Transcription
Hello everyone, welcome to the Vancouver Resource Investment Conference. How you all doing today?
Hello everyone, welcome to VRC Media, your most trusted voice in metals and mining. I'm your host, Daryl Thomas, and today we have the pleasure of interviewing professor of applied economics at Johns Hopkins University, Steve Hanky. How you doing today, professor?
Doing well. Darl, how about you?
I am doing pretty good. Pretty good. And so, let's go ahead and start off with with gold. And um you know, gold has seen a sell off uh since we since we've talked. It's struggled to kind of perform well. And so, just want to get your perspective and how you're viewing gold at this time.
Nothing nothing has really changed in in terms of the long run view of the secular bull market. We're still in it as far as I'm concerned and I think we will go up to you know run around 6,000 peak out around 6,000 something like that. uh and I I agree it has pulled back but it's pulled back in the face of very strong dollar and higher interest rates. I I think that those have been the two big headwinds and there's also been uh some pivoting out of temporarily temporarily out of commodities into into tech. That's the big picture. But you still have the all almost all the central banks indicate they're going to be buying. China's buying big time and uh I I think the basis for uh higher prices is is all pretty much baked in the cake.
So, it it's from that point of view, it's a good buying time.
Do you see central banks buying? Do you think that's putting a floor under the the gold price measured in dollars?
Yes. Yeah. Yeah. I've been kind of thinking that too. Uh because like it seems like the buying has been increasing obviously with the disruptions with the straighter moves and such. We've seen some selling some you know some analysts were saying oh gold just being sold to you know they needed energy or things of that nature. But it seems like a lot of that has kind of died down and and u and the buying is is back on uh from what I've been seeing.
Well, it it yeah, it seems to be consolidating now. It's up, you know, almost 4200 uh today and as we speak and
On the se on the 7th of July, 2026.
Yeah, we we got to we got to put that date in there. The 7th of July. So, uh, on the 7th of July, I got to ask you what's what's happening with money supply? I'm seeing a couple of charts that are showing that money M2 money supply is increasing in the US as well as globally. Uh, curious if you're seeing the same thing. Uh, what's your what's your thoughts?
Yeah, the money supply is is accelerating. uh if you use the the Fed's M2 number wi-i which is uh just a simple sum of the components that make up M2, you just sum add them up and and and you get a number that's M2 and that and that's been accelerating for roughly about 18 months something like that. Now one of the aspects and and a big driver in M2 are loans made by commercial banks and and those have accelerated considerably. So that component is really driving the increased rate of growth in M2. If if you look at it more broadly and I think a a better measure is what they call divisia measures where you you take the components instead of adding them up in a simple sum you put weights on the components that make up the money supply measure that you're looking at whether it's M2 or M3 or M4 is even better. uh and that we can get those numbers from the center for financial stability in New York uh where where I happen to be a advisor and they use what they call divisia and and they measure the money supply obviously M2 M3 and M M4 M3 and M4 aren't measured by the US uh government anymore by the Fed and M4 four really is the best one because that that includes all the way out to tea bills are included in that. Now, the T- billill weight isn't as great obviously as currency because tea bills aren't currency. You can't go into a grocery store with a tea bill and buy groceries. you you've you've got to exchange the tea bills for for cash uh or or money that you end up putting in your checking account that are that that have a bigger weight have more moneyiness. So the idea with divisi is you you put weights on the components and the weights are geared towards the degree of moneyiness that is included in the component that you're including in the major money supply that you have. So Devisia M4 includes a lot of components. each each of them is is weighted uh with T bills being the the last one in the line on M4 and having obviously a low much lower weight than cash or currency or checking deposits, liquid deposits or or savings deposits. So as you go down the line, currency would have, you know, full weight, then checking deposits, a little less weight, and then savings deposits, short-term savings deposits, a little little less weight, and long-term deposits, even less weight. But but they're all moneyiness because you can exchange all of those components actually into cash and use it for transactions. So anyway, that's a a little bit of a long- winded uh answer to your question, but if you really want to get at the money supply properly, the best way to look at it is with divisia measures that you have these weights and look at it as broadly as you can with every asset that has moneyiness in it included and that that would be the M4 measure. And and you can find this just go to the your website, Center for Financial Stability in New York. They publish this every every uh month. They they have a a very detailed monthly report on this.
