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衰退真的要来了,这得怪美联储

Shawn Tully
2022-04-25

一位著名经济学家认为美联储完全忽视了一项重要指标。

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图片来源:RICHARD SHARROCKS VIA GETTY IMAGES

著名专家小组现在预测,美国肯定会陷入经济衰退困境。在4月14日的一次采访中,美国财政部的前部长拉里·萨默斯说:“当通货膨胀率高于4%,失业率低于5%时,两年内必然会出现经济衰退的情况。”他指责美联储(Federal Reserve)暗示可能会出现“软着陆”情况,并建议其负责人通过发表更加切合实际的看法来与公众保持一致,即表明未来的发展道路是曲折的。萨默斯认为经济衰退的几率“很可能达到三分之二或更多”。几周前,在2009年到2018年期间担任纽约联邦储备银行(New York Fed)主席的比尔·杜德利在彭博社(Bloomberg)的一篇专栏文章中给出了更为悲观的评估,他警告称:“美联储已经使经济衰退不可避免。”在杜德利看来,美联储因为长期保持如此宽松的货币政策而引发失误, “降温”将需要经历极其艰难的紧缩周期,这势必会使经济从繁荣走向衰退。

即便是美联储智囊团中通常最鸽派的人士也在变得鹰派。美联储理事莱尔·布雷纳德、明尼阿波利斯联储(Minneapolis Fed)主席尼尔·卡什卡利以及其他传统进步人士都呼吁大幅、快速地提高联邦基金利率,并迅速缩减美联储的资产负债表,这些强硬措施经常引发经济急剧下滑。

一年前,一位著名的经济学家用正统的货币数量理论预测了美联储和几乎所有同行都忽略的问题:通货膨胀即将爆发。他甚至一语中的,预测到2021年年底,物价将飙升6%,甚至9%。他就是史蒂夫·汉克,约翰斯·霍普金斯大学(Johns Hopkins University)的应用经济学教授和铁杆的货币主义者。2021年7月,汉克与约翰斯·霍普金斯大学的同事和景顺集团(Invesco)的前首席经济学家约翰·格林伍德共同在《华尔街日报》(Wall Street Journal)发表专栏文章,该文章有预见性地指出通货膨胀即将爆发。现在汉克同意萨默斯和杜德利的观点,即我们陷入经济衰退困境的可能性很高。但他得出这个结论的理由却截然不同。

汉克断言,美联储可以通过遵循在过去通货膨胀率飙升时期偶尔奏效的法则来避免使经济陷入困境。他告诉《财富》杂志:“真正的问题不是我们不可能逃往安全地带,而是出在美联储的政策。”

这位资深的业余飞行员补充说:“美联储就像一名飞行员,却无视显示飞机高度的高度计。美联储需要停止盲目行事,才能够实现杰罗姆·鲍威尔主席承诺的软着陆。”汉克认为美联储仍然可以避免这种可怕的迫降——但它必须精确地击中正确的目标,而它目前并没有做到这一点。

是什么导致了通货膨胀率的飙升

在汉克看来,始终且完全决定通货膨胀率的“高度计”是货币供应量的水平和轨迹。这是美联储避免让我们陷入困境的关键标准,而这一标准也是美联储必须遵循的标准,只有这样才能够让我们摆脱困境。汉克认为,正是美联储印钞为赤字激增提供资金,才导致了今天的物价压力。他解释说:“高额的财政赤字本身并不会导致通货膨胀。如果公民购买债券,他们就会将购买力转移给政府,但通货膨胀率不会上升。相反,是美联储一直在用印出来的钱购买债券。这就像一架直升机在美国各地倾倒新美元。”旨在应对新冠肺炎疫情危机的额外数万亿支出催生了赤字。美联储随后通过加印美元将超过90%的额外财政赤字“货币化”,并在此过程中增加了货币供应量。事实上,自2020年2月以来,美联储在其资产负债表上增加了3.8万亿美元新发行的美国国债,几乎将其持有量增加了两倍,这是令人难以置信的。

