Speaker · Updated
Steve H. Hanke: latest market views
Johns Hopkins University
Summary
Steve H. Hanke is a professor of applied economics and co-director of the Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise, a currency reform expert and hyperinflation researcher who served on President Reagan's Council of Economic Advisers.
Chorus has 35 views from Steve H. Hanke across 2 episodes on The David Lin Report since October 15, 2026.
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Wealth, inequality & billionaires
K-shaped economy: top 10% wealth rose 31% since 2022 while bottom 10% gained only 6%.
Using the Federal Reserve's Survey of Consumer Finances (released Oct 9), Hanke says median family net worth rose only 2% from 2022 to 2025, versus 37% from 2019 to 2022. Over 2022–2025 the top 10% gained 31% and the bottom 10% gained 6%. Households over 75 gained 37% while those under 35 fell 23%. He links this to the affordability anger driving voters.
“the rich are getting a lot richer, and everybody that's not so rich is not doing very well.”at 5:14
The David Lin Report: 'Financial Crisis' Trigger: What Midterm Elections Will Do To Markets | Steve Hanke ·
Core CPI excluding energy and food still rising rapidly; inflation is still a problem.
Hanke says that even after stripping out energy and food from the consumer price index, prices are still rising at a very rapid rate. Inflation beyond the war-driven fuel and grocery spikes is therefore part of the affordability picture voters are reacting to.
“if you look at the consumer price index and cut out the energy and food, it's still going up at a very rapid rate.”at 7:39
The David Lin Report: 'Financial Crisis' Trigger: What Midterm Elections Will Do To Markets | Steve Hanke ·
Public now opposes tariffs, a historic shift; Trump uses tariffs as threats and has backed off.
Historically the public was positive or indifferent about tariffs, but under Trump's tariff wars it is now against them. Hanke says voters finally connected tariffs to higher prices, as attacks on American consumers, which feeds the affordability backlash. He adds that Trump now mostly uses tariffs as threats and has rolled back the tariff talk, and a divided Congress could roll back some tariffs.
“with his tariff wars, the public is actually against tariffs.”at 8:26
The David Lin Report: 'Financial Crisis' Trigger: What Midterm Elections Will Do To Markets | Steve Hanke ·
Expects a clean Democratic sweep; Trump toxic to swing voters over war, prices and tariffs.
Hanke has become more bearish on Republicans keeping the Senate and now expects a clean Democratic sweep, in line with prediction markets. Drivers include blowback from the Iran war through gas and diesel prices, a K-shaped economy with inflation still high excluding food and energy, and public opposition to tariffs. He says Trump has turned from neutral to a negative for swing voters.
“Trump has basically become very toxic to a certain segment of the voters, and that segment happens to be the swing voters.”at 9:13
The David Lin Report: 'Financial Crisis' Trigger: What Midterm Elections Will Do To Markets | Steve Hanke ·
Divided government is optimal: legislation is mostly negative, and it slows Trump's agenda.
Hanke argues that almost all legislation is net negative, adding regulation, red tape and government intervention, so gridlock reduces bad policy. He says the US economy has always performed better under divided government than under unified party control. He flags the risk that a president facing a weak economy and gridlock may turn to foreign policy.
“divided government is, in my view, the optimum thing to happen, to have the presidency in one party and the Congress in another party”at 10:44
The David Lin Report: 'Financial Crisis' Trigger: What Midterm Elections Will Do To Markets | Steve Hanke ·
If the economy sours under divided government, Trump may escalate abroad, possibly with Iran.
A Democratic Congress would likely restrain Trump on Iran and push a negotiated deal, lowering escalation risk. But if gridlock leaves the economy stalling, the president could turn to foreign policy, and the US is already in two wars (Iran de jure, Russia de facto). Hanke cites a Tucker Carlson article claiming inside information on a planned bomb strike on Iran.
“then the president will turn to foreign policy and he could get us in more trouble with foreign policy than we're already in.”at 12:45
The David Lin Report: 'Financial Crisis' Trigger: What Midterm Elections Will Do To Markets | Steve Hanke ·
No tax cuts on the board; Democrats would likely push tax increases and reverse parts of the big bill.