Now, what's going on there? What's going on there is that the money supply measured by Devisy M4 is growing more rapidly than Hanky's golden growth rate of 6%. a rate consistent with hitting a 2% inflation target. So, as I recall, the last uh month's measure was about 6.7% year-over-year for Devisia M4. And and what's that mean? That means the inflation genie is out of the bottle, Darl, and it's not going to be put back in the bottle. All these measures are accelerating. The growth rate is accelerating. and and that's that is the fuel for inflation. It's also the fuel for asset prices going up
And and the real economy to stay on track because ultimately what you have with the quantity theory of money if you if you look at the money supply focus on the money supply and relate changes in the money supply to the endgame and the endgame is what? nominal GDP and nominal GDP has two components, real growth and inflation.
So right now we we have real growth not too bad looking looking okay and we have inflation of course we have quite a bit of inflation. The CPI is at 4.2% year-over-year in the United States. That that's over double inflation target of 2%.
Yeah. So, I was doing some uh reading and I guess uh there was some talk about uh the Fed increasing their inflation target to to 3%. Um you know, there's been some push back on that and um I know that Kevin Wars has come in as kind of seemingly a hawk and I've heard from some people that he's actually an Austrian uh believes in Austrian economics and such. How are you making uh you know how are you processing the the Fed and and their involvement with creating the base money you know I mean their their balance sheet has been growing and such and so how are you what kind of sense are you making of that?
Well uh right now Wash has just come in he's only publicly had one press conference and and the interpretation of that uh talk that he gave the press conference was that that he was hawkish and and uh in in tone and and so that's kind of where the market is right now. We'll have to see because uh he's not the only one that's voting in the open market committee. So I I don't think things probably are going to change radically that fast. There there might be changes. There will be changes. He's a new chairman and and I hope he orients himself towards the quantity theory of money. He he said he's indicated that he he wants to change things and he wants to change the the model that they use and I I I think that's a great thing. He he has a task force looking into uh for example squeezing down the the balance sheet and that that's great. But the that's a great idea to open the door, take a new look at things. Obviously, things haven't worked very well because the Fed uh under Jerome Paul was a disaster. I mean, we've just been on a roller coaster ride with a huge increase in the money supply after CO. Then then we had a big increase in inflation as a result of that and and then they slammed the brakes on and things started coming down and and now it's it's things are going up again. They took their foot off the brake. Remember, we had quantitative tightening until December of last year. Now we have quantitative easing.
So so they they don't they they're looking at the data that come out every day and and the the model that they have excludes the quantity theory of money. They they don't even measure the money supply and have that measurement included in the post Keynesian macroeconomic models that they have. So, I hope Wash sees the light and says, you know, if we're going to if we're going to hit the inflation target, whatever it is, we we better be keeping our eye on the quantity theory of money and the money supply. But but he hasn't really said that explicitly yet. Now Jerome Powell by the on the other hand did explicitly say over and over again that the Fed did not look at the money supply because as Paul put it he he claimed there's no reliable relationship between the money supply and economic activity which is of course nonsense
But that that that's that's been the position and and Walsh says he wants to change that, but we don't exactly know what he has in mind. So, we just have to wait.
Okay. Uh curious your thoughts on the uh recent Supreme Court ruling about uh the the president can't fire Fed share. Um, and I bring this up because, you know, Wars is coming in as this hawk and and many people in our sector believe that, oh well, the Fed's going to cave into the political pressure and they're going to print more money and such. And so now it seems like that Supreme Court decision may have done did a blow to some of the political pressure that the Fed may have from either party. And so curious in your thoughts on on that.
Well, the Supreme Court decision bas basically puts us back to status quo Annie. It it'll it'll be like it was from 1913 until Trump entered the White House and threatened to change things.
Yeah. So, so you you basically have the establishment of the Fed and the political relationships between Capitol Hill and the White House and the Fed have always been more more or less the same. I mean, the the idea that there are no politics and that the Fed is independent and kind of isolated in a bubble, it's it's ridiculous. But what Trump did, he he said he wants to change around what what what it used to be is was it used to be eyes eyes in fingers out. Eyes in, fingers out. That that was the old uh modus operande. And Trump said, "No, I I I want fingers in.
I want eyes in and fingers in." He he basically wanted to be the chairman of the Fed de facto and and the Supreme Court says no.