在推行量化宽松政策的过程中,美联储在短短两年多时间里累计增加了近41%的货币供应量或广义货币(M2)。汉克指出:“这是前所未有的增长。”他喜欢把加印美元(绿色潮水)如何推高通货膨胀率比作浴缸中的积水。他说:“如果水龙头像过去两年一样大开,水进入的速度就要比排出的速度快得多。这种情况自2020年2月以来一直在发生。”不断上升的水位,或者过剩的货币供应是通过两个阀门排出的。第一个是由于经济体生产出更多的商品和提供更多的服务,国内生产总值出现“实际”增长。第二个是由于人们持有的现金、支票和货币市场账户随着收入的增加而增加,从而出现了“货币需求”。

他表示,这两个出口阀只会排出部分堆积物——并留下过剩的物质,而过剩的物质将作为额外的通货膨胀溢出浴缸。他说:“在货币供应量的巨大积累转变为通货膨胀之前,会出现12个月到24个月的滞后期。这就是我在2021年年中看到的情况,这让我推测年底前物价会大幅上涨。但美联储完全忽略了这一信号。”因此,汉克指出,无论美联储现在采取什么行动,他预计美国今年的通货膨胀率将一直保持在6%或更高,这一情况会在2023年全年持续存在,甚至可能持续到2024年的头几个月,这是因为多余的钱不断从货币浴缸的溢流阀中流出。

在汉克看来,解决方案是将货币供应量放缓到每年6%左右的黄金增长率。以这样的速度,进入浴缸的水量应该刚好填满浴缸,以便美联储达到其2%的通货膨胀目标。他说,粗略地算一下,2%的货币供应量增长推动了实体经济的扩张,2%用于满足货币需求的增长,而2%则留在浴缸中,最终流经通货膨胀溢流阀。但尚不清楚这一情况是否会发生,因为美联储根本没有关注货币供应量。这里有强有力的证据:即便是现在,在美联储于2021年11月放弃了“过渡性”标签并宣布通货膨胀是一个主要问题之后很长时间,广义货币仍然以11%的速度逐年增长,几乎是理想增长率6%的两倍。汉克认为,美联储应该通过调整工具来引导货币供应量走上正确的轨道来对抗通货膨胀。相反,美联储承诺在不考虑广义货币的情况下推动其杠杆发挥作用,对汉克而言,这相当于在没有仪表的情况下飞行,不知道你是在云层上飞行还是在地面上滑行。

通货膨胀的两个来源

正如汉克所指出的,导致所有这些定价压力的货币供应量激增有两个来源。第一个来源是美联储本身。美联储将赤字货币化,为支出井喷提供资金,这在我们今天所经历的宿醉中占了最大部分。这是美联储现在通过缩减资产负债表希望达成的目标。美联储于今年3月结束了其量化宽松或量化宽松政策(用新发行的货币购买美国国债)。市场预计美联储将在美国国债到期时开始抛售,并从5月开始减少其持有的抵押贷款支持证券,这标志着美联储转向量化紧缩或量化紧缩政策。汉克说:“毫无疑问,缩减资产负债表是一种可以预测的工具,用来减少美联储对货币供应量造成的影响。”问题在于美联储是否掌握了正确的节奏,如果它们不关注货币供应量读数,它们就可能会犯严重错误。

第二个来源是商业银行。它们借出的美元越多,广义货币的增长速度就越快,而银行在繁荣时期一直在发放大量的新房贷款、再融资贷款和信用卡贷款。简言之,银行向借款人提供的美元越多,货币供应量就扩张得越快。