Hanke says he sees no tax cuts on the legislative agenda, since the big beautiful bill has already passed. If Democrats controlled Congress they would try to reverse part of that bill and raise taxes, which Trump would veto. This creates a standoff in which the market-friendly tax cuts are unlikely.
“I don't see that any tax cuts are on the board”at 14:06
The David Lin Report: 'Financial Crisis' Trigger: What Midterm Elections Will Do To Markets | Steve Hanke ·
Oil won't fall quickly even after a deal; refilling emptied storage keeps demand strong through 2027.
Even if a Democratic Congress pushes Trump toward an Iran deal, Hanke expects oil to come down only slowly. The war emptied storage, which must now be refilled, keeping demand strong through 2027. A midterm outcome would tilt policy toward a deal and reduce major escalations, but would not change oil much.
“all the storage has been emptied due to the war, they'd be refilling storage... So the demand's going to remain pretty strong through 2027.”at 17:20
The David Lin Report: 'Financial Crisis' Trigger: What Midterm Elections Will Do To Markets | Steve Hanke ·
AI infrastructure & data centers
AI investment is unprecedentedly large and drove 96% of Q3 GDP growth, a fragile base for the economy.
Hanke says 96% of the 3.4% annualized Q3 GDP increase came from AI investment, so growth is being driven almost entirely by AI spending. He cites a forecast that AI investment will reach about 3.6% of GDP. Past mega-investments were far smaller: canals about 0.7%, railroads 2.2%, electrification 0.5%, highways 1.1% and telecom 1.1% of GDP. He agrees with the host that hyperscaler capex may slow, which would weaken GDP.
“Now 96% of that increase was all AI investment.”at 18:14
The David Lin Report: 'Financial Crisis' Trigger: What Midterm Elections Will Do To Markets | Steve Hanke ·
AI investment faces a 58% revenue shortfall and circular financing; a pop could cut AI stocks 70%.
Projected AI revenue falls 58% short of what is needed for investors to earn a 12% return on the investment. About 55% of AI investment is circular, coming from hyperscalers in a vendor-finance arrangement like a car maker lending to its own buyers. If the bubble popped, Hanke estimates the overall market would fall about 40% and the AI/tech sector about 70%, repeating the 2000–2002 tech bust.
“there's a 58% revenue shortfall, David.”at 21:51
The David Lin Report: 'Financial Crisis' Trigger: What Midterm Elections Will Do To Markets | Steve Hanke ·
Credit-fueled AI asset boom lifts financial crisis odds to about 40%, versus 7% normally.
Hanke argues that rapid credit growth to AI combined with soaring AI asset prices raises crisis risk beyond a mere slowdown. He cites a 2022 Journal of Finance study by Robin Greenwood and colleagues covering 42 countries, which found such credit boom and asset-price surges sharply raise crisis probability. Normal odds are about 7%, rising to about 40% under this combination. He compares it to the 2007 housing bubble collapse.
“the probability of a financial crisis happening, not just a slowdown... It goes up to 40%. ... To have a crisis, normally the percentage is around 7%.”at 23:34
The David Lin Report: 'Financial Crisis' Trigger: What Midterm Elections Will Do To Markets | Steve Hanke ·
Each $100 loss in stock wealth cuts US consumption by about $3, a drag on the economy.
Hanke gives a rule of thumb that every $100 decline in stock wealth reduces consumption by about $3. Consumption is roughly two-thirds of GDP, and the positive wealth effect from stock gains has kept US spending strong, though household wealth growth has slowed. A tech-led stock decline would therefore pull back consumption and could trigger a broader financial crisis.
“for each $100 in wealth decline, you get a decline in consumption of about $3.”at 26:58
The David Lin Report: 'Financial Crisis' Trigger: What Midterm Elections Will Do To Markets | Steve Hanke ·
Germany's probably heading into recession next year on energy costs and deindustrialization.
Asked about Germany tipping into recession next year, Hanke says by probability yes. Manufacturing is 23% of German GDP versus about 12% in the European average, and energy-intensive, yet German energy prices are now the highest in Europe. He blames the nuclear phase-out and giving up cheap Russian gas, which is driving deindustrialization. He adds that the ruling coalition's popularity has fallen to 20%.
