Latest news with #SteveHanke
Yahoo
23-05-2025
- Business
- Yahoo
A new book makes the case for putting money supply at the center of the U.S. economy and re-empowering commercial banks
In the path-breaking book 'Making Money Work,' a pair of leading economists present a manifesto for fixing the financial regime that took America on a careening post-COVID ride through rampant inflation, ballooning values of homes and stocks, and spiking income inequality. In a rush to reverse course and tame prices, the pair argues, a clueless Fed clamped down much too hard, and doesn't even know it. To make matters worse, heavy-handed regulation has hamstrung the commercial banking system, slowing the flow of credit just as the central bank's throttling back. The upshot: These dual, wrongheaded policies are already saddling the U.S. with tepid growth, and could easily trigger an unnecessary, self-inflicted recession. Their solution: Putting the long-ignored 'money supply' at the center of U.S. economic policy. To make that happen, the authors say, Washington must recharge the weakened players that create the flow of dollars––the commercial banks––to move this nation back where we should and can be once again: on a path of stable prices and strong, sustained economic growth. The authors are Steve Hanke, founder and professor at the Johns Hopkins Institute of Applied Economics, Global Health and the Study of Business Enterprise, and Matt Sekerke, a fellow there. Hanke's renowned as a hardcore 'monetarist' who won the nickname 'the money doctor' by advising Estonia, Lithuania, Bulgaria, and Bosnia-Herzegovina on establishing currency boards, and Montenegro and Ecuador on dollarization. Those reforms helped successfully smash inflation and establish stability. The book is an extremely intensive, data-rich work of economic analysis, and a must read for anyone interested in how our economic policy has gone rogue since the Global Financial Crisis. For this review, I conducted an in-depth interview with Hanke where he cuts through the details, and highlights the broad sweep of his and Sekerke's template for reform. I also refer specifically to passages in 'Making Money Work,' which I read carefully. But unless otherwise noted, the capsule summary of its themes come from my talk with Hanke. So what is this book all about? 'It's about getting the money supply back into the game. The Fed does not adhere to the quantity theory of money,' says Hanke. The central bank, he charges, incorrectly focuses only on controlling interest rates. He insists that it's really growth in broad money that determines the levels of economic expansion and inflation, just as an altimeter regulates the altitude of an aircraft. 'The Fed's been using post-Keynesian models that ignore the money supply and hence put us on a rollercoaster,' he says. In our conversation and in his book, Hanke argues that the Fed's easy money policies post-COVID hugely inflated all asset prices including land, real estate, and stocks, and eventually created near-double digit inflation. Those policies penalized the middle class and made the wealthy far richer. 'In January of 2020, billionaires held 14% of the wealth in America as a share of GDP,' he says. 'Today, it's 21.1%.' He and Sekerke argue that to get the money supply growing at the correct, steady speed, policymakers need to render commercial banks once again the centerpiece of the financial ecosystem. They point out that these lenders, not the Fed, are the real elephant in the room. About 80% of broad money in the financial system has been produced by commercial banks via their lending to businesses and households. The book takes a new, holistic view of monetary policy as a three-legged stool. Traditionally, the field's narrowly focused on the Fed. But Hanke and Sekerke emphasize and integrate the roles of two key players that typically get left out of the picture: bank regulation and fiscal policy. 'Bank regulation and the Fed are the two most significant legs,' he adds, with fiscal policy still potentially playing an important role. Following the GFC, Hanke argues, the rules went haywire on banking. Two reforms hit the banks hard: Dodd-Frank legislation and the Basel III international regime both forced lenders to hold far higher reserves as a cushion. 'As a result, the banks became strangled and sharply cut back loans,' says Hanke. After going negative in the months following the GFC, loan growth only gradually recovered, but Hanke and Sekerke argue that it's still much too low. 'Banks are not creating enough money,' Hanke told me. 'The growth of their loan books remains relatively anemic, at rates lower than their levels prior to the GFC.' The authors propose two fixes to get the U.S. back on track for steady prices and steady robust growth. The first: dismantling the 'universal bank' model by 'divorcing' the lending business from investment banking. 