美联储大幅提高联邦基金利率的策略是针对第二个来源——遏制银行提供更多信贷。但汉克担心,过度依赖提升利率才是问题所在。他指出:“联邦基金利率的上升与银行提供的货币供应量增长率的变化之间没有明确的联系。大多数人认为,提高联邦基金利率就是表明货币政策收紧。但事实并非如此。在查看货币供应量数据之前,你不知道美联储是否收紧了货币政策。”(也就是说,在读高度计读数前,你无法确定实际情况到底是怎样的。)他表示,当前对信贷的强劲需求使情况变得模糊。他观察到,公司的利润率很高,并且希望扩张。消费者资产负债表状况良好。汉克补充说,即使在几次加息之后,许多类别的利率仍然可能低于通货膨胀水平,这让新抵押贷款之类的贷款依旧很划算。在这种情况下,即便在美联储加息的情况下,货币供应量也可能继续增长。

经济衰退要来了吗?

汉克对一件事情深信不疑:为避免经济衰退,美联储必须关注货币供应量,这需要对美联储控制的两个杠杆(量化宽松和利率)进行精细的操控。他说,保持货币供应量增长至关重要,这是因为美国都是在货币供应量不断增加的情况下实现软着陆的。汉克说:“即使在美联储加息的情况下,例如1965年、1984年和1994-1995年,也没有发生经济衰退现象,这是因为货币供应量的增长足以支撑购买力。”相比之下,所有的经济衰退现象都以广义货币的急剧下降为特征——汉克列举了1973年、1988-1989年和1999-2000年的例子。他认为美联储可能出错的方式有两种:其一,他们看到可怕的月度通货膨胀数字感到惊慌,以至于过度加息或过快地缩减资产负债表,从而冲击了货币供应量,造成经济崩溃。其次,如果美国总统乔·拜登政府认为,在即将到来的选举中,经济衰退将比恶性通货膨胀更具破坏性,他们可能会继续向鲍威尔发出指令,鲍威尔可以保持货币供应量增加。在这种情况下,传说中的浴缸要花费两年多的时间才能够排出过去错误带来的过剩物质。

汉克表示,正确的做法是调整各种杠杆,以实现理想的6%的货币供应量增长率,保证美联储2%的通货膨胀目标。比如,如果尽管联邦基金利率大幅上调,但银行贷款仍然在快速增长,就可能有必要加快资产负债表的流失,从而抑制广义货币增长。或者,如果加息大大减少了信贷,广义货币下降的速度超过预期,美联储就可以减缓或暂停缩减资产负债表,以确保政策组合达到6%的目标。

然而,在美国国会的证词中,鲍威尔明确表示,货币供应量状况对经济进程几乎没有影响或根本没有影响,这一立场让汉克怀疑他是否可以正确处理微妙的平衡。汉克将美联储比作昔日倒霉的飞行员道格拉斯·科里根(绰号为“迷路的科里根”)。1938年,科里根进行了一次著名的横跨大陆的飞行,他计划从长滩飞到纽约。然后,他向东而不是向西出发,因此,他没有按照计划返回加利福尼亚,而是最终降落在爱尔兰,这让他很是吃惊。科里根指责是过厚的云层使他飞错了方向,飞了2500英里(约4023.36千米)。这次不幸的经历为他赢得了一个不朽的绰号,汉克用这个绰号来形容美联储:“迷路的美联储”。美联储这位飞行员忽视了使我们经济平稳、安全着陆所需的一项关键的指标。(财富中文网)

译者:中慧言-王芳

著名专家小组现在预测,美国肯定会陷入经济衰退困境。在4月14日的一次采访中,美国财政部的前部长拉里·萨默斯说:“当通货膨胀率高于4%,失业率低于5%时,两年内必然会出现经济衰退的情况。”他指责美联储(Federal Reserve)暗示可能会出现“软着陆”情况,并建议其负责人通过发表更加切合实际的看法来与公众保持一致,即表明未来的发展道路是曲折的。萨默斯认为经济衰退的几率“很可能达到三分之二或更多”。几周前,在2009年到2018年期间担任纽约联邦储备银行(New York Fed)主席的比尔·杜德利在彭博社(Bloomberg)的一篇专栏文章中给出了更为悲观的评估,他警告称:“美联储已经使经济衰退不可避免。”在杜德利看来,美联储因为长期保持如此宽松的货币政策而引发失误, “降温”将需要经历极其艰难的紧缩周期,这势必会使经济从繁荣走向衰退。

