One of the main lessons from the last financial recession of 2008 is that the U.S. economy did not see double-digit inflation rates when quantitative easing was launched, said Steve Hanke, professor of applied economics of Johns Hopkins University. "All the gold bugs in the world said that the Fed was exploding its balance sheet, the narrow measure of money was going up very fast, we're going to have hyperinflation. No, we didn't have hyperinflation because the Fed is a very small part of the broad money picture, and broad money never grew very fast, it never grew more than about 5% per annum," Hanke told Kitco News.
Steve hanke professor of applied economics joins us today to talk about what inflation and hyperinflation really means and his outlook gold. But first professional let's look at the markets. Investors were panicking earlier this week. As things sold off, following news that France and Germany, or going back into lockdown, we're seeing a resurgence COVID cases in the United States and around the world.
So we're speaking ahead of the elections. What policies should the government take? It doesn't matter if Biden were Trump wins. Should we go back into another lockdown? Oh, what, what, why D why D why destroy the economy? Middle of trying to contain cases that the real thing is to contain deaths. You don't want people to die, so, so the focus should be on.
Con containment of, and, and, and reduction of deaths. Uh, not cases per se, looking in the rear view mirror a little bit. Uh, we've had. Dr. Tech now in Sweden has been the big epidemiologist that is following exactly the right course. Now he's hemmed in by this Swedish constitution. Uh, it was developed in the 17th century and it protects Swedes Liberty to move.
Freedom of movement is guaranteed in the Swedish constitution. And as a result of that, It's illegal to walk down and suite. So they've developed their whole approach in Sweden with that constitutional constraint now lock downs, and, and they've attempted to keep the economy going, keep the health safe and, and it looks like it's working like a charm.
They've smashed the curve completely. And the economy is not been damaged as much as. Economies in Europe have been damaged. So that is the, what should have been done now, everybody else, it seems to be completely confused. If you look at someplace, for example, like the United Kingdom. The Tory party and Boris Johnson every day, they changed their mind.
They just keep changing one thing, then another thing then another thing, and you get a little bit of that going on, obviously on the continent too, with. Germany and France and Spain is at a real bottom of things. They can't seem to make up their mind what they're doing. They have no plan. They don't have the five PS five P's prior preparation prevents poor performance.
The Swedes have been the only one following the five PS, uh, critics of Sweden's plan with point to the fact that earlier in the summer, They had a higher number of cases per capita than its neighbors. And critics would attribute this to the lack of lockdowns and the lack of other precautionary measures that they've taken.
Would you agree with disagree? Well, the data say what they say, but you have to explain what's going on. Then the demographic cause in Sweden are much different than those neighbors. They want to compare it with like Finland and Norway and Denmark. For example, the population in Sweden is much older and they have a higher proportion of immigrants that have come in.
And those are the two population groups that were hit. Initially in Sweden. Uh, now the elderly and old people's homes and Sweden that that's being managed. Let's move on to, uh, the global economy. Now you have an inflation dashboard, which tracks inflation rates of several countries around the world. And, uh, you know, we talk about the theoretical concept of hyper inflation as a result of monetary stimulus.
But you're saying that monetary mismanagement is actually causing hyperinflation today. In some places around the world. So what are the countries that are experiencing hyperinflation right now? Okay. First of all, the dashboard that I put up, uh, put out national review covers this thing once a month and the dashboard, I major the inflation.
So it's not just me reporting. Some hokey number that's put out by some of us official government agency, for example, the inflation. Right. And right now in Turkey, the government, yeah. Flashing is relatively low compared to my actual major, not my actual major is like four times higher than the official number, which is only a little over 11% Turkey.
So these are, my measurements are very accurate. So what you have, you said he's hyper and plating right now. Venezuela and Lebanon are the only countries in the world that are hyper inflating. This is, this is misreported in the press. Constantly. All you have to do is Google hyperinflation, and you find all kinds of stories.
This country, that country, this, that so forth. They're hyper inflating. No, there've only been 62. Hyperinflations. In the world that are recorded in the official hanky cruise world, hyperinflation table, only 62. And now we have two ongoing Venezuela and Lebanon. Okay. So why do you think there's such a, uh, inaccurate portrayal of hyperinflation in the press?