'The rates of return are higher in investment banking than lending, so the capacity to make loans at the universal banks gets sucked away,' explains Hanke. Second, Hanke and Sekerke avow that Dodd-Frank and Basel III went much too far by imposing onerous 'risk weightings' that mandate excessive and discriminatory reserves, on different kinds of loans. 'The weightings are too high,' says Hanke. 'They're not fine-tuned. The banks should be given much more leeway in determining the reserves. They know much more about their business than the bureaucrats in Washington and Basel.' One such regulation that the book contends greatly increased the burden on banks is the 'Supplementary Leverage Ratio,' enacted in 2014 as part of the extensive post-GFC reforms. It mandates extra reserves on top of the Dodd-Frank and Basel III requirements that impose relatively high weights for holding even super-safe assets such as Treasuries. Secretary of the Treasury Scott Bessent has called SLR reform 'a top priority,' and it's strongly favored by such banking titans as JPMorgan's Jamie Dimon. In 'Make Money Work,' Hanke and Sekerke assert that the SLR 'binds' loan growth, and that reforming it would fit their prescription for unshackling bank lending. By pursuing policies that undermine and distort lending, Hanke and Sekerke insist, the Fed and Congress are curtailing an overlooked gift embodied in the banking system. When folks invest in stocks, bonds or real estate, that 'savings' is channeled through investment banks and other non-bank financial institutions. Those savings are money the investors aren't spending on consumption––that's not going to groceries, cars or vacations. But when banks provide credit, as Hanke puts it, 'they create money out of thin air' in the form of loans. That money doesn't come out of new savings that forces investors to forego buying stuff. 'It's the magic no one understands,' says Hanke. Or as the book puts it: 'The ability of banks to create deposit money out of nothing is one of the great forgotten facts of monetary economics.' 'The banks act as a type of phantom savers that enable good bankable projects to be financed without having to forego consumption,' Hanke says. 'Making Money Work' writes a new chapter in money and banking, and mounts a compelling case for learning from the post-GFC mistakes, letting the money supply rule by putting the banks back in charge. Because to paraphrase the great bank robber Willie Sutton, 'that's where the money comes from.' 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Fox News
13-05-2025
- Business
- Fox News
Billionaires boomed in Biden era as Fed became 'engine of income inequality' powered by COVID policies: expert
The nation's wealthiest residents saw their billions grow even larger in the years following the COVID-19 pandemic due to policies from the Federal Reserve that have deepened the chasm of income inequality, economic experts report. "If you look at the amount of federal regulation, the amount of federal taxes, if anything… the economy has gotten less friendly toward big business, and toward rich people," economist Peter St. Onge told Fox News Digital in a May phone interview. "What's actually been happening is that the Fed has been driving income inequality. And, I think for a long time, Republicans were sort of in denial – not just Republicans, but sort of free market types were in denial – and they didn't want to talk about income equality." "I think they should absolutely talk about it, because what's causing it is not free markets," he said. "It's something that I think everybody should oppose, which is government manipulation of the monetary system." St. Onge was reacting to data showing that billionaires' share of the GDP increased from 14.1% in 2020 to 21.1% in 2025, as reported by Johns Hopkins University economic professor Steve Hanke. JPMorgan Chase's private bank estimated that the number of billionaires in the U.S. increased from 1,400 in 2021 to nearly 2,000 as of 2024, the Wall Street Journal reported in April. The Federal Reserve is America's central bank, which sets monetary policies and oversees banks. It acts independently, meaning it does not require approval from the president or Congress when enacting policies. St. Onge explained to Fox News Digital that "debt is a rich man's game" and that billionaires have benefited financially since the pandemic as the Fed worked to "manipulate interest rates" down below market value, which subsidized loans. "During COVID, you could get a mortgage for, you know, three, three and a half percent, when inflation was running higher than that," he explained. "You were literally being paid to borrow money, which is not a free market outcome.