Yeah. You know, with the back and forth with him and Jerome Pal, you know, that was uh pretty pretty interesting. And, you know, it it put the markets on, you know, kind of on his heels like, oh, this is like we haven't seen this in in a long time. this public display of a Fed chair and and a president going back and forth and then, you know, obviously the attempting to fire the the Fed governor. Um, so Trump, you know, nominated Worsh and Worshes in there and such and many people were like, "Hey, Trump wants to lower interest rates. We're paying too much interest on the debt. uh you know we have these other initiatives where this interest expense could be going to something else more productive and and he's adv he's told told told the press multiple times that interest rates are too high he wants interest rates to come down um but the way worse is talking it seems the opposite of what what either Trump wants or and I don't know just kind of what that even entails like as far as that dynamic?
Again that we we don't know what the the model is that Walsh has in his mind. I I'm not certain he has a clear uh set of ideas about this, but I do. And if you look at the book that Matt Suki and I wrote last year, making money work, you you'll you'll see it. The whole game plan kind of laid out with the quantity theory of money being at the heart and soul of things. And that that simply means that significant changes in the money supply affect asset prices. They affect real economic activity and they affect inflation. So you keep your eye on on the money supply. And if you want to lower interest rates, the best way to do it is to today is to keep the money supply growing at at around five or 6%. MA measured by even the Feds measure M2. Just let's just use M2. We could use Devisia M4. By the way, those growth rates are more or less the same as long as interest rates are pretty steady and and relatively low. The Devisia measures and the simple sum measures are pretty close to each other. When you get real high interest rates, you get huge divergence between divisia and simple sum measures because the opportunity cost of of getting out of something like a treasury bill or a money market fund and transferring it into cash, exchanging it for cash that has more moneyiness is is very high. So as if you look at for example when uh Paul Vulkar was chairman of the Fed in in Reagan's first term in 1980 to 1984 of course what was going on we we had very high interest rates we had Vulkar who was looking at the money supply and the quantity theory of money and he was also looking at the simple sum measures for the money supply and he thought they were coming down just about Right? But the trick is the divisia numbers were way lower than the simple sum numbers. The growth rate actually the money supply was contracting massively. And the reason for that was you had those high interest rates. No, no one wanted to get in into money into cash in that would be used in transactions. They wanted to keep their money in money markets or savings deposits or tea bills that were yielding very high rates of return.
So speaking of vulkar, by the way, this this would be one thing and in the way the relationship has been with the White House and and Congress and and the Fed. Um, again, eyes in, fingers out. That that that was really the case with Reagan because Reagan gave Vulkar the authority. He said, "Just kill inflation and I'm I'm not going to I'm not going to bother you. You you take care. You know how to do it. You kill it." And and that's what Vulkar did. But Reagan had very little interaction uh in terms of fingers in when Vulkar was the chairman.
Mhm.
He he was almost lacy fair when it comes to the Fed of virtually all the presidents. Clint Clinton was pretty much that way too.
I thought I've been researching Calvin Culage. I thought he was pretty uh lazy fair.
He Calvin Kulage was pretty lazy fair.
Yeah. Yeah. He he was he was like, "Hey, government out."
Yeah. Keep keep the fingers out.
Yep. Yep. For sure. All right. So, uh interest rates. Um, so, obviously the bond yields have been, you know, elevating, you know, retreating a little bit and such. um you know, there's we we you know, discuss like whether the, you know, Worsh or whatnot wants to, you know, reduce rates or keep rates low and how to reduce the balance sheet at the same time and such. I've been seeing two schools of thoughts. So one one school of thought is interest rates are going a lot higher. Another school of thought is uh interest rates are going a lot lower and so obviously lower interest rates typically benefit you know commodities like gold and and such so on so forth assets and such. Uh but then we have this inflation genie, you know, that's out of the bottle and and it's and it's coming and rearing it its head again. And so um where where do you think interest rates are are going? Cuz obviously the Fed has so much control over it and then you have the market set that sets uh rates as well. Where where do you see interest rates going?
Well, uh it it depends on where you are in the yield curve. uh the real short rates are the Fed has control over those with the Fed funds rates. But but if you go out to the 10-year, for example, they they don't the the 10ear follows inflation and inflation expectations and the market sets that not the Fed. And and if we look at it today, July 7th, the the 10ear now is is is up to is 5.1%. It's it's gone up again. And it's it's over 5%. And and I think it's going to go higher.
Mhm.
The the the the interest rates on every everything but the the the real short end the the bill rates will be drifting up because interest rates follow inflation. A and inflation follows significant changes in the money supply. So it's a it's a pretty simple thing. If interest rates follow inflation and inflation is generated by changes in the money supply, we we started out by saying the money supply is accelerating and the genie inflation genies out of the bottle. And if that's true, if that if that holds, the interest rates are going to be elevated. They're going up.
