Name: Bond Market 'Tug Of War' Signals Economic Disaster Ahead | Steve Hanke
Uploaded: 2025-05-23T20:21:45+00:00
Duration: 3073 s

Speakers

Steve Hanke — Professor of Applied Economics, Johns Hopkins University

Summary

Steve Hanke argues that weak money-supply growth has set up a US economic slowdown and likely late-2025 recession, while Trump-era regime uncertainty and fiscal deficits are pushing bond yields higher even as inflation cools. He expects earnings growth to fall to zero and the stock market to tumble, sees China's rare-earth leverage as a strategic concern, and praises Argentina's austerity-driven confidence shock.

Hanke says M2 has been flat since April 2022 and 4.1% growth is below his roughly 6% target-consistent pace.
He expects inflation to continue falling, possibly to 2% or below.
Bond yields are rising due to regime uncertainty and deficit financing, overwhelming disinflation.
He forecasts a late-2025 recession and Fed rate cuts after labor-market weakness.
Earnings growth may fall to zero, and he expects the stock market to tumble.
He says China controls most critical materials and rare earths, giving it strategic leverage.
He praises Argentina's austerity under Milei for producing a confidence shock and faster growth.
He criticizes US fiscal and defense spending, saying short-term austerity efforts usually fail.

Ideas

Steve Hanke Professor of Applied Economics, Johns Hopkins University 3:28

Bond yields rise on regime uncertainty

Inflation and money-supply growth are weak and would normally pull bond yields down, but Trump-era regime uncertainty, including tariffs and unpredictable policy changes, plus a budget deficit likely above 7% of GDP, is overwhelming that. Financing the deficit either through the non-bank public or through Fed monetization leads to higher yields: non-bank buyers demand higher yields for the supply, while Fed monetization raises money supply and inflation, and yields follow inflation.

Steve Hanke Professor of Applied Economics, Johns Hopkins University 10:25

Stocks tumble as earnings go to zero

The economy is slowing because money-supply growth is anemic and Trump's regime uncertainty is adding further drag. Consensus earnings growth has already been revised down to about 7%, he expects it to be zero or below, and many companies have stopped issuing forward guidance. The stock market has not priced this in and is in for a tumble.

Steve Hanke Professor of Applied Economics, Johns Hopkins University 27:47

China controls critical rare earths leverage

China controls 19 of the 20 critical materials on the IEA list and has spent about 70 years building leverage in rare earths and critical materials. That chokehold means China could disrupt the US economy, which is why Trump backed off the most aggressive China tariffs; rare earths and critical materials are a strategic supply-chain vulnerability to monitor.

Steve Hanke Professor of Applied Economics, Johns Hopkins University 39:41

Argentina grows faster on Milei austerity

Milei's credible austerity in Argentina cut public spending sharply and created a positive confidence shock. Rather than holding the economy back, Argentina's economy is growing much faster than most expected, suggesting austerity can be growth-positive under the right conditions.

Bond Market 'Tug Of War' Signals Economic Disaster Ahead | Steve Hanke

Summary

Ideas

Up Next