(Kitco News) — The probability of a recession of 65 percent is “very reasonable,” said Steve Hanke, professor of applied economics at Johns Hopkins University.
Many analysts expect stagflation, a period of stagflation accompanied by high inflation. Hanke sees stagflation as a possibility. He added that it would be “economic foolishness” to deny that excess money causes inflation.
Hankee spoke with David Lane, broadcaster and producer at Kitco News.
recession on the horizon
“I think there’s a fairly high probability that we’ll have a recession, because the Fed is flying blind, afraid of inflation,” Hanke said. “Usually when that happens, they tend to overstate things, tighten things up too quickly, and plunge the economy into a recession.”
Hanke said the Fed needs to focus on the money supply, rather than just raising interest rates. He explained that an “easy landing” without much damage to the economy was possible.
“There have been three episodes when the Fed raised the federal funds rate significantly and the money supply didn’t drop that much,” Hanke noted. “I want to get the money supply to the golden growth rate of 5 to 6% from M2, that measure of the money supply. This will eventually allow the inflation rate to go down to 2%… It’s all about the growth in the money supply… Focusing Everyone is on these interest rates but they are a very bad indication of what is going on with the money supply.”
However, Hanke was not optimistic about the Fed doing what he suggested.
“I think they will probably overdo it, and we will see the money supply fall very sharply,” he said. “…And if that happens, we’ll end up in stagflation…I think Biden is going to get involved in a big way. Whatever happens at the Fed, Biden and the White House are going to put their fingers in everything.”
Inflation is inevitable
Hanke said inflation has “really entered the pie” and that it will still be there for the “next two years”.
“No matter what you do today, even if [The Fed] You’ve passed the tightening, you’ve had a recession, you still have that inflation to deal with.”
The US inflation rate is now at its highest level in 40 years at 8.6%. Hanke blamed the Federal Reserve’s loose monetary policy for high inflation.
“We’re talking about the Fed that got us into this mess in the first place, the highest inflation we’ve had in 40 years,” he said. “And they weren’t able to anticipate it or even anticipate it. They didn’t know what they were doing. They were flying blind.”
In response to the claim that a lack of supply is currently causing inflation, Hanke replied, “There is only one reason [of inflation]:excess money…those poo-money people, they literally don’t know what they’re talking about.
For Hanke’s gold market forecast, watch the video above.
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