According to Steve Hanke, a professor of applied economics at Johns Hopkins University, there is an 80 per cent chance that the United States will experience a recession, which is significantly higher than previously anticipated.
According to the September Fed survey conducted by CNBC of economists, fund managers, and strategists, there is a 52 per cent chance that the United States will experience a recession within the next 12 months.
“The probability of recession, I think it’s much higher than 50% — I think it’s about 80%. Maybe even higher than 80%,” Hanke said.
“If they continue the quantitative tightening and move that growth rate and M2 (money supply) into negative territory, it’ll be severe.”
Hanke criticized the Federal Reserve for failing to control inflation by keeping an eye on the large amount of money floating around in the American economy, as he has done in the past.
“They have really been searching for inflation and the causes of inflation in all the wrong places. They’re looking at everything under the sun, but the money supply,” Hanke said.
“And in fact, they’ve doubled and tripled down on the argument that money has no relationship to economic activity or not a reliable relationship to economic activity and inflation.”
He attributed the increase in inflation to the US central bank.
“The reason for that is because the Fed exploded the money supply, starting early 2020 at an unprecedented rate and they don’t want this 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.”
Prices rise as a result of consumers being willing to pay more for goods as the money supply grows.
Hanke continued that Milton Friedman and other proponents of classical economics have identified the money supply as the root cause of unchecked inflation.
To keep the U.S. economy afloat during the pandemic, the Fed flooded it with significant amounts of stimulus and liquidity, but it failed to concentrate on gradually shrinking that money supply, according to the professor.
Over the past three years, the M2 money supply, a comprehensive measure of money supply that includes cash and deposits, has been increasing by double digits.
Hanke cautioned that the M2 money supply growth is currently slowing too quickly and could cause the economy to enter a recession.
“They are not addressing it correctly,” he said. “In the five months, we’ve seen broad money major in the United States flatline. 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, that will drive it down into negative territory if they keep this up.”
According to Hanke, maintaining the money supply growth at a “golden growth rate” of 5 per cent to 6 per cent will help bring inflation down to about 2 per cent.
“Now it’s zero. And it will probably go negative,” the professor said. “And that’s that’s why we will see a recession in 2023.”
(Adapted from WorldNewsEra.com)