According to Steve Hanke, professor of applied economics at Johns Hopkins University, there is an 80% chance that the United States will enter a recession, which is much higher than expected.
According to CNBC’s September Fed survey of economists, fund managers and strategists, respondents said there was a 52% chance that the United States would enter a recession in the past 12 coming months.
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“The probability of recession, I think it’s well over 50% – I think it’s around 80%. Maybe even over 80%,” Hanke told ‘Street Signs Asia’ on Friday. from CNBC.
“If they continue with quantitative tightening and move that growth rate and M2 (money supply) into negative territory, it will be serious.”
Hanke has been critical, and has been in the past, of the Federal Reserve’s inability to manage inflation by keeping an eye on the large money supply circulating in the US economy.
“They really looked for inflation and the causes of inflation in the wrong places. They look at everything under the sun except the money supply,” Hanke said.
“And in fact, they’ve doubled and tripled on the argument that money has no connection to economic activity or has no reliable relationship to economic activity and inflation.”
A customer shops at a supermarket in Oregon. According to Steve Hanke, professor of applied economics at Johns Hopkins University, there is an 80% chance that the United States will enter a recession, which is much higher than expected.
Wang Yin | Xinhua News Agency | Getty Images
He blamed the US central bank for the rise in inflation.
“The reason is that the Fed has been blowing up the money supply, starting in early 2020 at an unprecedented rate and they don’t want that length to be visible between the money supply and inflation.”
“Because if it is, the noose around their neck, and that’s the real problem.”
An increase in the money supply raises prices because consumers are willing to pay more for goods.
Classical economics, as proposed by Milton Friedman and others, emphasized money supply as the culprit of out-of-control inflation, Hanke added.
The Fed flooded the U.S. economy with large amounts of stimulus and cash to keep it afloat during the pandemic, but failed to focus on prudently shrinking that money supply over time, the Fed said. teacher.
M2 money supply, a broad measure of money supply that includes cash and deposits, has grown by double digits over the past three years.
Now, M2 money supply growth is slowing too quickly and it could push the economy into a recession, Hanke warned.
“They’re not attacking it properly,” he said. “Over the past five months, we’ve seen a significant money supply in the United States. It’s not growing at all.
“And now they’re going to introduce quantitative tightening and what that’s going to do that will drive the money supply down, which will drive it down into negative territory if they continue like this.”
Hanke said the right economic decision would be to keep money supply growth at a “golden growth rate” of 5% to 6% to bring inflation down to around 2%.
“Now it’s zero. And it will probably turn negative,” the professor said. “And that’s why we will see a recession in 2023.”