Episode Transcript
[00:00:00] Speaker A: Foreign.
[00:00:11] Speaker B: Ratansi and welcome to a brand new season of going underground. Amidst brutal war in West Asia, millions have been displaced as the American war in Iran and the UK US EU armed Israeli wars on Lebanon and Palestine continue. We're broadcasting all around the world from a UAE free of a de facto compromised OPEC and which has been participating this week at one of the world's largest annual economic events, the St. Petersburg International Economic Forum. Today is the final day of the forum in Russia where around 20,000 from 100 countries arrived despite NATO armed attacks on St. Petersburg. Countries represented include the uae, Saudi Arabia, China, Iran and the United States for the first time in nearly a decade. And perhaps it's ironic that while today NATO propaganda media will be celebrating 82 years since the D Day landings in France, their fake journalists won't refer to the decisive role of Moscow in success again against the Nazis. Right now, Russia is one of the few nations accumulating windfall revenue from the Epstein War in Iran. But for billions in the global south, let alone the catastrophic economic basket cases of Western Europe, Trump has catalyzed unpredictable Tehran, control of the Strait of Hormuz. Already unstable countries like the UK are set to introduce price controls for bread, eggs and milk as they send billions to the dictatorship in Ukraine. Professor Steve Hanke of Johns Hopkins University is one of America's best known monetary econom.
He has advised not only the UAE government and its Financial Advisory Council, but many governments all around the world. He actually advised the UAE to leave opec. His most recent book is Making Money Work, how to Rewrite the Rules of Our Financial System. And he joins me again from Baltimore in Maryland. Thank you so much, professor, for coming back on Going Underground. I'll get to eggs later because commodities is going to be part of this show, isn't it? I mean, Putin and Saudi UAE minutes, Saudi ministers, UAE ministers, China' Vice President Han Zheng, they were all in St. Petersburg at the International Economic Summit amidst this devastating war in West Asia. You tweeted in capital letters, strait remains closed equals Russia remains a big winner. Why?
[00:02:26] Speaker A: Well, the commodities that are all plugged up in the Gulf right now are in short supply and the price is going up. And it happens that Russia produces some of those key commodities that are plugged up in the Gulf. One of them happens to be oil, but also fertilizers, also helium, also aluminum and etc. So as those prices go up, of course that's beneficial to Russia is exporting and to some extent even having some of the sanctions lifted at least Temporarily on Russian exports, believe it or not.
So the quantities of exports for those items, with the exception of fertilizer, because Russia did hold back the export of fertilizer, but the other commodities are actually increasing the quantities that they're exporting, and they're exporting those at higher prices.
So they're a winner in that sense.
And just look what. You can see this in all kinds of telltale signs, one being the fact that the ruble's pretty strong right now.
[00:03:52] Speaker B: Yeah, I mean, of course,
[00:03:57] Speaker A: there's a little grumbling about that with the fiscal authorities in Moscow, because that increase in the value of the ruble versus the US Dollar means that for every dollar's worth of oil or commodities that you're selling, you get fewer rubles per dollar.
So that fiscal deficit increases a little bit as a result of that strong ruble. But the strong ruble, by the way, is also an important factor in anchoring inflation and inflation expectations in Russia. The central bank's been doing a pretty good job.
They've slowed down the money supply growth, and as a result, the inflation's come down.
I think my Hank's golden growth rate consistent with Russia 4% inflation target is around a little over 8%. And now they've got their growth rate down to about a little over 11%, but they've been cranking it down. And as a result, the inflation rate, the official rate, is about 5.6%, which is a little over the target, but it's coming down, not up.
And the strong ruble helps that, of course.
[00:05:19] Speaker B: Yeah. NATO propaganda media, of course, had it both ways, so that when the ruble was sliding, this was a disaster for Russia, and now it's rising. It's also a disaster for Russia. They'll search through the statistics in any way they can. But then why is it, do you think, that the prices seem so different on the markets compared to what you were laying out there about commodities stranded in the Strait of Hormuz?
What's the difference between paper and physical markets? Because oil prices were supposed to go to $200 a barrel when Iran retaliated.
[00:05:55] Speaker A: Well, the physical market.
Think of the physical market as the price for commodities that are delivered today, or let's say in a week.
And the paper market is the price for those commodities that will be delivered sometime in the future.
So there's a timing difference.
The main thing when you're looking at the prices of physicals versus paper is the timing aspect for near term delivery or almost immediate delivery. You're talking about Physical and all things out in the future. You're talking about paper.
[00:06:41] Speaker B: But even two month or three month futures, Brent doesn't seem to have increased that much even amid say the attacks on Kuwait Airport in the past few days.
[00:06:52] Speaker A: Oh yeah. Well, if you look at the prices over the duration of contracts that are available, the so called spot price even in the paper market for the near month delivery is much, much higher than for delivery in two months or three months or four months.
And I think basically the markets just got things wrong in the sense the physical market doesn't, because that is for physical delivery, cash on the barrel head, so to speak. But I think the futures market is just not anticipating things correctly because what's going on with oil, you have all this oil bottled up and not being delivered.
And as a result of that, the demand for oil internationally is greater than the supply that's coming into the market right now. And that gap between demand and supply is being filled by running inventories down.
So inventories of oil are going down, down and hitting in some countries almost rock bottom for most countries on average. I think by the end of July, early August will hit very low critical levels of oil inventories. And when that happens, the price will zoom up again and you'll find out that those people who purchased futures contracts for delivery in August, for example, will make out like bandits because they will have purchased the thing for August delivery today at a price that will be lower than I think the price will be in August when they actually have to deliver.