即便是美联储智囊团中通常最鸽派的人士也在变得鹰派。美联储理事莱尔·布雷纳德、明尼阿波利斯联储(Minneapolis Fed)主席尼尔·卡什卡利以及其他传统进步人士都呼吁大幅、快速地提高联邦基金利率,并迅速缩减美联储的资产负债表,这些强硬措施经常引发经济急剧下滑。

一年前,一位著名的经济学家用正统的货币数量理论预测了美联储和几乎所有同行都忽略的问题:通货膨胀即将爆发。他甚至一语中的,预测到2021年年底,物价将飙升6%,甚至9%。他就是史蒂夫·汉克,约翰斯·霍普金斯大学(Johns Hopkins University)的应用经济学教授和铁杆的货币主义者。2021年7月,汉克与约翰斯·霍普金斯大学的同事和景顺集团(Invesco)的前首席经济学家约翰·格林伍德共同在《华尔街日报》(Wall Street Journal)发表专栏文章,该文章有预见性地指出通货膨胀即将爆发。现在汉克同意萨默斯和杜德利的观点,即我们陷入经济衰退困境的可能性很高。但他得出这个结论的理由却截然不同。

汉克断言,美联储可以通过遵循在过去通货膨胀率飙升时期偶尔奏效的法则来避免使经济陷入困境。他告诉《财富》杂志:“真正的问题不是我们不可能逃往安全地带,而是出在美联储的政策。”

这位资深的业余飞行员补充说:“美联储就像一名飞行员,却无视显示飞机高度的高度计。美联储需要停止盲目行事,才能够实现杰罗姆·鲍威尔主席承诺的软着陆。”汉克认为美联储仍然可以避免这种可怕的迫降——但它必须精确地击中正确的目标,而它目前并没有做到这一点。

是什么导致了通货膨胀率的飙升

在汉克看来,始终且完全决定通货膨胀率的“高度计”是货币供应量的水平和轨迹。这是美联储避免让我们陷入困境的关键标准,而这一标准也是美联储必须遵循的标准,只有这样才能够让我们摆脱困境。汉克认为,正是美联储印钞为赤字激增提供资金,才导致了今天的物价压力。他解释说:“高额的财政赤字本身并不会导致通货膨胀。如果公民购买债券,他们就会将购买力转移给政府,但通货膨胀率不会上升。相反,是美联储一直在用印出来的钱购买债券。这就像一架直升机在美国各地倾倒新美元。”旨在应对新冠肺炎疫情危机的额外数万亿支出催生了赤字。美联储随后通过加印美元将超过90%的额外财政赤字“货币化”,并在此过程中增加了货币供应量。事实上,自2020年2月以来,美联储在其资产负债表上增加了3.8万亿美元新发行的美国国债,几乎将其持有量增加了两倍,这是令人难以置信的。

在推行量化宽松政策的过程中,美联储在短短两年多时间里累计增加了近41%的货币供应量或广义货币(M2)。汉克指出:“这是前所未有的增长。”他喜欢把加印美元(绿色潮水)如何推高通货膨胀率比作浴缸中的积水。他说:“如果水龙头像过去两年一样大开,水进入的速度就要比排出的速度快得多。这种情况自2020年2月以来一直在发生。”不断上升的水位,或者过剩的货币供应是通过两个阀门排出的。第一个是由于经济体生产出更多的商品和提供更多的服务,国内生产总值出现“实际”增长。第二个是由于人们持有的现金、支票和货币市场账户随着收入的增加而增加,从而出现了“货币需求”。