So would you loan would you loan the government money at 5.1% or would what interest rate would it would it have what would the interest rates have to be for Professor Steve Hanky to to the government money?
Well, again it depends on what you're buying. If you're if you're buying bills and and you're getting 5% that's pretty good.
Yep. Yep. What What about the long end of the curb? like
No, I'd stay away from it.
Stay away from it. Okay.
Yeah. This interest if if interest rates are going up on the longer end of the curve, let's let's just say arbitrarily the fi five years out. If interest rates are going up because inflation, you anticipate inflation is going up, the price of the bonds are going down. So why why why would you in invest in in those bonds? and incur a capital loss. Of course, you can hold them until maturity,
That's a different thing. But if if you bought if you bought them and and and you wanted to get out at any time before maturity and interest rates had increased uh o o over that period of time, whatever it is, your holding period, you'd lose money. You'd have a capital loss.
Yeah. Yeah. For sure. Okay. So, you're not looking to loan the government money? Uh,
Yeah.
No, I think I I'm I'm bearish on bonds.
Okay.
I I'd stay completely stay away from bonds.
Okay. So, the issue of the interest expense like is is this an I mean, obviously it's a big part of, you know, the deficit and such. Um the government's paying you know over a trillion in interest a year and obviously the long end of the curve is increasing which could increase those costs and then there are some also some other dynamics with rolling over debt and and things of that nature. Does this interest expense of of the government like what does this lead to? Does does this become a major political issue at some point? Um what are your thoughts on this?
Well, it it is a political issue because now about 22% of of the taxes we pay go just to pay interest. So So the taxpayers, the current taxpayer today is is getting only let's say 80% of what they're paying in in taxes is going either for government services or government transfer payments. But you know about roughly 20% slightly over 20%'s just going basically down the rat hole because you're you're servicing past debt. And the and the key thing with the deficits and past debt is that debt was incurred a long time ago or sometime in some time in the past. You and and many people paying taxes weren't even voting. Some weren't even born when the deficits were incurred. So, so it's a completely I would say im immoral thing to be running these deficits because you have many people servicing that debt who who didn't participate in any way directly or indirectly in in the decision to incur the debt in the first place.
Yeah. So, so, so, so it's, so that the whole thing is bad from, let's say, from a intergenerational equity point of view, it's bad. From a moral point of view, it's bad. A and from do you get do you get anything from the that's worth anything from the taxes you're paying in? And right right away, I'm telling you, 20%'s taken off the top just to service past debt that's been incurred. So, so it it it's it's becoming an issue because it's big and and by the way it's it's now uh that that expense for servicing debt interest is greater than the uh huge amount that we spend on defense.
And and and historically there there's something called Ferguson's law. Ferguson's law says that anytime interest expense exceeds defense expenditures, the the empire goes south. It's bad news. It puts the government power in and throws it into question. Let's put it that way. Yeah.
Okay. So, what do you think investors should be? I mean, we're July now, right? We just had the 250th anniversary of the United States and such. um which was actually like I I sometime I could be very critical of of Donald Trump and I thought his speech was was one of the better ones I I've heard and I appreciated him acknowledging the the veterans and folks that served in World War II and and and so on so forth. Um, you know, some folks were looking for like a gold revaluation, you know, thing and that didn't happen. So that that was kind of a cold water poured on some of those dreams and such. uh what what should investors be be thinking about, you know, for, you know, the rest of this this year? Do do you think anything significant is on on the docket that we should be looking for?
I think we have started the uh a commodity price super cycle. So you you want to be piv pivoting into commodities more weight on commodities relative to other asset classes. One asset class that I would stay away from obviously is bonds. We've talked about that. So, so that that would be a pivot point. I'd be pivoting out out of bonds and and uh into commodities.
Yeah. Okay. That's good to know. Okay. So, you've been uh working on some new stuff. Uh you you're always writing and and always uh you know, producing some some new content, writing books and such. Um, are you at liberty to share like what you've been working on?
