Steve Hanke, Professor of Applied Economics at Johns Hopkins University, says the Federal Reserve has already abandoned its fight against inflation and is pivoting toward easier monetary policy under political pressure from the Trump administration.
This shift, he warned during last Sunday’s episode of The David Lin Report, will keep prices high and inflate asset bubbles, arguing that recent attacks on the Fed are designed to force policymakers to loosen monetary conditions.
The consumer price index at 2.7% as well above the Fed’s 2% target, and according to the professor, the central bank has already changed course. Namely, in December, it halted quantitative tightening and began expanding its balance sheet again, announcing plans to buy $40 billion in Treasury bills. This, Hanke says, means they’re monetizing the deficit.
‘The inflation genie is not going back into the bottle’
Monetizing government debt inevitably fuels higher prices, the interview went on. When the deficit is monetized, the money supply goes up. As a result, a greater money supply leads to more inflation. Hanke was equally critical of Trump’s proposal to cap credit-card interest rates at 10%, calling it outright price controls.
Furthermore, the economist pointed to upcoming regulatory changes that will give commercial banks, which produce most of the money, greater lending capacity. Namely, with more excess reserves, banks will have way bigger guns, allowing them to expand credit and further accelerate money growth.
As the conversation largely revolved around Greenland and Venezuela, Hanke rejected the idea that cheaper energy could solve the problem. For instance, he noted that even a new oil supply from Venezuela pushing down gasoline prices would have that effect.
Looking ahead, Hanke predicted that looser money would continue to lift hard assets. He specifically pointed to record highs in gold, silver, platinum, and copper, and forecasts that lithium appears to be turning higher, too.
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Source: https://finbold.com/economics-professor-warns-we-definitely-have-a-bubble-in-the-stock-market/
