plain vanilla stock bond portfolio 6040 >> yes >> and and and I think we've talked about this before. I think people they they asked me, "Well, Hanky, should I be taking money out of the stock market?" And I say, "Not necessarily." And they say, "What do you mean? You just said it was a bubble." And I said, "Yeah, I know. I told you it was a bubble, and I told you I I didn't know when the bubble was either going to pop or seep air out of the thing and adjust." So, I can't predict that. So, they say, "Well, what do you do then? You're you're so smart. Tell me, you know, tell me what I should be doing." And I say, 'L you you you you you had it 10 years ago or five years ago or whatever starting point you want you you had a balanced portfolio. It was 6040 and and I can guarantee you it is no longer 6040. It's probably 8515. So I I I would rebalance on that basis. You see what I mean? >> Yeah. I I think I think a lot of people are probably and and especially I'm talking about you know o older pe people let's say o people over 50 or 55 something like that I I'm I bet all their portfolios are im imbalanced now over overweighted in stock >> just just because of the big run in the stock market. So, so in that case uh I I I would think about well do I do I want to go back to my plain vanilla ratio whatever it is 6040 or 7030 or whatever it happened to be do do I want to adjust or not adjust and I and I would say it's probably prudent to adjust >> adjust into what is the question what would seem relatively more undervalued now >> you if if you're if you have a portfolio with two and you're dealing with two asset classes, stocks and bonds, you lighten up on stocks and put more into bonds. It it depends on the mix of your portfolio. So there there there are other people who would have stocks, bonds, and gold, for example. >> True. All right. We have to talk about um Trump's policy. Speaking of uh the current administration, as you're aware, Trump announced a 100% tariff on China last Friday. He likes to make these announcements after market close. Uh but then he um over the weekend, last weekend, also made posts on social media saying that uh uh the great respected Xi Jinping and himself are currently going to talk it out. China has said that uh they're not going to back down from this new 100% tariff. And since Trump has made that tweet or post on Truth Social over the weekend, markets have rebounded somewhat uh on Monday especially. My question to you is whether or not this is actually going to go through. Apparently, it's going to set um take effect on November 1st, which is coming up in exactly 2 weeks. And a lot depends on what the Chinese do, said US trade representative Jameson Greer. I wonder if this is just theater before the 1st of November or will we actually see an additional 100% tariff slapped on China come the first. What do you think? >> It's it's a little bit hard to say. Let's go walk through this because the the front page of the Financial Times of London yesterday had a huge headline. Secretary of Treasury Besson was going after China and Z chairman Xi for starting a for starting a trade war. >> So this this spin is so ridiculous. I mean the US started the trade war, not China. China's just counterattacking now by putting uh restrictions and bans on the export of certain critical materials, certain rare earths and and and the technology uh that can be used to process these because China controls these things and and people do not realize that and and and I think Trump might realize this and come around after threatening China could shut down the Western world in about six to nine months. I mean, shut it down. That's that's the end, baby. Of course, by cutting off all these critical materials. So, think think about it. If if you're facing the chairman of China and and you know he can pull a trigger and blow your head off, are are you going to stay in the fight? >> Are are you going to commit suicide? >> I I would I would get out of the way and find another way to get the critical minerals. >> Yeah. And that's going to take you about 20 years. [Music] >> Think about that. Well, this is what Scott Basent is trying to do to counter that. So, first of all, he's made a series of remarks. You're right. He's saying that they started at He's also saying that the entire uh the entire world is going to decouple from China. Well, I I don't know. He He's starting to speak on behalf of the entire world. Now, Mr. Scott, he's saying the entire world is going to decouple from China. Is that true? The entire world is going to decouple from China. China is going to act as a lone actor. And >> well I he's he's starting to e echo the president president of the United States Donald Trump. I mean Trump Trump thinks he speaks for the world too and Besson is saying the same thing. The the Besson's statement was just absurd. I mean it's factually incorrect by the way but but in the west they spin and the press spins and people believe the spin. You know the public is not The public really are not the sharpest knives in the drawer. >> Well, this came in yesterday. This came in yesterday. Uh wants to put price floors. >> We're going to set price floors in the forward buying to make sure that this doesn't happen again. We're going to do it across a range of industries. Um this is this is in response to this statement. China has driven foreign competitors in the rare earth industry out of business over the past two decades. What happens when the government sets price floors, professor? >> It's a disaster. It's like p either a price ceiling or