Prof. Steve Hanke: Five Drivers For a Commodity Bull Market

Tom welcomes Professor of Applied Economics Steve Hanke to the show. He discusses learning the intricacies of the commodity markets at a young age and over his career.

Gold tends to have a fairly steady interest, particularly since the closing of the gold window in 1971. Gold in one way or another will always be a part of the international financial system.

The economics profession considers 50% inflation and up as the textbook definition of hyperinflation. There have been sixty-two such hyperinflations throughout history. They always occur when fiscal deficits become very large, and governments involved can't finance those deficits through taxes or bonds. Governments end up running the proverbial printing press. Recent hyperinflations include Yugoslavia in 1994 where they reached 313 million percent per month. The former Soviet states had problems with not having tax systems or access to international markets. The last hyperinflation occurred in Venezuela.

He discusses how the 2008 hyperinflation in Zimbabwe ended up completely collapsing, and the local population switched to the dollar.

We are currently in an era of money printing, and we've had a forty-one percent increase in the money supply. Even now we're still increasing the money supply at nearly ten percent when we should be around six.

Steve explains the five different factors that are affecting commodity prices. These coupled together are creating a perfect cocktail for a new supercycle in commodities.

He discusses the impacts of the Fed's policies and why much of the Fed's current problems are with the excessive liquidity held by commercial banks. This liquidity makes it difficult for the Fed to contract the money supply any time soon. The Fed and government are the main reasons for inflation although the media is currently blaming everything else including Putin.

Japan and Switzerland have very low inflation currently and this suggests their money supply isn't growing. Growth in the money supply is always the cause of inflation.

Steve discusses his sentiment indicator which measures the global opinion of gold. It's based on a computer analysis of news articles and can change quite rapidly.

He explains his 95% rule which states that 95% of the information in the press is wrong or irrelevant.

Time Stamp References:0:00 - Introduction0:48 - Background5:13 - Attitudes & Gold7:45 - Hyperinflations14:56 - Dollar & Inflation17:30 - Excess Money Supply23:38 - Five Commodity Drivers28:08 - Fed Policy & Rates35:42 - Energy & Money Supply40:08 - Fed & Flation Fears42:52 - Milton Friedman44:32 - Fiscal Constraints49:50 - Gold & Inflation55:35 - Gold Sentiment Indicator1:11:35 - Solutions & Simplicity

Talking Points From This Episode

* His background and early interest in commodity markets.* Defining hyperinflation and its primary causes.* Five factors that are creating the next commodity supercycle.* His sentiment indicator for gold and how it works.

Guest Links:Twitter: https://twitter.com/steve_hankeWebsite: https://thegoldsentimentreport.comWebsite: https://www.cato.org/people/hanke.htmlWebsite: https://sites.krieger.jhu.edu/iae/about/co-directors/

Steve H. Hanke is a Professor of Applied Economics and Founder & Co-Director of the Institute for Applied Economics, Global Health, and the Study of Business Enterprise at The Johns Hopkins University in ...