“So France is in the tank, Germany's more or less in the tank”at 36:37
The David Lin Report: 'Financial Crisis' Trigger: What Midterm Elections Will Do To Markets | Steve Hanke ·
France's combined public and private debt near 225% of GDP leaves it cornered, with Japanese selling a risk.
French government debt is just over 100% of GDP and private-sector debt is also above 100%, so combined debt is about 225%. Hanke says France is highly leveraged and has no room to borrow more. The bond-market risk is that Japanese pension funds, drawn to yen-denominated domestic debt, sell foreign holdings including French bonds, which would hurt France. France's last two quarters of GDP data are already weak.
“So if you put them both together, you've got like debt to GDP, private and public, running at about 225%”at 38:27
The David Lin Report: 'Financial Crisis' Trigger: What Midterm Elections Will Do To Markets | Steve Hanke ·
Japanese investors selling French government debt would be a real problem for France.
Hanke says Japanese investors will start selling French government debt, which would be a real problem for France. David Lin agrees that this would push French yields even higher and raise borrowing costs. The excerpt starts mid-discussion, so the supporting case for the Japanese selling is not visible in this part of the transcript.
“the Japanese will start selling that French debt, which will be a real problem for the French.”at 40:05
The David Lin Report: 'Financial Crisis' Trigger: What Midterm Elections Will Do To Markets | Steve Hanke ·
Money supply growing above the 6% golden rate means too much liquidity, keeping inflation elevated.
Hanke judges US liquidity by money supply growth. M4, the broadest major aggregate, is growing 7.4%, above his 'golden growth rate' of 6%, which he says is consistent with hitting a 2% inflation target. He concludes there is not a liquidity shortage but probably too much liquidity. He adds that the inflation genie is still out of the bottle, so money growth is driving inflation that remains very elevated.
“looking at the money supply, it's growing rate that exceeds Hanke's golden growth rate of 6%, a rate consistent with hitting a 2% inflation targets... So there's not a problem with liquidity, there's probably too much liquidity.”at 40:39
The David Lin Report: 'Financial Crisis' Trigger: What Midterm Elections Will Do To Markets | Steve Hanke ·
Taming inflation needs much tighter policy: Fed funds near 6.75%, or money growth cut from 7.4% to 5-6%.
Hanke says money supply growth of 7.4% is too fast to bring inflation back into the bottle, so money growth would need to slow to roughly 5-6%, which means tighter money. In Keynesian terms, he cites an analyst's calculation (Schlock) that the Fed funds rate would need to rise about 275 basis points, from roughly 4% to about 6.75%, to control inflation. Hanke frames this as the Keynesian view and presents the monetarist route, slowing money growth, as the alternative. Both routes point to tighter policy.
“And with me, the money supply is growing too fast to get it back in the bottle, you'd have to slow it down to from 7.4% to something like five or 6% growth rate. So this all means tighter money.”at 42:01
The David Lin Report: 'Financial Crisis' Trigger: What Midterm Elections Will Do To Markets | Steve Hanke ·
Rising money supply and velocity are lifting nominal GDP, which explains recent 3.4% real growth.
Hanke uses the quantity theory of money equation of exchange (MV = PY). He says money supply and velocity are both accelerating, which raises the right-hand side (prices times real activity). Adding those together, nominal GDP is rising. He presents this as the explanation for the 3.4% real growth figure, and notes that inflation is also very elevated. He disputes a declining-liquidity reading, saying the money supply is still accelerating, so the picture is one of nominal expansion.
“If both of those are increasing, that means that the right hand side, P plus Y, price plus real economic activity. Add those two together and you get nominal GDP, it's going up.”at 44:58
The David Lin Report: 'Financial Crisis' Trigger: What Midterm Elections Will Do To Markets | Steve Hanke ·
US inflation stays above target because broad money (Divisia M4) grows about 7.5%, above the 6% golden rate.
