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“The stock market is in bubble territory… and that signals danger,” warns Steve Hanke, a renowned economist and professor of Applied Economics at Johns Hopkins University. In this episode of the 2025 Outlook Series, Hanke sits down with Daniela Cambone to discuss the global economy, trade policies, and the key risks shaping the year ahead.

Prof. Hanke predicts a significant slowdown in the U.S. economy in 2025, citing the contraction of the money supply and the pace at which it grew as key factors. He also critiques President-elect Donald Trump’s mercantilist trade policies, arguing that viewing trade as a “zero-sum game” will ultimately harm the U.S. economy. “It’s immoral for the government to be interfering with you and I who are voluntarily agreeing to you sell,” he states.

Turning his attention to Europe, Hanke highlights serious concerns about Germany’s faltering economy, calling it “in the tank big time” and cautioning about its potential to destabilize the broader European economy.

Money Supply and Its Impact on the Economy

According to Steve Hanke, the key driver of economic activity is the money supply. Over the past two years, the U.S. money supply has contracted, with current growth rates falling far below the 6% annual increase necessary to sustain the Federal Reserve’s 2% inflation target. Historically, such contractions have preceded significant economic slowdowns, with some even triggering recessions, as seen during the Great Depression.

Hanke emphasized that the relationship between money supply and nominal GDP—a combination of real GDP growth and inflation—is clear. With reduced money supply growth, economic activity inevitably slows. While Hanke and his colleague John Greenwood initially predicted a recession in 2024, they now foresee a pronounced slowdown in 2025, cautioning against undue optimism in the market.

Inflation Trends: What to Expect in 2025

Inflation remains a central concern for Americans, especially those nearing or in retirement. Hanke noted that inflation is on a downward trajectory, with headline Consumer Price Index (CPI) figures likely to dip below 2% this year. This decline is attributed to the reduction in money supply growth and the depletion of the pandemic-era “cash overhang.” While this may offer some relief, it also signals a deceleration in economic momentum.

The “Biggest Bubble” in the Stock Market

Hanke warned that the stock market is currently overhyped, overbought, and in what he calls the “biggest bubble” territory. While he refrained from making specific predictions, his “bubble detector” is signaling danger. For financially conservative individuals, this serves as a crucial reminder to diversify portfolios and prioritize wealth preservation over speculative gains.

The Debt Crisis and Tariff Troubles

The U.S. debt crisis continues to exacerbate economic instability. Hanke highlighted the parallels between today’s fiscal policies and past events, such as the Smoot-Hawley Tariff, which deepened the Great Depression. Tariffs, he argues, disrupt free trade, inflate costs for manufacturers and consumers, and invite retaliatory measures from trading partners. These dynamics stifle economic growth and contribute to global uncertainty.

Lessons from Europe: Red Tape and Energy Policies

Turning his attention to Europe, Hanke described the economic struggles of the European Union (EU), particularly Germany. Once the powerhouse of Europe, Germany is now facing its longest recession since World War II. The country’s transition to green energy, coupled with the loss of Russian gas supplies, has driven electricity prices sky-high, crippling its industrial base. This “suicidal” policy approach, compounded by excessive red tape, has undermined the EU’s economic resilience.

Hanke also pointed out the damaging effects of the Value-Added Tax (VAT), a policy prevalent in many EU countries. He argued that VAT slows economic activity, contrasting it with the U.S., which has avoided such a tax. For those concerned about their retirement savings, these insights underscore the importance of protecting assets from global economic turbulence.

Protecting Your Wealth Amid Uncertainty

As economic challenges mount, it’s crucial to safeguard your wealth with tangible assets that offer stability and security. At ITM Trading, we specialize in helping individuals build resilient portfolios centered around gold and silver. With over 28 years of expertise, we provide tailored strategies to protect your financial future from market volatility, inflation, and currency fluctuations. Now is the perfect time to evaluate your financial strategy. Whether you’re reconnecting with us or reaching out for the first time, let us help you design a personalized plan to secure your wealth. Schedule a call with one of our experts or book a Calendly appointment. Don’t wait—take control of your financial future today.