Steve Hanke Says We’ll Have One ‘Whopper’ of a Recession by 2023


According to Steve Hanke, a professor of applied economics at Johns Hopkins University, the US economy will go into recession next year, not necessarily because of higher interest rates.

“We’re going to have a recession because we’ve had five months of zero M2 growth, money supply growth, and the Fed isn’t even looking at it,” he told CNBC’s Street Signs Asia on Monday.

Market watchers use the broad M2 measure as an indicator of the aggregate money supply and future inflation. M2 includes cash, checks and savings deposits and money market securities.

The money supply has stagnated in recent months and that is likely to lead to an economic slowdown, Hanke warned.

“In 2023, we’re going to have a massive recession,” he said.

Meanwhile, inflation will remain high because of “unprecedented growth” in the money supply in the United States, Hanke said.

Historically, there has never been “sustained inflation” that is not the result of overgrowth in the money supply, pointing out that the money supply in the US was experiencing “unprecedented growth” when Covid started two years ago, he said.

“That’s why we have inflation now, and that’s why, by the way, we will continue to have inflation until 2023, probably until 2024,” he added.

In 2020, CNBC reported that money supply growth could lead to high inflation.

“The bottom line is we’re going to have stagflation – we’re going to have inflation because of this surplus coming into the system now,” he added.

“The problem we have is that the [Fed Chair Jerome Powell] doesn’t even understand at this point what the causes of inflation are and were,” Hanke said.

“He’s still talking about supply-side issues,” he said, adding that “he hasn’t told us that inflation is always caused by overgrowth in the money supply, which leaves the printing presses on.”

Powell, in his policy speech at the annual Jackson Hole economic symposium on Friday, said he views high inflation in the US as a “product of strong demand and limited supply, and that the Fed’s tools work primarily on aggregate demand.” .”

CNBC has contacted the Federal Reserve for comment.

‘Sacrificial lamb’

David Rosenberg, president of Rosenberg Research, also expressed skepticism about the Fed’s direction, but in different ways. He said the Fed is now “more than happy” to tighten too tight to bring inflation down quickly.

“Tightening too much means if the economy goes into recession, you know — so be it,” he told CNBC’s Squawk Box Asia on Monday, adding that Powell said this is a short-term pain for profits in the market. long-term.

He said he is “a little disappointed” that the central bank is chasing lagging indicators like the unemployment rate and inflation, but that the Fed is “not going to take any risks” after being “deeply embarrassed” at labeling inflation as transient. .

“[Powell] basically said the economy will be a sacrificial lamb in the short term,” Rosenberg said.

“I think this Fed, after being on the wrong side of the call for the past 12 to 15 months, will probably need to see at least six months of intense disinflation in the price data before they stop doing it,” he said. added.

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