Hanke's golden growth rate, the money supply growth consistent with a 2% inflation target, is about 6% a year, possibly a bit less. The Divisia M4 measure, the broadest and best money measure per Hanke, published by the Center for Financial Stability, is running about 7.5%. Money growth above the golden rate means inflation must run above target. Every inflation measure he checks, core included, runs above target. Inflation is always and everywhere a monetary phenomenon, so the CPI print is driven by overall money growth rather than by the noise across the more than 300 CPI items.
“it's running about seven and a half percent, so it's money supply is growing greater than the golden growth rate, a rate consistent with hitting the target”at 5:43
The David Lin Report: Hot Inflation Shocks Markets: The Worst Is Still To Come | Steve Hanke ·
Energy costs are pushing up CPI and household bills, so the energy shock matters for inflation.
Hanke rejects the claim that the energy shock is not moving inflation. The biggest year-over-year CPI gains are energy items: fuel oil up 74%, gasoline up 34%, utility gas up 5% and electricity up 4.4%, all above headline CPI of 3.7%. Heating oil bills in New England are biting as households fill tanks before winter. Hanke says this is why people are complaining, even though some categories such as used cars, down 1.5%, are falling.
“That's totally incorrect. We should be very concerned about it.”at 8:45
The David Lin Report: Hot Inflation Shocks Markets: The Worst Is Still To Come | Steve Hanke ·
Inflation and cost of living are Trump's Achilles heel before the midterms, with poor polling on both.
The election is the first Tuesday of next month, and voters are focused on inflation, affordability and the cost of living. Trump is getting very bad polling numbers on these issues. Hanke cites a survey in which about 70% of people say they are not satisfied with affordability and cost of living, which he treats as the number that counts over official data.
“People are talking about the Achilles heel of Trump, and that's inflation, and the cost affordability, and the cost of living, all those things.”at 15:29
The David Lin Report: Hot Inflation Shocks Markets: The Worst Is Still To Come | Steve Hanke ·
Gasoline price controls would bring back queues; waiting in line rations fuel at a higher cost than prices.
The 1970s sorry-no-gas signs were caused by price controls. Under controls, waiting time rations gasoline instead of price. The waiting time can be more costly than a higher price: if your hourly opportunity cost is around $35 or more, an hour in line costs you more than the extra price at the pump. Hanke argues that people who want price controls show economic illiteracy.
“If you do those price controls, you will have to wait in line because the waiting time will ration the gas.”at 20:05
The David Lin Report: Hot Inflation Shocks Markets: The Worst Is Still To Come | Steve Hanke ·
Oil stays high: physical crude trades 35-40% above futures as inventories are abnormally low.
Futures quotes are paper prices, not prices for physical oil. Physical oil is about 35-40% above the quoted benchmark; adding roughly 40% to Brent approximates the landed physical price at most destinations. Backwardation signals a storage shortage rather than falling future prices: buyers pay a premium for prompt barrels, and traders borrow from the future to pull oil into inventory because inventories are abnormally low. Hormuz flows have recovered only partly, and logistics add cost and delay: oil is transshipped from smaller to larger tankers, tanker lease rates have gone through the roof, and refiners must decide where scarce barrels go. These frictions keep prices elevated even as volumes recover.
“Those are paper prices, they're not prices for physical oil. The physical oil prices are up about [35 to] 40% greater than the prices we're quoting right now.”at 24:39
The David Lin Report: Hot Inflation Shocks Markets: The Worst Is Still To Come | Steve Hanke ·
China is cutting diesel exports despite spare refining capacity, defying Trump's request for more supply.
US refiners run at about 97% utilization, while China's refiners run at only about 75%, so China has excess refining capacity. After Trump met Xi and asked for more diesel production and sales, China cut its exports of diesel and refined products. Hanke reads this as Xi telling Trump off. Chinese refiners' margins are very fat, but Hanke notes that in China refiners do what Beijing tells them.
“and what did Xi do? He quietly went home and cut the exports of diesel and refined products.”at 27:29
The David Lin Report: Hot Inflation Shocks Markets: The Worst Is Still To Come | Steve Hanke ·
About 45% of Russian refining capacity has been knocked out, limiting Russia's ability to send diesel to the US.