Yeah, the the one thing I'm working on, in fact, when we finish, I'll go down to the office at John's Hopkins and and u put put pen the paper on some edits on a book manuscript that Dr. Kurt Scheler and I are doing called Currency Boards for the 21st Century. It'll be out later this year. And and that that book by the way is one currency boards. What are currency boards? That's what we're looking at the history. It's a long treatise. We've been working on this thing for about 30 years. And we've looked at we looked at every currency board that's ever existed uh since the first one in 1848 and in Maitius. And none of those have failed. And what are they? They are monetary institutions that issue local money and that local money trades at a fixed exchange rate freely full convertability with an anchor currency and uh it trades at that anchor currency at a fixed rate. And it's credible because the anchor currency reserves that must be held are equal to 100% of the local currency that's being issued by the currency board. So the the local currency is just a clone of the anchor. If you don't like the local currency, you can exchange it at a fixed exchange rate for whatever the anchor happens to be. It could it could be gold. By the way, I've recommended gold for uh Turkey, Iran, and and and Russia, but typically uh they a lot of them have been British pound sterling or US dollar. Now, the biggest one by far is Hong Kong. Hong Kong's currency board uh has been in place since 1983. And the record, as I say, is perfect. So, we're going through the history of this and and and in the end advocating that most developing countries or emerging market countries as they call them today should replace their central banks that have discretionary monetary policy and put in a currency board because currency boards never fail. They always generate stability, low inflation, low low deficits because the currency board can't create credit. It can't it can't loan money to the fiscal authorities. It can't loan money to the government. So So you end up with low lower inflation, uh lower deficits, higher economic growth, and uh it's it's just it's just a win-win. Now, I've been advising the Trump administration on a a dollar strategy. How how do you expand the use of the dollar worldwide? And one way to do it is to have dollar-based currency boards replace local central banks and places, for example, like a key place would be Venezuela. Venezuela has the highest inflation rate in the world. It's a now little little over it's about 450% per year. And it's I've written a book about Venezuela. I was the advisor to the Venezuelan president Raphael Caldera in 1995 and 1996 and and recommended that they put in a currency board. Then they wouldn't have the world's highest inflation if they would have done that. they would have an inflation rate that's approximately what it is in the United States. So, so that's the long and short of the book that I'm working on right now with Schuler and it it should be done by the end of the year.
Quick quick question up. So when you're advising these other foreign presidents or just presidents in the US on on economic policy, what are kind of the biggest barriers to them implementing some of your uh recommendations or and and obviously I'm sure you got some examples where they followed your recommendations and seen some improvements and such. And so um what does that look like?
Well, if you want to get rid of c a central bank and that has discretionary monetary policy and and replace it with a currency board that has no monetary policy, currency boards have an exchange rate policy. It's fixed, but they have no monetary policy. You you the push the push back what what's one group right away? Central bankers. Another in institutional push back, a lot of push back comes from the International Monetary Fund. They want central bankers in place and and and in fact they they want jobs for the boys. Now, how do you get jobs for the boys? You've got to have a central bank with discretionary monetary policy that's that needs advice from the IMF or or the one that goes into a crisis periodically. You don't have banking crisis or balance of payments crisis with currency boards, but the business of the IMF is is to come in firefighters when there's a crisis. They they come in.
Yeah. Yeah.
Now, now if there's no crisis, well, there's there no jobs for the boys.
Yeah. So, this a job security job security they're looking out for.
Yeah. Right. So, so that's the kind of push back. What you need is a is a, you know, a a leader who sees the problem and wants to fix it and and has the courage to do it. Now, we talked about Hong Kong. Why did Hong Kong put in a currency board in 1983 when they were in crisis? Because Maggie Thatcher, remember Hong Kong was still a colony then. And who called the shots? Maggie Thatcher. She was prime minister of Great Britain
And and and she said, "We're going with the currency board after being advised to do so."
Yeah. Yeah. Okay. Well, well, thanks thanks for sharing that with us, Professor. I encourage everyone to go check out uh obviously Professor Hanky is contributing to uh the Fortune uh articles and magazine and has some books out. Encourage you all to go check it out. obviously the interviews that he is um you know, a guest on. Check those out as well. Professor, appreciate you for your time. Know you got some work to get to and everything. Thank you for for joining us today.
Well, you're welcome. Uh they're all they they also can follow me on X, Steve_Hanky. I've got 852,000 followers and I'm pretty active on X.
Yep. Yep. For sure. Yeah. I love the uh the graphics you're putting out uh to to uh share some of your your views. So, I love it.
Good. Good.
All right. Well,
Have have a good day in Bokeh.
Yes. Yes. We'll we'll do. And uh you all be sure to hit the subscribe button if you haven't yet. I'd love to have your support. Thank you all for watching.