What are they getting wrong? How would you define hyperinflation that maybe some people are misunderstanding? Well, the, the way it's defined professionally is that the inflation rate has to exceed 50% per month. And, and, and it has to occur in the excess of 50% per month, 30 days in a row, the people in the markets, for example, they have no idea what the definition of, what does scholarly work is who's majored at or any of these things.
So, so the press in a, in a way you can't blame the breasts, they, they talked to an expert, a, an expert a says, Oh, Zimbabwe's hyper inflating. Well, it isn't hyperinflated, it has a hyper-inflated two times, by the way, in 2008 and 2008 November, they recorded the second highest hyper inflation in the world.
History in Zimbabwe a few years later, they hyper-inflated one more time. They have, they're not hyper inflating right now, but the annual inflation rate is 394%, but it's not. Hyperinflated. So it's, it's, it's a lot of, a lot of confusion and misreporting and, and playing fast and loose with a term that gets people's attention.
Hyperinflation. That's that's a lot different than saying inflation. If you set an inflation on Kitco, everyone's gonna roll their eyes and maybe not pay too much attention. You come on with a headline hyperinflation. Everybody's glued that can't code. Let's go on David, tell us about it. You know? That that's, it's a spectacular thing.
You're right. I might actually use that word in the headline, who knows, but you're absolutely right. Professor. There's a lot of misrepresentation in the press and with monks experts. So let's look at your dashboard now, Venezuela and Lebanon what's causing hyperinflation in these places. Hyperinflations always caused by the same thing.
David, did you run a huge fiscal deficit? And there's no way to fund that except to go to the central bank, put a gun at the head of the governor of the bank and tell him to turn on the printing presses, to finance that deficit that's being generated in the fiscal side of the government. And, and, and once the printing press goes on, the money supply goes up and once the money supply starts shooting up.
People expect that the currency will be worthless. The purchasing power that currency will go down domestically and internet claps because of current currency will collapse against the dollar or gold or some other stable, a unit of account. And that's. Gets you into hyperinflation because once you get the money that's being printed by the printing press, you want to get rid of that stuff.
It's a hot potato. You know, the purchasing power is going to dissolve in your hands. You get rid of it. You, you buy gold Golder. Real estate or get dollars. You get something that's going to hold its purchasing power. So that's hyper the hyper inflation story. Big fiscal deficit deficit gets filled by the central bank, running the printing press.
They print too much money. The money supply goes up and as we all all know every place and at all times all inflation is caused by money supply acceleration. Right. So here's my question, professor. Can we have. Is it possible to have hyperinflation per this definition in the U S I've heard arguments from economists saying that due to the excessive amounts and monetary stimulus and president levels of stimulus, that this could be a possibility is that fact, this was compared to the Weimar Republic of the 1920s, where they also have similar, uh, concepts of quantitative easing goes into call QE back then.
It was basically, it was the same thing. So can we see it here in the U S. Well, not, not, it's a number one, historic we've never had hyper inflation in the United States, even, even at the time of the revolution. Uh, I mean the American revolution, we didn't, we didn't have, we came pretty close by the way, with the Continentals, the currency was the Continentals we came close.
We, we didn't have it now. The the money supply properly measured again, properly measured by division four, put out by the center for financial stability in New York, professor William Burnett, bill Burnett, but set up growing 29.5% year over year. That's the highest rate we've ever had in recent history in the United States, but that would never.
Even if it keeps up, if it keeps up, we're going to have a lot more inflation, but hyperinflation 50% per month, this is, this is only the money supplies going up by 29 and a half percent. The Visy M four year over year. That's not even close to the amount of money. Explosion, you would need to have hyperinflation.
So, so that's why the people talking about this, they just literally don't know what they're talking about. It's just ridiculous. So you're, so you're saying hypothetically, let's just assume we were to aim for that level. We would need even more amounts of money supply and while money velocity isn't even there right now.
Is that, is that what you're saying? You need a huge amount instead of, instead of having 29 and a half percent year over year, you would have to have a lease that month over month. Okay. You see what I mean? It's orders of magnitude different. Forget hyperinflation. Let's just talk about normal inflation.