Hanke argues that Russia's promised diesel to the US is peanuts, and questions whether Russia can deliver at all because about 45% of its refining capacity has been knocked out by Ukrainian strikes. He says the Ukrainians could not hit these targets without US-provided targeting coordinates, so US involvement underlies the refinery outages that constrain global diesel supply.
“about 45% of their refining capacity has been knocked out by the Ukrainians.”at 31:17
The David Lin Report: Hot Inflation Shocks Markets: The Worst Is Still To Come | Steve Hanke ·
Trump's diesel measures are theatrics; EU releases were already scheduled and Russian promises are negligible.
Trump threatened Europe with a 50% tariff unless it released diesel from storage, but the European releases had already been scheduled since March, so the announced releases add nothing new. Trump also temporarily lifted some Russia sanctions, which Hanke sees as a good thing because he considers sanctions counterproductive. Putin's promised diesel to the US is peanuts, and Russia's capacity to deliver is doubtful because about 45% of its refining has been knocked out. Hanke concludes that the policy steps amount to theatrics that will not change the supply outlook.
“Everything Trump is saying is it's basically theatrics. It's not going to amount to anything.”at 31:59
The David Lin Report: Hot Inflation Shocks Markets: The Worst Is Still To Come | Steve Hanke ·
Diesel tightness persists; IEA's view that supply stays tight into late 2027 is right.
Diesel is the epicenter of the energy concern, up about 70% since the start of the war. Agriculture is in harvest, with combines running full speed on diesel, and trucking demand is heavy, with fills topping $1,000 per rig. Around 45% of Russian refining capacity has been knocked out by Ukrainian strikes, which limits Russian diesel exports. Hanke agrees with the IEA that supply stays tight, with the squeeze lasting into late 2027, and that prices will stay high for quite some time.
“the International Energy Agency has the numbers, and they have the right diagnosis that these prices will stay high for quite some time.”at 32:07
The David Lin Report: Hot Inflation Shocks Markets: The Worst Is Still To Come | Steve Hanke ·
Airline demand is relatively insensitive to fare increases; travel holds up despite a 22% fare rise.
Airfares rose 22% year over year in the CPI report, yet TSA throughput for 2026 has stayed roughly flat and is up relative to the start of the year. Hanke says demand for air travel is relatively insensitive to price moves of this size. He attributes this to the wealth effect, since many air travelers hold stock portfolios, and that keeps consumption robust.
“The demand for airline travel is what you're showing is relatively insensitive to price movements of the magnitude that they've been going up.”at 33:16
The David Lin Report: Hot Inflation Shocks Markets: The Worst Is Still To Come | Steve Hanke ·
Stock-market wealth effect keeps US consumption robust despite higher energy prices.
Many travelers hold stock portfolios, so the wealth effect applies. Hanke puts the marginal propensity to consume out of stock wealth at about 3 cents per dollar: a $100 gain in stock portfolios induces about $3 of extra spending. This keeps US consumption pretty hot despite high fuel and fare prices, and it explains why travel demand has held up.
“if the stocks go up by $100 ... the wealth effect, that increase in wealth, will induce consumption increases of about $3... So that keeps consumption pretty hot in The US economy.”at 33:45
The David Lin Report: Hot Inflation Shocks Markets: The Worst Is Still To Come | Steve Hanke ·
Venezuela must dollarize; only replacing the bolívar with the dollar ends its roughly 250% inflation.
Venezuela has the world's highest inflation, about 250% a year, which Hanke measures daily. Iran is second at about 140%, up from about 90% before the war. Hanke has helped dollarize Montenegro in 1999, Ecuador in 2000 and Zimbabwe from 2008 to 2014, and says dollarization crushes inflation, stimulates growth and exports, and introduces stability. The economy has already informally dollarized, since groceries are priced in dollars and big purchases are not made in bolívares. The process: freeze central bank money issuance for 30 days, let the currency float, set the conversion rate from the free-float evidence, then exchange old notes for dollars.
“the only way to solve this problem and introduce stability into the economy is to replace the [bolívar] with the US dollar to dollarize the country.”at 35:07
The David Lin Report: Hot Inflation Shocks Markets: The Worst Is Still To Come | Steve Hanke ·
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