Hanke, a professor of applied economics at Johns Hopkins University, made the comment in an interview on CNBC’s “Street Signs Asia” on Aug. 29.
Hanke said that the chairman of the Federal Reserve, Jerome Powell, “doesn’t understand even at this point what the causes of inflation are and were,” and has failed to inform the American people that inflation is historically caused by excess growth in money supply, or “turning the printing presses on,” as Hanke referred to it.
“There has never been a sustained inflation in world history” that has not been the result of excess growth in the money supply, Hanke said, while noting that the money supply in the United States saw “unprecedented growth” when the COVID-19 pandemic began in February 2021.
“And that is why we are having inflation now,” Hanke said, and why inflation will continue through next year and into 2024.
Elsewhere, Hanke pointed to the fact that the United States has experienced “five months of zero M2 growth, money supply growth,” that the Fed “isn’t even looking at it,” which he said will ultimately lead to a recession.
M2 is a measure of the money supply and includes cash, checking deposits, and savings deposits. It is widely used an indicator of potential increases or decreases in inflation levels.
“We’re going to have one whopper of a recession in 2023,” he said.
Price Stability or Stagflation?
Last year, Hanke and John Greenwood, chief economist at Invesco in London, wrote an article for The Wall Street Journal in which they noted a possible recession was on the horizon due to the growing money supply.
“The problem is that monetary growth in the United States has been anything but stable,” the two wrote. “It usually takes about two years for any excess money to show up as inflation … Persistent, not transitory, inflation will be with us for the next two to three years.”
“The bottom line is we’re going to have stagflation. We’re going to have inflation because of this excess that’s now coming into the system,” Hanke told CNBC on Aug. 29.
Hanke said that Powell, rather than highlighting excess growth in money supply, has instead pointed to supply-chain issues and strong demand as reasons for high inflation across the country.
In a speech at the annual Jackson Hole, Wyoming, economic symposium on Aug. 26, Powell said that the central bank will continue with its current policy aimed at tackling inflation, adding that demand for goods needs to be curbed by raising increasing borrowing costs.
Powell noted that “restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance.”
Reducing inflation will also likely require a “sustained period of below-trend growth,” and there will be some “softening of labor market conditions,” which will spell “some pain for households and businesses,” Powell said.
“These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain,” he said.