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2022 Brandt Foundation Lecture - Steve H. Hanke

Boise State BTV2022-11-08
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💫 Short Summary

The Brant Foundation lecture series featured speakers expressing gratitude, discussing monetary theory, inflation measurement, and hyperinflation examples. Dr. Steve Hanke emphasized understanding inflation metrics and historical data. The connection between inflation and changes in the money supply was explained, highlighting the Federal Reserve's role in creating money and potential inflation risks. The speaker criticized the Fed's handling of the money supply and discussed economic impacts of government lockdowns. The discussion also touched on rising inflation, interest rates, stock market implications, and the relationship between oil production and energy prices. The segment concluded with a critique of macroeconomic models and suggestions for monetary policy.

✨ Highlights
📊 Transcript
The Brant Foundation lecture featured speakers expressing gratitude to the John and Aura Brandt Foundation for their support.
07:08
John Orr Brandt's contributions to the Idaho community were highlighted during the event.
Notable individuals like Bob Rathbone and Judge J.R Schiller were in attendance.
Ann Walker, the chairperson of the Economics Department at Boise State University, was introduced as the Brant fellow of free enterprise capitalism.
Attendees were reminded to silence their cell phones and given Dr. Henke's email address for joining his mailing list.
Expert in monetary theory and policy with experience advising governments worldwide on currency reform.
11:40
Authored books and articles on currency boards and dollarization.
Former senior economist for President Reagan's Council of Economic Advisors, now a senior fellow at the Cato Institute and the Independent Institute.
Brandt Foundation lecture series aims to promote a stable monetary system for a free and prosperous society.
Emphasizes the importance of stable monetary systems in the face of global inflation challenges.
Dr. Steve Hanke discusses inflation measurement and types, including hyperinflation.
17:08
He explains the Consumer Price Index and various aggregate indexes like core inflation and producer price index.
Dr. Hanke highlights the severity of hyperinflation, with historical examples and criteria.
He emphasizes the importance of understanding different inflation metrics and their implications on the economy.
High hyperinflation rates in countries such as Hungary, Zimbabwe, Germany, and Yugoslavia are discussed.
20:18
Yugoslavia experienced an extreme inflation rate of 313 million percent per month.
The concept of relative prices within inflation indexes is explained, focusing on the impact of supply and demand changes.
The speaker debunks the idea that inflation is short-lived, emphasizing its transitory nature.
It is important to separate changes in the money supply from other factors influencing inflation.
Inflation rates vary locally in countries like Japan, Switzerland, and China.
26:16
Media often repeats narratives from Washington for access to government sources.
Only 5% of what students read in economics and finance is accurate.
Inflation is mainly a monetary phenomenon caused by changes in the money supply.
Historical data shows sustained significant inflation over 4% for over two years is rare and typically preceded by a large increase in the money supply.
Overview of the Quantity Theory of Money and Equation of Exchange.
28:55
Study of 157 countries shows a correlation coefficient of one between money supply and inflation.
Speaker collaborates with expert John Greenwood to accurately forecast inflation reaching 6-9%.
Emphasis on the importance and accuracy of using these theories for economic predictions and analysis.
Analysis of money supply and inflation dynamics.
33:03
A 40% increase in money supply over three years with a 2% annual growth rate leads to excess money and inflation.
Excess money is predicted to cause a 25-30% rise in the Consumer Price Index.
Forecasts predict 6-8% inflation by the end of 2022, decreasing to 5% by the end of 2023.
The speaker expresses confidence in the accuracy of their predictions based on past success.
The relationship between inflation and changes in the money supply is explained in the video segment.
37:41
The lag between changes in the money supply and inflation rates is emphasized for accurate analysis and forecasting.
The growth rate in the money supply is discussed, showing a significant increase that could lead to inflation.
The concept of the U.S. golden growth rate at 5.5 percent is introduced.
The equation of exchange MV=PY is presented as a tool to calculate the golden growth rate.
Discussion on money supply growth, inflation targets, and Federal Reserve role.
39:51
Federal Reserve actions, like buying treasury bonds and increasing money supply, can lead to inflation.
Government spending and deficit increase are contributing factors to inflation.