他表示,这两个出口阀只会排出部分堆积物——并留下过剩的物质,而过剩的物质将作为额外的通货膨胀溢出浴缸。他说:“在货币供应量的巨大积累转变为通货膨胀之前,会出现12个月到24个月的滞后期。这就是我在2021年年中看到的情况,这让我推测年底前物价会大幅上涨。但美联储完全忽略了这一信号。”因此,汉克指出,无论美联储现在采取什么行动,他预计美国今年的通货膨胀率将一直保持在6%或更高,这一情况会在2023年全年持续存在,甚至可能持续到2024年的头几个月,这是因为多余的钱不断从货币浴缸的溢流阀中流出。

在汉克看来,解决方案是将货币供应量放缓到每年6%左右的黄金增长率。以这样的速度,进入浴缸的水量应该刚好填满浴缸,以便美联储达到其2%的通货膨胀目标。他说,粗略地算一下,2%的货币供应量增长推动了实体经济的扩张,2%用于满足货币需求的增长,而2%则留在浴缸中,最终流经通货膨胀溢流阀。但尚不清楚这一情况是否会发生,因为美联储根本没有关注货币供应量。这里有强有力的证据:即便是现在,在美联储于2021年11月放弃了“过渡性”标签并宣布通货膨胀是一个主要问题之后很长时间,广义货币仍然以11%的速度逐年增长,几乎是理想增长率6%的两倍。汉克认为,美联储应该通过调整工具来引导货币供应量走上正确的轨道来对抗通货膨胀。相反,美联储承诺在不考虑广义货币的情况下推动其杠杆发挥作用,对汉克而言,这相当于在没有仪表的情况下飞行,不知道你是在云层上飞行还是在地面上滑行。

通货膨胀的两个来源

正如汉克所指出的,导致所有这些定价压力的货币供应量激增有两个来源。第一个来源是美联储本身。美联储将赤字货币化,为支出井喷提供资金,这在我们今天所经历的宿醉中占了最大部分。这是美联储现在通过缩减资产负债表希望达成的目标。美联储于今年3月结束了其量化宽松或量化宽松政策(用新发行的货币购买美国国债)。市场预计美联储将在美国国债到期时开始抛售,并从5月开始减少其持有的抵押贷款支持证券,这标志着美联储转向量化紧缩或量化紧缩政策。汉克说:“毫无疑问,缩减资产负债表是一种可以预测的工具,用来减少美联储对货币供应量造成的影响。”问题在于美联储是否掌握了正确的节奏,如果它们不关注货币供应量读数,它们就可能会犯严重错误。

第二个来源是商业银行。它们借出的美元越多,广义货币的增长速度就越快,而银行在繁荣时期一直在发放大量的新房贷款、再融资贷款和信用卡贷款。简言之,银行向借款人提供的美元越多,货币供应量就扩张得越快。

美联储大幅提高联邦基金利率的策略是针对第二个来源——遏制银行提供更多信贷。但汉克担心,过度依赖提升利率才是问题所在。他指出:“联邦基金利率的上升与银行提供的货币供应量增长率的变化之间没有明确的联系。大多数人认为,提高联邦基金利率就是表明货币政策收紧。但事实并非如此。在查看货币供应量数据之前,你不知道美联储是否收紧了货币政策。”(也就是说,在读高度计读数前,你无法确定实际情况到底是怎样的。)他表示,当前对信贷的强劲需求使情况变得模糊。他观察到,公司的利润率很高,并且希望扩张。消费者资产负债表状况良好。汉克补充说,即使在几次加息之后,许多类别的利率仍然可能低于通货膨胀水平,这让新抵押贷款之类的贷款依旧很划算。在这种情况下,即便在美联储加息的情况下,货币供应量也可能继续增长。

经济衰退要来了吗?