… So it makes loans cheap and the rich overwhelmingly borrow money." The average debt for the top 5% of Americans sits at about $600,000, he said, while the average debt for the vast majority of Americans is roughly $74,000. "That's about a nine times difference," he said of the data. "So if you make loans too cheap, you are giving nine times more money to rich people.… If you make loans cheap, you're functionally giving $9 to rich people for every $1 to give everybody else." Assets are even more skewed, he explained, with the top 5% of Americans holding $7.8 million in assets compared to the average American's $62,000 – notching 130 times the difference between the two demographics, he said. "The value of a stock or even a house are based on the future stream of income, and those are all discounted by the interest rate," he said. "And so pretty close to mechanically, if you cut interest rates in half – long-term interest rates – you are doubling the value of stocks." St. Onge pointed to the American economy in the 1970s and the early 2000s, outlining that growth "took a big step down" in the 2000s while asset values, such as housing prices and the stock market, skyrocketed. "The reason is because, since the 1970s, the Fed has very aggressively held rates low, and so this has caused all those assets to go up. So stocks have gone up, housing has gone up. And again, those are rich men's games. Overwhelmingly, people who own stocks are rich. Housing is even more skewed." "So if you've got a nine times difference on loans between the bottom 50% and the top 5%, and then you've got 130 times on assets, then the Fed manipulating rates down – they're not doing it to make rich people rich, hopefully – but that's sort of the consequence of doing that," he said. "Holding long-term interest rates low is to shower money on rich people and to shower it in proportion to which they're rich, right? So the most extreme version of that is going to be billionaires." Economist Steve Hanke discussed how the Federal Reserve has fanned the flame of income inequality through its policies at a conference earlier in 2025 at the Mises Institute, an economics-focused think tank based out of Alabama. "In 2020, billionaires' share of GDP was 14.1%. Now, it's 21.1%. The Fed increased the money supply, asset prices went up, & guess who owns the assets? Billionaires. By ignoring the money supply, the Fed is an ENGINE OF INCOME INEQUALITY," he posted to X in April of his findings. "Take the Federal Reserve's excessive money printing during the pandemic," Hanke said in an interview published by the think tank in April. "The transmission mechanism of monetary policy roughly dictates that changes in the money supply are followed by changes in asset prices in 1–9 months' time, changes in real economic activity in 6–18 months' time, and finally changes in the price level in 12–24 months' time." "Thanks to the Fed's helicopter money drops beginning with COVID, the annual growth rate of the US broad money supply peaked at 18.1% per year in May 2021," he added. "Lo and behold, the transmission mechanism followed – the S&P 500 reached a local maximum in December 2021 (6 months later), and inflation peaked at 9.1% per year in July 2022 (14 months later)." The result, he said, was skyrocketing wealth inequality to the tune of billionaires increasing their share of the GDP by 7.6 percentage points in just four years. St. Onge said the Fed's policies have been political in nature, while remarking he would welcome "naive" Democrats who bang the proverbial campaign drum of income inequality to jump onto the "end the Fed bandwagon." "They have a naive argument where they look at rich people and they say, 'Hey, this is so terrible. We live in this dog-eat-dog jungle of an economy,'" St. Onge said of Democrats who campaign on income inequality. "And that is inaccurate," he added, citing Federal Reserve policies that have amplified income inequality. On the opposite side of the political coin, Vice President JD Vance has railed against the Biden administration and "Wall Street barons" for policies he said have hurt the working class. During his acceptance speech after officially becoming the vice presidential nominee in July, Vance said an affordability crisis is strangling the working class, while touting that the Trump administration would end economic "catering to Wall Street." "Wall Street barons crashed the economy and American builders went out of business," Vance said from Milwaukee in summer 2024. "As tradesmen scrambled for jobs, houses stopped being built. The lack of good jobs, of course, led to stagnant wages. And then the Democrats flooded this country with millions of illegal aliens. So citizens had to compete – with people who shouldn't even be here – for precious housing. Joe Biden's inflation crisis, my friends, is really an affordability crisis." The Federal Reserve Board declined comment when approached by Fox Digital regarding St. Onge's and Hanke's remarks.