Decisions in Washington are bipartisan, and the Federal Reserve is hesitant to be blamed for causing inflation.
Federal Reserve's lack of attention to money supply and economic activity.
44:59
Chairman Paul testified there is no connection between the two.
Fed's over 400 economists failed to forecast inflation accurately.
Political divide as Democrats outnumber Republicans.
Ignoring the quantity theory of money championed by Milton Friedman has left Washington facing economic uncertainty in 2023.
Impact of US Economy Contractions on Education.
49:10
Sustained contractions in 1929, 1937, and 1968 led to stagflation.
Government subsidies in education have driven up college costs, especially administrative expenses.
Universities hire cheap adjunct professors and layers of administrators, contributing to rising tuition fees.
Johns Hopkins is the top research university in the US with a $3.1 billion annual research budget funded by federal funding, covering topics from mating habits of flies to advanced technology development.
Factors contributing to the strength of the U.S. dollar include increased interest rates and geopolitical events like the conflict in Ukraine.
54:10
The war in Ukraine benefits the dollar as currencies strengthen away from battle zones.
The speaker predicts a potential sharp decline in the dollar with a recession, but currently, it remains strong.
The dollar's strength is attributed to its international status and geographical distance from conflict zones.
The speaker emphasizes the importance of considering lags in economic effects and anticipates the dollar's stability in the near future.
Impact of rising inflation and interest rates on the stock market.
58:33
Overvaluation of the dollar and strong demand for lithium due to EV production are highlighted.
The advice is to stay cash-heavy and invest in good companies during economic uncertainties.
Predictions of earnings falling below consensus leading to a decrease in the overall index.
Caution in stock market investments is encouraged due to the fluctuating nature of stock prices based on supply and demand dynamics.
Economic impacts of government lockdown in 2020.
01:02:59
Speaker suggests compensating citizens for damages from lockdown.
Government could have financed deficit by selling Treasury bonds.
Central bank financing is a key factor in causing inflation.
Government deficits do not always lead to inflation, depending on how they are financed.
Endemic inflation in Latin American countries is caused by central banks extending credit to fiscally irresponsible authorities, resulting in overspending and deficits.
01:04:55
Local banks are relied upon for bonds, leading to inflation linked to fiscal decisions and knee-jerk reactions that may cause more harm than good.
A gradual approach to monetary policy is suggested, focusing on maintaining a stable growth rate in the money supply to prevent inflation and liquidity crises in financial markets.
The expansion of institutions like hospitals and universities can lead to increased costs and administrative positions, posing challenges similar to those seen in the education and healthcare sectors.
Impact of economic activity on education, housing, and other sectors.
01:09:04
Misallocation of capital, government intervention, and regulations have reduced economic potential drain from four percent to about two percent.
Need to balance infrastructure and reduce unnecessary positions like deans and vice presidents in institutions.
Challenges faced in the healthcare sector, with personal experiences shared.
Mention of the US being the largest oil and gas producer during the Trump administration, raising questions about future production levels.
Discussion on the relationship between oil and gas production and energy prices, emphasizing the impact of anti-energy policies on the industry.
01:14:51
Mention of the money supply spike as a technical problem caused by the Federal Reserve's mishandling of the quantity theory of money.
Criticism of the Federal Reserve for not selling bonds to the public to finance their actions and prevent an increase in the money supply.
Highlight of the partisan imbalance within the Fed staff, pointing out a higher ratio of Democrats to Republicans.
Flaws in Dynamic Stochastic General Equilibria models in macroeconomics.
01:18:30
Speaker suggests maintaining a steady increase in the money supply of around 5.5% as a solution.
Flexibility in adjusting the money supply is advised to prevent economic downturns.
Quantity Theory of Money is highlighted as a guiding principle in monetary policy.
Emphasis on having principles while being adaptable to changing circumstances.
Conclusion of conversation on YouTube video segment.
01:21:38
Gratitude and final question are expressed before segment concludes.
Mention of event from last week leads to a musical interlude and expressions of amazement.
Segment ends with various musical cues and the word 'foreign' being said.