price floor. It's it's price controls. This is interventionism. Th this is basically these guys are in in a way they're copying China, China's economic model. This is an interventionist model. And and we it used to be called socialism. So, so we we've had in the United States a lot of this going on, but now it's it's really we Biden was in it. That that was a model, the interventionist model with the with the government meddling and everything going on. Now, now with Trump, it's it's on steroids and it's transparent. We we know it. But people are are, as I say, not the sharpest knives in the drawer. And they they don't think through what all this means. What all this means, you've you've got a bunch of politicians in Washington that have their hands on the controls of the e- of of of not only the economy in general, that's fiscal policy, monetary policy, that kind of macroeconomic stuff. They they they are actually saying to certain businesses, we don't like the CEO. Fire the guy. Get rid of him. They're they're telling people people in various sectors of the economy who to hire and who to fire. So this this is this is unbelievable that what's going on. I I I think the term socialism has morphed into interventionism. that that's what we as Austrian economists led Levig von Mises Frederick von Haya it's called interventionism or we we can also label it things that people understand it's politicizing all aspects of life you you can't do anything in business anymore without being looking over your shoulder what Uncle Sam is going to be doing >> best said when you are facing a non-market economy like China then you have to exercise indust industrial policy. He's not calling this socialism or interventionism. He's calling it industrial policy. >> He he this is stupid a statement. He he's basically saying read the first sentence and I'll I'll read the first sentence again. >> When you are facing a non-market economy like China, then you have to exercise industrial policy. He says >> he says then you then you have to then you have to become a non-market economy yourself. Okay, >> that that that's what he's saying basically. And and and by the way, if you look at what's going on in in the United States, we they always say, well, China's copying the United States. China's stealing intellectual capital and technology and that kind of stuff. Well, we're copying the Chinese economic model. We're copying them. They're not copying us. the the the Chinese should be raising cane because we're copying them. >> They Okay, the the notion that you're going to set a price for, how is that different from a bailout? If you're going to set a price for, isn't that just bailing out an industry? >> Of course. >> Okay. So, >> so they could they could just they could just give them money and >> Yeah. Well, they are they are giving them money, too. They're they're they have all kinds of things that they're doing, but it doesn't it it it the these things in the in in in mining, metal energy, and material science, these things don't happen overnight. It takes a long time. It takes a long time to develop a mine, for example. First, you've got to find this stuff. And they they they assume all you do is is get get a good geologist and drive around in the countryside in Montana or Wyoming and you find this stuff, you know, all over the place. It it doesn't happen that way. And once you find it, then then you've got to develop it. But to develop it, you've got to get a thousand permits, not only federal permits, but state and local permits to do it. and and and it and and all this stuff is wrapped up in all kinds of idiotic regulations that the that the US has put in over time and and the reason for that by the way there there is a big difference between China and the United States. Now in China the lower level politicians are you know again not the sharpest knives in the drawer totally corrupt and all they do is spend their time drinking tea and smoking cigarettes. uh and moving a lot of money back cheese around. You got to bribe them to do this that and the other thing. That's that's at the low level, but at the top level it's heavily weighted with highly trained engineers. The top of the hierarchy are highly trained engineers. Now, in the US, the bottom is the same. You got a you got a bunch of dull knives, but at the top you got a problem. Because if you go to Washington DC, what what are the professions of the politicians? They're all lawyers. Why do you think we have so many regulations and red tape? Because that that's what lawyers are trained to do. >> So, could engineers make laws? Now, that's another question for another time. >> At any rate, if you look at what's going on in China, it it's it's it's really rather remarkable. They're they're advancing whether it's AI or any the what I call the three M's, mining, metal energy, and material science. They're they're so far ahead of the United States and moving moving out faster. and and it's because it's because they they place a lot of emphasis on advancement with regard to merit. >> Another reason I brought up China is I want to ask you whether or not the 100% tariff should it go through will have a significant impact on inflation. Take a look at my screen here. This is the uh headline CPR rate. As you know, the last the last number from August was 2.9%. That's a big increase from 2.3 earlier in the year. And this is the uh the the Hank Hankish golden growth rate of 6% is not yet reached. The money supply is not yet growing at 6%. And so help us understand whether or not this rise this temporary rise from 2.3% earlier in the year to 2.9%. Is is transitional or as Jerome Pow would call the transitory. >> Yeah. Okay. Let's let's not get into back into the transitory thing. Okay, fine. >> Remember we had that with co the thing to remember is that inflation is always and everywhere a monetary phenomenon. So basically these aggregate price indices whether it's a CPI or PPI or what what many many indices they they are geared and and and and and move with a lag after things have changed in the money supply and I think I've mentioned before I've looked all over the world at all all the significant inflations. Now hold on to your hat. I know you don't I know you don't have a hat on. Maybe you've got one next to you. You can hold on to that. But 4% is a significant inflation. And Hanky's book of rules. 