Prof. Steve Hanke: When broad money growth falls to near zero, a recession is typically right around
Prof. Steve Hanke especially for Epicenter
Steve H. Hanke is a Professor of Applied Economics at The Johns Hopkins University in Baltimore. He has been an advisor to many presidents, including U.S. President Ronald Reagan and Bulgarian President Petar Stoyanov.
In the United States, Federal Reserve Chairman Jerome Powell first allowed the money supply to go out of control in 2020. That created massive inflation. Now, he has switched gears and cut the growth rate in the money supply to near zero. For the last six months, there has been virtually no growth in the money supply.
The Fed has ignored the classic Quantity Theory of Money and has no real, coherent theory of inflation. The word " money " appears very infrequently, if at all, in any Fed documents. For example, the Fed's basic guide " Monetary Policy: What Are It's Goals? How Does It Work? " (Board of Governors, 2021) mentions the word " monetary " 44 times but does not mention the word " money " even once.
The money supply (M2) has increased an incredible 41% in only 2.5 years—an average annual growth rate of 16.3%. No wonder the U.S. is suffering from one of its highest inflation rates in 40 years at 8.3% per year.This inflation cannot be reversed, but in its panic to try to stop the inflation, the Fed has slammed on the brakes. In the last six months, the annualized rate of broad money growth (M2) has been zero. When broad money growth falls to near zero, a recession is typically right around the corner. So, it looks like the U.S. is going to have the worst of both worlds. The U.S. will have continued inflation, which I forecast to be between 6-8% per year at the end of 2022 and still be elevated at 5% per year by the end of 2023. If that isn't bad enough, it looks like the U.S. will have a recession starting in 2023.
The Fed is clearly flying blind, and the U.S. is in trouble
China is in big trouble. Indeed, even the World Bank has downgraded their 2022 GDP growth forecast for China to 2.8%. This is the first time since 1990 that China has realized a lower growth rate than any of its Asian neighbors. China's zero-COVID lockdown policy has been a complete disaster. As a Johns Hopkins study, that I co-authored with Jonas Herby and Lars Jonung, showed, lockdowns have a negligible effect on COVID-19 mortality but have produced massive economic, political, and social costs.
In recent days, the United Kingdom has entered a major currency and financial crisis. The government of Liz Truss, which is engaged in a total war with Russia, has completely lost its bearings. The Bank of England, which doesn't seem to know what it's doing, switched from a quantitative tightening monetary policy stance to a quantitative easing monetary policy stance all in a matter of 24 hours. England and the pound are in deep trouble.
The European Union
As for the European Union, it too is in a full war with Russia, a war that's devastating European economies and destabilizing the social and political environments of Europe. Europe's troubles are much larger than we are led to believe.
Vietnam, Indonesia, India, Saudi Arabia and Japan
On the brighter side, these five countries are doing rather well. What makes them unique is that they're all buying Russian crude oil at low, discounted prices.