汉克对一件事情深信不疑:为避免经济衰退,美联储必须关注货币供应量,这需要对美联储控制的两个杠杆(量化宽松和利率)进行精细的操控。他说,保持货币供应量增长至关重要,这是因为美国都是在货币供应量不断增加的情况下实现软着陆的。汉克说:“即使在美联储加息的情况下,例如1965年、1984年和1994-1995年,也没有发生经济衰退现象,这是因为货币供应量的增长足以支撑购买力。”相比之下,所有的经济衰退现象都以广义货币的急剧下降为特征——汉克列举了1973年、1988-1989年和1999-2000年的例子。他认为美联储可能出错的方式有两种:其一,他们看到可怕的月度通货膨胀数字感到惊慌,以至于过度加息或过快地缩减资产负债表,从而冲击了货币供应量,造成经济崩溃。其次,如果美国总统乔·拜登政府认为,在即将到来的选举中,经济衰退将比恶性通货膨胀更具破坏性,他们可能会继续向鲍威尔发出指令,鲍威尔可以保持货币供应量增加。在这种情况下,传说中的浴缸要花费两年多的时间才能够排出过去错误带来的过剩物质。

汉克表示,正确的做法是调整各种杠杆,以实现理想的6%的货币供应量增长率,保证美联储2%的通货膨胀目标。比如,如果尽管联邦基金利率大幅上调,但银行贷款仍然在快速增长,就可能有必要加快资产负债表的流失,从而抑制广义货币增长。或者,如果加息大大减少了信贷,广义货币下降的速度超过预期,美联储就可以减缓或暂停缩减资产负债表,以确保政策组合达到6%的目标。

然而,在美国国会的证词中,鲍威尔明确表示,货币供应量状况对经济进程几乎没有影响或根本没有影响,这一立场让汉克怀疑他是否可以正确处理微妙的平衡。汉克将美联储比作昔日倒霉的飞行员道格拉斯·科里根(绰号为“迷路的科里根”)。1938年,科里根进行了一次著名的横跨大陆的飞行,他计划从长滩飞到纽约。然后,他向东而不是向西出发,因此,他没有按照计划返回加利福尼亚,而是最终降落在爱尔兰,这让他很是吃惊。科里根指责是过厚的云层使他飞错了方向,飞了2500英里(约4023.36千米)。这次不幸的经历为他赢得了一个不朽的绰号,汉克用这个绰号来形容美联储:“迷路的美联储”。美联储这位飞行员忽视了使我们经济平稳、安全着陆所需的一项关键的指标。(财富中文网)

译者:中慧言-王芳

A prestigious chorus of experts now forecast that a U.S. recession is practically a sure thing. In an April 14 interview, former Treasury Secretary Larry Summers declared, "There has never been a moment when inflation was above 4% and unemployment below 5% when we didn't have a recession within two years." Summers chided the Fed for suggesting that a "soft landing" is likely, advising its leaders to level with the public by issuing a far more realistic, and rocky, view for the road ahead. Summers put the odds of a recession at "quite possibly at two-thirds or more." A couple of weeks earlier, Bill Dudley, who headed the New York Fed from 2009 to 2018, gave an even gloomier assessment in a Bloomberg oped, warning that "the Fed has made a recession inevitable." For Dudley, the central bank misfired by keeping monetary policy so loose, for so long, that "cooling things off" will require a tightening cycle so severe that it's bound to send the economy from a boom to a tailspin.

Even the most usually dovish of the Fed braintrust are turning hawkish. Governor Lael Brainard and Minneapolis Fed chief Neel Kashkari, among other traditional progressives, are calling for big, fast increases in the Fed Funds rate and a rapid shrinkage in the central bank's balance sheet, tough measures that frequently trigger steep downturns.

A year ago, a prominent economist used the orthodox quantity theory of money to predict what the Fed and almost all of his peers missed: That an inflationary explosion was close at hand. He even hit the mark by predicting that prices would be roaring at 6% and as much as 9% by the close of 2021. He's Steve Hanke, a hardcore monetarist and professor of applied economics at Johns Hopkins University. Hanke made the prescient call on inflation in a July 2021 oped in the Wall Street Journal co-authored with his Johns Hopkins colleague and the former Invesco chief economist John Greenwood. Now Hanke agrees with Summers and Dudley that the we're facing a high probability of a recession. But he reaches that conclusion for very different reasons.

