Johns Hopkins Professor of Applied Economics Steve Hanke recently told Kitco News that the modern way of teaching economics has led to the Federal Reserve implementing subpar strategies to combat inflation.
The well-respected educational leader, who is a frequent guest on Kitco and CNBC, also said he believes private demand for gold in China has played a prominent role in driving the significant upward momentum gold has shown in 2024.
“China is part of the bullish story on gold and one reason I’m bullish on it,” Hanke said. “Not only the central bank buying big time in China, but private investors have been buying big time because they’re worried about what’s going on in China. There’s a huge private demand in China for gold. In a way, the private buying is a little bit of the tail wagging the Chinese dog.”
Money supply in the U.S.
The U.S. M2 money supply, which is growing at a rate of 1.98% year-over-year, is far below the growth it should be experiencing, according to Hanke.
To get to the “gold rate” of 2% inflation, which is often cited as the Federal Reserve’s primary inflation target, Hanke said the M2 supply should be growing 6% year over year.
Shown is the year-over-year growth of the M2 money supply. (Source:TradingView)
“Right now, they’re in quantitative tightening. They’re shrinking the money supply. They’re not buying bonds and letting them mature and causing the money supply to decrease because the government still has to sell the bonds to somebody. They sell it to the public and we have to write a check and we get the bond,” he explained.
Hanke said the effect of quantitative tightening has been exacerbated by commercial banks loaning at a slower rate than typical.
Not looking to teach supply
Hanke said his experience in education has exposed him to modern economic theory, which he said does not include the teaching of money supply and its effect on economies.
“All of the theoretical models and training of graduates in the research department (of the Federal Reserve) are shown models that don’t show the money supply, called post-Keynesian models,” he said. “Once you get into post-Keynesian models you’re getting into the technical weeds and it’s hard for people who aren’t formally trained in economics to know what you’re talking about. Augusta Precious Metals $0 (10 Years) $50,000 "Best Overall" by Money Magazine, Award-Winning for 6 Years, Thousands of 5-Star Rankings Goldco Vary $25,000 Industry leader with over $2 Billion in gold and silver. Top rated precious metals company with buy back guarantee American Hartford Gold Vary $10,000 American Hartford Gold, ranked #1 Gold Company on Inc. 5000, boasts thousands of A+ BBB ratings and 5-star reviews, endorsed by Bill O'Reilly and Rick Harrison..Expand Details
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