4% lasting two two years or more. That that qualifies as a significant inflation in Hanky's book. And we have never seen a significant inflation any place in the world unless there wasn't a prior significant increase in the money supply. Never. So, back to your question, David, I I I'm rather relaxed about where the inflation is going because we've had since April of 2022, the the money supply was contracting. Stock of money was going down, down, down, down, and it it bottomed out in the summer, this this past summer, and now it's come up a little bit. So, so the stock of money is is not much higher than it was back in the beginning of 2022. So, I'm not and and as you said, the golden growth rate for the money supply measured by M2 and consistent with hitting inflation target of 2% is about 6%. Just a tad over 6%. Let's just call it six. And it's growing a little bit under six now. M >> so I'm uh I I'm not in in the camp that says the tariffs are going to be the end of the world with inflation. Tariffs will impose a sales tax on Americans for goods that they're importing. There's no question about it. Now those imported goods will go up in price relative to everything else. And and the only way the everything else could be coming up is if the money supply would be going up and the money in the hands of the non-bank public would be increasing to allow them to to be spending more. If they're spending more in the imports, David, they have less income to spend on other things. I think that's what people mean by we're experiencing a lot of inflation because a lot of the things that you're talking about like the imports being affected those are the things that are people that the regular person is consuming more of. Think about everything we're using in our everyday lives is coming from China and other places. So >> this is this is exactly the point you you you've nailed it. When people think about inflation, re remember eggs when remember when the egg inflation occurred, we had the aven flu and so forth. This is with within the last year. Eggs are pretty still pretty damn expensive, by the way. But they were they were a lot higher. So people would go to the grocery store and they'd say, "Oh, the egg price. Oh my word. Whoa, man. We've really got inflation. I just went and bought eggs." I mean, you know, Yeah, you're you're somebody would go to the store and what would they do? They'd walk out of the grocery store it was sticker shock saying, "Gee, I I used to be every time I'd go to the grocery store, I'd be spending $200. The bill was $250 this time. We've got huge inflation." Well, yeah, groceries were going up relative to everything else. They they weren't telling you that, oh, computer prices were actually going down. iPhones were actually going down. >> Right. >> So, >> right. >> So, the the perception is that inflation is still a big problem and part of that is that imported goods are definitely going up. By the way, the the imports uh I I I can't remember the exact metric and measurement, but but it was like imports were going up at a 4% peranom rate and and all the regular stuff was going up like 2%. I I I I can't remember the exact metric, but it was import prices are are in short going up about twice as fast as other goods and services. And that that that doesn't surprise me because the imports the Americans that pay a sales tax on that for forget the spin and propaganda coming out of Washington. Foreigners don't pay for tariffs placed on foreigners. Americans pay the tariff. When when the import comes into the customs office in the United States, the tariff is paid in the United States at the tariff office by Americans. >> Well, I I'd like to close off on two things. First, what the Fed's going to do in response. Right now the markets bond market still pricing in one cut in late October and then another cut in December but suppose we have import prices go all the way up then the Fed may need to reconsider. I'm thinking I don't know what's your what's your take on how the Fed will react to >> My take is is exactly on what you have with those charts. The only objective measure we have for what the Fed's going to do with federal funds is to go to the Chicago Merkantal Exchange and look at those charts that you just put up there. What was the percentage for the October meeting and and the December? What were they? >> Both pretty high. October is 97% of a cut, 25 basis point cut. And um December is basically 100% 83% chance of one cut uh sorry a 25 basis point cut and then a 16.7% chance of a 50 basis point cut. >> Okay. Now you asked me a question related to those. You say well what's my take on it? Well my take is the market's take. My take is exactly what you just gave. >> And and and that's what people should pay attention