Hanke asserts that the Fed could avoid tanking the economy by simply following the playbook that has on occasion worked in past periods of leap in inflation. "The real problem isn't that a flight to safety is impossible, it's the Fed's policies," Hanke told Fortune.

Added the veteran amateur pilot: "The Fed's like a pilot that's ignoring the altimeter that shows the plane's altitude. It needs to stop flying blind to achieve the soft landing that Chairman Jerome Powell is promising." Hanke thinks the Fed can still avert that dreaded crash landing—but it must exercise precision to hit the right targets, something it is currently not doing.

What caused the jump in inflation

For Hanke, the "altimeter" that always and solely determines the rate of inflation is the level and trajectory of the money supply. That's the crucial yardstick the Fed's shunned to get us into this mess, and the one it must follow to get us out. For Hanke, it was the Fed's money printing marshaled to fund the blowout in deficits that spawned today's price pressures. "High fiscal deficits don't in themselves cause inflation," he explains. "If the citizens buy the bonds, they transfer their spending power to the government, but inflation wouldn't go up. Instead, it's the Fed that's been buying the bonds with printed money. It was like a helicopter dumping new dollars across America." The extra trillions in outlays aimed at combating the COVID crisis spawned the deficits. The Fed then "monetized" over 90% those extra fiscal shortfalls by creating dollars, and in the process, fattened the money supply. Indeed, the Fed piled an incredible $3.8 trillion of newly-issued Treasuries on its balance sheet since February of 2020, almost tripling its holdings.

In pursuing that policy of Quantitative Easing, the Fed swelled the money supply, or M2, by close to a cumulative 41% in just over two years. "That's an unprecedented increase," Hanke notes. He likes to compare how that green tide lifts inflation, to the buildup of water in a bathtub. "If the faucet is wide open as in the past two years, the water enters much faster than it can drain out," he says. "That's been happening since February of 2020." The rising water level, or the excess money supply, drains via two valves. The first is "real" growth in GDP as the economy produces more goods and services. The second is "demand for money," as peoples' holdings in cash, checking and money market accounts rise along with their incomes.

The two exit valves, he says, will drain only part of that accumulation––and leave a glut that will overflow the tub as extra inflation. "There's a lag of 12 to 24 months before a huge buildup in the money supply turns into inflation," he says. "That's what I saw in mid-2021 that led me to call big price increases by the end of the year. But the Fed ignored that signal completely." Hence, Hanke notes that whatever the Fed's course of action now, he predicts the U.S. will be stuck with inflation of 6% or more this year, through all of 2023, and perhaps into the early months of 2024, as the excess keeps draining out of the the monetary's bathtub's overflow valve.

For Hanke, the solution is slowing the money supply to a golden growth rate of around 6% a year. At that pace, the amount of water entering should fill the tub just enough so that the Fed hits its inflation target of 2%. Back of the envelope, says Hanke, 2% of that money supply growth fuels real economic expansion, 2% goes to accommodate the increase in the demand for money, and 2% is left in the tub to eventually flow through the inflation overflow valve. But it's not clear that will happen, because the Fed isn't watching the money supply at all. Here's strong evidence: Even now, long after the Fed killed the "transitory" label and declared inflation a major problem last November, M2 is growing year over year at an 11% clip, almost double the ideal rate of 6%. For Hanke, the Fed should fight inflation by tuning its instruments to steer the money supply on the correct course. Instead, the Fed pledges to push its levers without regard to M2, which for Hanke is the equivalent of flying without a gauge, not knowing whether you're motoring over the clouds or skimming the ground.

