Submitted by Taps Coogan on the 3rd of January 2020 to The Sounding Line.

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CNBC’s Rick Santelli recently spoke with Johns Hopkins University Professor Steve Hanke about what is really driving the economy, markets, inflation and interest rates. Mr. Hanke insists that changes in the money supply are the ultimate determinate of those factors, not fiscal or trade policy.

 

Some excerpts from Steve Hanke:

“Fiscal austerity is always a good idea. The recent talk about all the problems associated with fiscal austerity are really nonsense… The key thing is money. Money dominates. The growth and changes in the growth in the money supply will effect, first, asset prices, then the real economy, then inflation, then interest rates. Interest rates are at the back of the bus. Interest rates follow growth in the money supply, not the other way around.”

“…(Bill Clinton) actually ran a couple of years of fiscal surpluses. The economy boomed. Why did it boom? Because the money supply boomed and if you look at the situation right now, it’s very interesting. The money supply, broadly measured by Divisia M4, which is a measure calculated by the Center for Financial Stability in New York, it’s growing at 7.4% per annum right now. Last year at this time, it was only growing at 3.4%… Where is all this money going? It can go three places. It can go to households, it can go to businesses, or it can go to financial institutions. Right now the surge is going to financial institutions, meaning that asset prices are going to be buoyed by this growth in the money supply…”

There is more to the interview, so enjoy it above.

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