Economist Warns Prices Soar, Jobs Disappear In 2026 | Steve Hanke

Key Concepts

• Money Illusion: The tendency to focus on nominal prices rather than real values adjusted for income, leading to misperceptions of affordability.
• Misery Index: A measure of economic hardship calculated by adding the unemployment rate and the inflation rate.
• Quantitative Tightening/Easing: Central bank policies of reducing (tightening) or increasing (easing) the money supply by adjusting its balance sheet.
• Hanky’s Golden Growth Rate: A theoretical rate of money supply growth consistent with achieving a specific inflation target (typically 2%).
• Dollarization: The adoption of a foreign currency (like the US dollar) as the official currency of a country.
• Regime Change: The overthrow of a government and its replacement with a new one, often through external intervention.
• Hyperinflation: Extremely rapid and out-of-control inflation, typically exceeding 50% per month.

Economic Outlook & Affordability (2026)

The discussion centers around a pessimistic economic outlook for 2026, characterized by rising inflation, increasing unemployment, and a resulting decline in living standards, particularly for those below the median income level. Professor Hanky argues that the Federal Reserve’s monetary policies have exacerbated income inequality, benefiting the wealthy through asset price inflation while real incomes for the poor have stagnated or declined. This is illustrated by the clip from the upcoming Keanu Reeves movie, “Good Fortune,” depicting a worker struggling with insufficient income despite multiple jobs.

A key point is the concept of “money illusion,” where individuals focus on rising nominal prices without adjusting for income increases, leading to a perception of decreased affordability even when real purchasing power has improved. However, the professor anticipates that in 2026, rising prices will outpace income growth for many, creating genuine affordability issues. He predicts the “misery index” will increase, signaling widespread economic hardship.

Monetary Policy & Inflation (2025-2026)

Professor Hanky expresses concern over recent shifts in Federal Reserve policy. The cessation of quantitative tightening (QT) in December 2025, coupled with potential moves towards quantitative easing (QE) – specifically the $40 billion monthly purchase of Treasury bills – signals an acceleration in the money supply growth rate. He believes this will counteract previous efforts to control inflation.

He highlights several factors contributing to inflationary pressures: the lowering of the Fed funds rate, the upcoming reduction of the bank supplemental liquidity ratio (allowing banks to make more loans), and the overall acceleration of the money supply. He confidently predicts that the Consumer Price Index (CPI) will reach an all-time high by the end of 2026, simply by virtue of continuous inflation. He cautions against misinterpreting short-term fluctuations in the CPI, like the anomalous drop in November 2025 due to a government shutdown affecting data collection.

Asset Performance & Income Inequality

The professor argues that rising inflation and potential economic downturn will disproportionately benefit those holding assets (real estate, stocks, commodities) while harming those reliant on wages. He cites the increasing wealth concentration among billionaires as evidence of this trend, noting that their share of GDP has risen from 14.1% before COVID to 22.7% currently due to asset price inflation fueled by the Fed’s policies.

He suggests that gold and silver are potential safe-haven assets in this environment, noting his own recent investment in silver. He predicts gold could reach $6,000 per ounce, driven by factors like Chinese demand and the metal’s perceived value in times of economic uncertainty. He points to China’s restrictions on silver exports as a bullish signal.

Global Economic Concerns & Geopolitics

The discussion extends to global economic risks, focusing on Japan and Venezuela. Japan is described as a “basket case” due to decades of ultra-tight monetary policy, stagnant productivity growth, and a potentially misguided new economic plan. Germany and the UK are also identified as facing significant economic challenges.

Regarding Venezuela, Professor Hanky views US policy as counterproductive. He argues that sanctions, while intended to pressure the Maduro regime, have instead strengthened his position by creating a “rally around the flag” effect and causing a severe economic crisis, evidenced by a current inflation rate of 642% per year. He differentiates between sanctions (which he believes fail) and blockades (which he believes are more effective, though potentially destabilizing). He notes the impact of the US blockade on Venezuela is also negatively affecting Cuba, which relies on Venezuelan oil. He emphasizes that the US has a long history of unsuccessful attempts at regime change.

The Dollar & China

Professor Hanky touches on the weakening US dollar, noting the USD index is approaching a yearly low. He attributes this to factors like Japan’s economic struggles and the overall global economic climate. However, he emphasizes that China is the “elephant in the room” when analyzing global economic trends. He points out that China’s nominal GDP growth target (7%) is unlikely to be met due to a money supply growth rate below his “golden growth rate,” potentially leading to a de facto recession.

Notable Quotes

• “The Fed created enormous income inequality. You see, monetary policy was not neutral. When they gooseed it, it was nonneutral and it benefited the rich tremendously.” – Steve Hanky
• “The money illusion is you you don't look at the income increase that you've had over a time period. you only look at the price increase.” – Steve Hanky
• “Sanctions have a history of never working. They they create a re a rally around the flag effect and and and keep keep somebody in power that you're targeting.” – Steve Hanky
• “Take it to the bank. the the CPI price index will be at an all-time high at the end of 2026.” – Steve Hanky

Data & Statistics

• Venezuela Inflation: 642% per year (as of the discussion)
• Billionaires’ Wealth as % of GDP: Increased from 14.1% (pre-COVID) to 22.7% currently.
• Median Age of First-Time Homebuyers: Increased to the mid-to-late 30s (compared to earlier decades).
• China CPI Inflation: 0.7% year-over-year (as of the discussion).
• US Navy Deployment: 25% of the US Navy is currently deployed in the Caribbean.
• Cuba Inflation: 36% per year (and rising).
• Venezuela Oil Reserve Depletion Rate: 0.1% per year (Pedesa).
• Exxon Oil Reserve Depletion Rate: 8% per year.

Synthesis/Conclusion

The conversation paints a bleak picture of the US and global economy heading into 2026. Rising inflation, fueled by expansionary monetary policy, coupled with potential economic slowdowns and geopolitical instability, are expected to exacerbate income inequality and create widespread economic hardship. Professor Hanky advocates for a focus on real economic values rather than nominal prices and suggests that assets like gold and silver may offer some protection in this volatile environment. He is highly critical of interventionist policies like sanctions, arguing they are historically ineffective and often counterproductive. The overarching theme is that affordability will be the dominant narrative, posing a significant political challenge for policymakers.