to. They should pay attention to market prices. Market prices are objective. They're they're the accumulation of all the subjective all all the knowit alls. Everybody who has an idea about where the Fed funds rates are going to be going and they have money they want to put on the line gets skin in the game. All of those people, supply and demand, they come in and the market determines the price and that price is my price. >> I want to finish off on uh this news, professor. We have a few minutes left. Regional banks are showing signs of cracking. You remember how you mentioned earlier that there's a valuation bubble in the stock market? Well, here's one sector that's showing some cracks right now. Shares of regional banks and investment bank Jeff tumbled on Thursday. Zion's Bank Corporation dropped more than 13% midday. Western Alliance Bank fell more than 10%. Um the index that tracks this, the SBDR regional banking ETF KRE lost around 6% in one day. Uh latest signs of trouble came when Zion said Wednesday evening it faced it faced a sizable charge because of BAT loans to a couple of borrowers. The bankruptcies of two auto industry related companies this year have raised concerns about loose lending practices. Sounds like their lending p practices are coming to surface in the news. Professor, um, we have to follow this story. It's a developing story. What's your immediate reaction to what I just read? >> Well, my immediate reaction, this doesn't surprise me because we're we're we we've been seeing the uh delinquency on mortgages and and loans and things going up up up for for some time. By the way, >> this this has been going on for a long time now. It it comes to specific banks who are fessing up because they have to give guidance and and uh issue their financial reports and and and it becomes accentuated. Let's say we we've known this in aggregate. You can go back and you you can pull up a chart for delinquencies and I'm certain you see the thing going up up up and and no one pays any attention. This this is how we started our interview. No one pay is paying any attention to any of these uncertainties in the market until you you get a pin prick and and the pin prick but see the design see that see the delinquencies >> it's gone up but the that the critics of um what you're saying would say well it's still lower than the historical average even though it's shot up. Well, well, it it it it it is and that's why they haven't paid any attention to it. But but we we have two banks that are that are talking about, you know, being forced to reserve more because they they they've been hit and and they issue guidance and they they have to talk about their financials and and then people focus on it. Th this general thing that you've just given me, that's exactly what that goes in the press and the press writes delinquencies are going up, but they're still pretty low. No, nothing to worry about. That that's fine. But now we've had some specific cases that are specific to particular banks and you know there's nothing more important than the balance sheet. So if they're writing off this stuff, >> people pay attention to it. A and the valuations adjust. >> Okay. >> You you you notice all all the banks didn't adjust. >> No, I think Jeff and Zion did did drag everybody down today. I I I'm I'm sure they're all down a little bit. Not as much as Jeff and Zion, but >> Well, there was a bit of a market selloff overall today, but Okay. So, we'll keep tabs on what's happening. Professor, um, good talk today. Let's close it here. Where can we follow you before we uh before we go? Where can we follow you in the meantime? You can follow me on XEve_Hanky. That's the best way in real time. Uh, and I'm just looking now, David, that uh I'm at um 88,500 followers. So, >> wow. >> I'm I'm rated as the third most influential economist in the world on Twitter by by Focus Economics in Barcelona. I mean, it's it's not me saying this. Focus Economics says it. They they raid everybody. >> Okay. Well, let's get you up to number two soon. Uh, so do subscribe or follow Professor Hanky in the uh in the link down below to go to his ex account. Do subscribe to this channel if you haven't already to follow uh regular content and see Professor Hanky's next interview with me. You can always submit questions on the channel itself. Comment down below or write to Professor Hanky. We can put his email down below. I would like to see, we haven't talked about this, we can save this for next time. I I would like to see next time your um hyperinflation tracker. I wonder who's hyperinflating and who's not today. >> Okay, the the two highest, by the way, number one is they're not hyperinflating. Venezuela is inflating very rapidly. And uh also a new one, by the way, that I'm watching closely. North >> don't don't don't tell us. Let's save it for next time so people can tune in. >> Oh, we'll get we'll get into the weeds next time. The only thing >> about following me on X, I since I'm a I'm a free market voluntary behavior kind of guy, I can't mandate anything. I I can't even mandate my students to do things. But but but if I could, I would mandate you to follow me on Twitter. >> All right. You heard it. You heard it there. It's been mandated. You click that follow button. >> Yeah. Now, as as they used to say at the end of Paul Harvey's radio program, now now you know the rest of the story. >> Okay. Yeah. Don't want to disobey the mandate. Bad things will happen. Thank you, professor. We'll speak again soon. >> All right. And thank you for Yeah. Thank you for watching. >> Thank you.