Now, do you think we'll have normal inflation? Yeah. Do you think we'll have normal inflation in the economy as a result of monetary policy? Okay. Okay. Yeah, no, no, no. David, you're getting in the zone. You're talking real world. Let's let's let's do a little exercise, a little hypothetical exercise, but we not, we now have, let's say.
The money supplied to busy and for growing at about 30% year over year now let's, let's assume that keeps up, like keep going, going, going. It just keeps growing at that rate around 30% per year, potentially. How fast could the real part of the economy grow in a stretch? It could grow maybe 4% real rate.
So you subtract the 4% from the 30%. And what do you get? You, you get a pretty high inflation number of more or less 26%. This is this back of the envelope. Hypothetical's. This, this is, this was the kind of calculation you would lay my, my conjecture. We don't know. So if the fed is going to continue at this 30% year over year rate for much longer, my conjecture is no, they won't.
Um, because they, they, they can do the back of the animal thing, just like I gave you. So they'll slow it down and we'll hit, won't be that high, but, but since March, since the end of February that the fed has Jack things up so much, that there is, has been a big bulge in the money supply in the United States.
And that will eventually feed through into higher inflation rates. So. The idea we're going to have no inflation. I don't think is correct. We will have more inflation. And in fact, when that inflation rate reaches, let's say three and a half, 4%. I think the fed will get pretty nervous. They, they, they, they, they are not predicting this, but I think they put enough juice in the system.
Some already then a lot of say, slow things down considerably from where that they're running now, roughly a 30% rate for broad money, by the way, broad money to busy him for this is this isn't, this isn't fed money. This is. Not what I call state money. That's what produced by the fed. This includes state money produced by the fed and bank money produced by commercial banks.
That's how you measure broad money. And that's what determines the normal level of GDP economy and the non nominal level of GDP includes both. The real component of GDP growth and the inflation component. So why didn't we have inflation the double digits, uh, in the last decade when we had QE one, two and three and four, David, that, that, that is a critical key question, especially for your reviewers, because all the gold bugs in the world said the fed was exploding, its balance sheet.
Uh, narrow major of money. It was going out very fast. We were going to have hyperinflation. Now we didn't have hyperinflation because the fed is a very small part of the broad money picture and broad money never grew very fast. It never grew more than about 5% per annum after 2008. And the reason it didn't is because bank regulations.
And Basel three capital requirements came in and crushed the commercial banks. And, and actually the commercial banks account for about 90% or they did in 2008 of the major abroad money. About 90% of the money supply was getting crushed by all these bank regulations. And as a result, if you add the fed money and the bank money together, The overall thing was only growing at about 5%.
And that's why we never had any inflation. And that's, by the way, that's why nominal GDP took so long to start growing because the money supply was growing. Okay. Let's talk about gold now, since you brought it up, what's your sentiment on gold following everything you said about inflation is. Measured by you, do you do, uh, what we call text mining.
You look in the, in the press and see. What the frequency of gold stories are? Well, the frequency as the, as the price surge, of course, the sentiment went way up because the gold stories were very frequent. I mean, every time Kitco was on, I was talking about gold. Well, that's fallen off. The gold stories are falling off and are now kind of stable, like the goal, but.
There, there, there are other aspects to the sentiment. Now what you want to look for is, is the word stimulus. So you mind for the word stimulus, and as soon as you see that coming with positive stories that we're going to have more stimulus gold is going to take off right now. It's kind of neutral. I think after the election, there'll be a lot of stories about.
The prospect of an increase stimulus program. And when that hits, you will see sentiment going out more, more stories about positive, about gold, and the gold will take off. Then it it'll come out of its holding pattern right now. So right now the sentiment majors that I have are essentially kind of in a holding pattern.
Gold prices are kind of in a holding pattern, but given the past behavior of gold, we anticipate that the stories about stimulus will come in more heavily after the election, when it looks like there'll be a stimulus package together. And that will probably be a positive for gold professor. Steve hanky.
Thank you so much for coming on kickoff today. I appreciate your thoughts. Always a pleasure speaking with you. Great. Great. That should be with you. Thank you. And thank you for watching Kichler news. I'm David Lynn. Stay tuned for much more coverage.