The two sources of inflation

As Hanke points out, the jump in the money supply that's causing all this pricing pressure has two sources. The first is the Fed itself. Its hand in monetizing the deficits that funded the spending blowout accounts for the biggest portion of the hangover we're experiencing today. It's the fount the Fed now targets by shrinking its balance sheet. The central bank ended its quantitative easing or QE campaign of amassing Treasuries with newly-minted money in March. The markets are expecting the Fed to start letting Treasuries run off as they mature and also reduce their holdings of mortgage backed securities starting in May, marking a shift to QT or Quantitative Tightening. "There's no question that shrinking the balance sheet is a predictable instrument for lowering the Fed's contribution to the money supply," says Hanke. The problem is whether the central bank gets the pace correct, and they could get it extremely wrong if they're not watching the money supply reading.

The second source is the commercial banks. The more dollars they lend, the faster M2 increases, and banks have been extending big volumes of new home, refi, and credit card loans in these flush times. Put simply, the more dollars banks channel to borrowers, the faster the money supply expands.

The Fed's strategy of sharply raising the Fed Funds rate is aimed at the second source––curbing credit furnished by banks. But Hanke fears that over-reliance on lifting rates is where the trouble lies. "There's no clear linkage between an increase in the Fed Funds rate and changes in the growth rate of the money supply provided by banks," he notes. "Most people think that raising the Fed Fund rate automatically indicates a tightening of monetary policy. But that's not necessarily the case. You don't know if the Fed's tightened until you look at the money supply numbers." (Read: the altimeter.) He notes the current strong demand for credit is clouding the picture. Companies have high margins and want to expand, he observes. Consumer balance sheets are in good shape. Even after a few hikes, adds Hanke, many categories of interest rates could remain below the level of inflation, making the likes of new mortgages still a bargain. In that instance, the money supply could keep growing even in the face of Fed rate increases.

Is a recession coming?

Hanke is convinced of one thing: to avoid a recession the Fed must follow the money supply, something that will require an exquisitely fine maneuvering of both levers the Fed has control over (QE and interest rates). It's vital to keep the money supply growing, because all the times the U.S. has achieved a soft landing, he says, have occurred when the money supply kept waxing. "Even in the cases where the Fed raised rates as in 1965, 1984, and 1994-5, the economy didn't suffer a swoon because money supply growth supported sufficient buying power," he says. By contrast, all recessions are characterized by sharp declines in M2––Hanke cites the examples of 1973, 1988-1989, and 1999-2000. There are two ways he thinks the Fed could go wrong: One, they become so panicked by the scary monthly inflation numbers that they overdo it by raising rates too high or shrinking the balance sheet too rapidly so that they hammer the money supply, crashing the economy. Second, if the Joe Biden Administration figures that a recession will be even more damaging in the coming elections than rampant inflation, they could keep whispering to Powell, who could keep the money supply goosed. In that case it'll take much longer than two years for the fabled tub to drain the excess from past mistakes.

The right course, he says, is adjusting the various levers to achieve the ideal 6% growth rate in the money supply that assures the Fed's 2% target. For example, if despite big increases in the Fed Funds rate, bank lending keeps going gangbusters, it might be necessary to hasten the runoff in the balance sheet that throttles back M2. Or if rate increases greatly diminish credit and shrink M2 more rapidly than expected, the Fed could slow or pause the decline in its balance sheet to ensure the policy mix that hits the 6% goal.

However, in Congressional testimony, Powell has explicitly stated that the status of money supply has little or no effect on the course of the economy, a position that makes Hanke skeptical that he'll get the delicate balance right. Hanke compares the central bank to a hapless flyer of yore, Douglas "Wrong Way" Corrigan. In 1938, Corrigan made a celebrated transcontinental flight from Long Beach to New York. Then, instead of cruising back to California as planned, he took off east instead of west, landing apparently to his own amazement, in Ireland. Corrigan blamed heavy cloud cover for winging 2500 miles the wrong way. The misadventure earned him an immortal nickname revived by Hanke to characterize what he calls the "Wrong Way Fed," the pilot that's ignoring the one, crucial gauge needed to bring our economy to a smooth, safe landing.

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