Other Publications

Fortune Magazine article by John Greewwood and Steve Hanke In this op-ed version of IMM Newsletter #56 Steve Hanke joins me to lay out some of thebasics of monetary analysis which the consensus of economists, and especially those at theFed, have systematically – and, in retrospect, foolishly – ignored over the past two or threedecades.First, we point out that only a handful of monetarists – including ourselves – successfullypredicted the post-Covid inflation. Second, we explain some of the reasons why mosteconomists got their forecasts wrong. Third, we show how Fed Chair Kevin Warsh’s answersto questions from journalists at his post-FOMC meeting press conference on September 16were dramatically different in style from the answers that would have been given by hispredecessor, Jerome Powell. The tone of his replies was distinctly monetarist. This is why,for example, he would not give an answer to the typically consensus question about thenatural or equilibrium rate of interest (known to economists as r*). It is not relevant tomonetarists.At his first two press conferences in June and July Warsh made a shaky start. However, heis now speaking with much more confidence and authority as he shapes a framework that isstarting to sound notably more coherent than that which the Fed was following previously. Read the full article on Fortune →

In this op-ed, Steve Hanke and I assess the prospects of success for US Treasury SecretaryBessent’s intervention in the government bond market. We cite three prior examples of“Operation Twist” which do not have a good record. The problem is that unless theunderlying fiscal policy is changed (e.g. reducing the budget deficit), or unless monetarypolicy is shifted in a helpful direction (in this case, tightening to lower the current inflation),the government’s attempt to fix bond yields is contrary to fundamentals. Read the full article on Fortune →

A common misconception is that, because interest rates in Japan have been abnormally lowfor most of the past 30 years, monetary policy in Japan has been “easy”. In this article, SteveHanke and I explain that monetary policy in Japan has not been easy; on the contrary it hasbeen tight when judged by the anaemic growth of the broad money supply. To achieve asustainable 2% inflation rate, Japan would need about 5% p.a. money growth, not the 2-3%it has typically experienced. This helps to explain some of the conundrums evident in Japantoday. Read the full article on Fortune →

The consensus reaction to the jump in oil prices following President Trump’s attack on Iranon February 28 was that this would inevitably mean inflation. Steve Hanke and I respondedto this common fallacy by pointing out that oil and other commodity prices are relativeprices, while inflation requires a rise in the overall level of prices, which in turn requires priorrapid growth of the broad money supply. Inflation may rise in 2026, but if so, it will be due toexcess money growth, not merely a rise in the price of oil. Read the full article on Fortune →

A common view is that monetary policy is all about interest rates: higher rates for a tighterpolicy, lower rates for an easier policy. But this is at best superficial. Interest rates arethemselves subject to the rate of inflation, which depends on money growth over thepreceding two years or more. Illustrating with three different examples, Prof. Steve Hankeand I show that money growth is what really matters for inflation, and in turn for interest ratelevels in the particular countries. Read the full article on Fortune →

In this op-ed from August 2024 Prof. Steve Hanke and I dismissed the widespread notionthat the post-Covid inflation was a worldwide phenomenon. Summarising a study weconducted of 27 developed and emerging economies, we found very different rates ofinflation. The common theme was that those which had higher inflation had allowed moneyto grow rapidly, while those with lower or negligible inflation had kept money growth firmlyunder control. Central bank governors like Jerome Powell at the Fed or Andrew Bailey at theBank of England were wrong to blame external factors such as supply chain disruptions orthe Ukraine war for domestic inflation. Inflation is always and everywhere a monetaryphenomenon. Read the full article on Fortune →