Business Insider
23-04-2025
- Business
- Business Insider
Why an $8.8 trillion slice of the global economy escaped being hit by Trump's tariffs
His tariffs only apply to goods imported into the US, overlooking the sector of the economy worth about $8.8 trillion globally last year. It encompasses industries from financial services and legal services to tourism and education. It might seem strange for Trump to exclude a huge chunk of the US economy from one of his landmark policies, but there are several reasons he may have done so. Services surplus The US trade surplus in services was $293 billion in 2024, in stark contrast to the $1.2 trillion trade deficit in goods, Bureau of Economic Analysis data shows. The Trump administration's formula for calculating its "Liberation Day" tariffs was ostensibly based on the US trade deficit in goods with other countries. If services had been factored in, the major economies the US exports services to would have faced lower tariffs. Some of the country's biggest trading partners in terms of services are the UK, Ireland, and Canada. "These flows are mostly determined by the fact that many US companies have large offices in these countries," Steve Hanke, a professor of applied economics at Johns Hopkins University and a former senior economist on President Ronald Reagan's Council of Economic Advisers, told Business Insider. The White House could have made the case for tariffs on services to counter non-tariff constraints on US services. "Although services are not subject to tariffs, they are subject to trade barriers such as nationality and local presence requirements," reads the website of the Office of the US Trade Representative. "These barriers severely limit the services export potential of US suppliers." It also says the service industries account for more than two-thirds of GDP and 80% of private sector jobs in the US. Purba Mukerji, an economics professor at Connecticut College, told BI that the US trade surplus in services is a "bright spot" in its balance of payments with the rest of the world. "Services are a good area for growth for the US and might remain so for a while," she said. For Adnan Rasool, an assistant professor of political science at the University of Tennessee at Martin, the US does not impose tariffs on services because its surplus is so big: "We would just be shooting ourselves in the foot." Another risk of service tariffs would have been retaliation from trading partners that would harm US service exporters, hurting a lucrative part of the economy. Consumer confusion Trump may have pursued sweeping goods tariffs because they're more tangible to consumers and easier to explain than duties on obscure services. They also align with his rhetoric around revitalizing US manufacturing and bringing factory jobs back to the US. Rasool said: "When stuff from China is being tariffed, they see it and feel it in their wallets, but when you, say, start tariffing logistical support services for deep-sea internet cables, they cannot see it nor will they understand its impact on their wallets." Bermuda bonus The international financial services industry is heavily reliant on the US. Visa, Mastercard, and American Express are all based in the US, as are many major investment banks and asset managers. The same is true for Big Tech companies that dominate the US stock market and represent a large piece of Americans' portfolios. "Think of Facebook, Amazon or even Google getting hit with serious tariffs. That just cannot work for the US," Rasool said. This is good news for countries such as Bermuda. The US imported services worth nearly $40 billion from the island nation in 2024, per BEA data. Bermuda only imported $46 million of US goods last year, meaning it would likely have faced a much higher tariff rate than 10% if tariffs had included services. "Indeed, a lot of Americans park their money in Bermuda," Hanke said. "This has resulted in a US services trade deficit of $30.6 billion with Bermuda. Luckily for Americans using Bermudan financial services, this deficit wasn't accounted for in Trump's nonsensical calculation." 'Murkier' distinctions The difficulty of taxing services was probably a big reason for the White House to give them a pass on tariffs. Ramesh Mohan, a professor of economic analytics and visualization at Bryant University, told BI: "Unlike tangible goods that cross borders and can be inspected, recorded, and taxed at ports of entry, services are often delivered digitally or remotely." He said trying to establish where a service has actually been performed can be "complex" and "ambiguous." "Even in goods trade, debates persist over definitions — what constitutes 'manufacturing' versus 'assembly,'" Mohan said. "With services, such distinctions are even murkier, making enforcement of tariffs logistically difficult."
