How Money Supply & Dollar Flight Are Fueling a Bull Market w/ Steve Hanke

Quick Overview

Professor Steve Hanke argues that the current US gold bull run will likely peak around $6,000 per ounce because the Federal Reserve's monetary policy, focused on interest rates rather than money supply (M2), is failing to control inflation, which he calculates to be around 700% annually in Argentina, compared to the US's implied 2% target. Hanke advocates for immediate dollarization and ending quantitative tightening to stabilize economies and halt capital flight from countries like Argentina and Zimbabwe, suggesting that fiat currencies have proven historically inferior to dollarized or gold-backed systems in preventing hyperinflation.

Key Points: Professor Hanke predicts the current gold bull run will likely peak around $6,000 per ounce. He criticizes the Federal Reserve for focusing on interest rates instead of money supply (M2) to control inflation. Hanke calculates Argentina's true annual inflation rate to be approximately 700% per month, far exceeding the Fed's 2% target. He advocates for dollarization or currency boards, pointing to historical successes in countries like Ecuador, Zimbabwe, and Argentina (post-1991) that adopted the US dollar or a currency board. Hanke states that the US itself has a persistent trade deficit, meaning it consumes more than it produces, which is financed by dollar-denominated debt. He notes that the central bank assets held by Russia and China are shifting towards gold, signaling a lack of trust in fiat currencies. The key to controlling inflation, according to Hanke, is managing the money supply growth rate (M2) relative to real GDP growth, not just interest rates.

Context: This is an interview on the Milk Road Macro podcast between host John Gillen and Professor Steve Hanke, an economist known for his expertise in international economics, currency stability, and hyperinflation measurement. The discussion centers on current monetary policy, particularly the Federal Reserve's actions, the ongoing gold bull market, and the effectiveness of different currency regimes in controlling inflation, drawing heavily on historical examples of hyperinflationary crises.