[00:09:00] Speaker B: This is not investment advice to going underground viewers. But I should also ask you then, what's behind the dislocation between anecdotal evidence that the price per barrel seems way in excess of the world market quoted WTI commodity indicator or the Brent commodity indicator? How do these correlate with prices here on the ground? I'm speaking to you not very far from the straight of Horme.
[00:09:27] Speaker A: Well, again, there are indeed shortages in particular markets. And those markets when the ship arrives and they start unloading the price is, whatever it happens to be, that's a physical and, and, and it is, it's much higher than on these paper markets.
So we, that, that's, that's the, the key to the thing is, and, and you have to think physical, we're talking about physical commodities here. So, so the real physically delivered is higher than it is in these futures contracts that are specified for later delivery.
[00:10:19] Speaker B: Obviously that kind of analysis is going to have been heard at the St. Petersburg International Economic Forum.
British and EU advisers are Busy mass killing, actually, Russians, students and bus passengers. Fewer than those that were killed In Iran, the 168 young schoolgirls killed by Trump in Iran.
What would you advise European leaders specifically? I mean, you obviously advised US Presidents in the past, in this environment of higher commodity prices, given that some are saying, obviously the need now is to subsidize milk, bread, and eggs. One of your favorite commodities, I understand.
[00:11:06] Speaker A: Well, yes. As we were talking before we went on air, the first commodities I ever traded were with my grandfather, and they happened to be eggs 73 years ago.
And the reason for that is that my grandfather had a big egg operation in the state of Iowa. And you would collect the eggs, grade the eggs, store the eggs, wait until you had a. A big semi full of eggs to ship back to New York or Boston. And that would take time. And maybe if he didn't want to take the price risk while he was collecting, grading and storing and so forth, before he actually shipped those things and by the way, physically sold them when they were delivered in New York, he would sell the eggs forward with a futures contract for eggs that existed on the Chicago Mercantile Exchange at the time.
So that's what's called hedging,
[00:12:14] Speaker B: the original purpose of futures before it became more associated with gambling. But the fact is, someone like Zakir Starmer in London is saying, forget all of that. Forget your futures market. Forget the entire market. The government has to step in to keep egg prices stable.
[00:12:30] Speaker A: Absolutely. Starmer has lifted a page out of the Marx and Engels in the Communist Manifesto.
They're even starting to nationalize companies like British Steel.
So they're turning back the page, basically, that was turned by Thatcher when Thatcher started the big privatization movement and got Britain going again.
Now the government's taking things back. They're nationalizing things. They want to impose price controls.
And by the way, all of this is extremely unpopular. Starmer is, as we know, a big Russia phobe.
His popularity is 23% right now.
So you're asking about, in general, European leaders. What would my advice be in general, given the geopolitical situation we're in?
And as it relates to Europe, of course, it's all centered around Russia and Ukraine. What's going on in Ukraine?
And right now you have Starmer at 23%.
Mertz is really in the tank, and Germany at 16% popularity. And Macron is exactly where Starmer is, 23%.
So you have Russia Phobe Starmer, Russia Phobe Merz kind of Russia Phobe Light Macron. He's a little bit all over the place, but they all jump in and they want to sanction.
[00:14:10] Speaker B: We'll get, we'll get back to this. We'll get back to this in part two. Professor STEVE Hanke, I'll stop you there. More from the John Hopkins Applied Economics professor after this break.
Welcome back to Going Underground. I'm still here with Johns Hopkins Applied Economics professor and former senior economist under US President Ronald Reagan, Professor STEVE Hanke. Professor, I was interrupting you as you were describing, you know, it's only one reading of Marx to nationalize everything. I mean, what would your advice be to European leaders that have sanctioned themselves when it comes to the price of living, the cost of living? I mean, obviously you oppose the price controls that are proposed for milk, bread and eggs.
[00:15:04] Speaker A: Well, step, step number one is that I would remove the sanctions on Russia. This, this is, this has been something that sanctions never work, by the way. There's a huge amount of research and academic literature on sanctions and sanctions never accomplish what they are intended to accomplish. And they usually end up backfiring and creating all kinds of unintended negative consequences. And the sanctions on Russia clearly are in that category. If you look, for example, at Germany, the and it's just been completely hollowed out. And the highest energy prices in Europe now are in Germany. So if the sanctions were removed and they were importing energy, oil and gas from Russia, they'd be in a lot better shape than they're in right now.
And that holds true throughout Europe, the whole Eurozone.
But if you look at Germany, actually, the projected growth rate for 2026 in Germany is almost identical to what it is for Russia, both very low, by the way, we're talking about growth rate of. Now, the new projections for both Russia and Germany have them coming in at about a half a percent per year, which is more or less flatline.
But my point is why is the growth rate so low in Germany? It's so low because of many things, but one big thing, big thing is the sanctions.
So one piece of advice would be to remove the sanctions as fast as possible.
The other advice would be to put as much pressure as they possibly can, which they don't have much leverage over the United States and Israel to wind things up in the war against Iran and open up the strait. Actually think about it this way.
Where were we before the United States and Israel attacked and waged war against Iran?
We had the Strait of Hormuz was open.
Nothing was bottled up. We didn't have all these negative price consequences associated with shutting down the Strait.
And let's get the causal relationship here. The causal relationship.
Who shut the strait down? The United States and Israel shut it down.
They were the ones that engaged in a war of choice against Iran.
And it turns out they miscalculated tremendously and didn't realize that the Iranians could, in fact, control the strait, which they're doing. And I think they will continue to do it. And I also think that, unfortunately, the strait will probably remain closed and functionally inoperative for quite some time.
My baseline case is that the strait will be continue to be shut for quite some time.
[00:18:35] Speaker B: Why have you compared Iran to Muhammad Ali with respect to the George Foreman fight? I understand.
[00:18:43] Speaker A: Well, the main reason for that is that, remember, the Muhammad Ali strategy was that Foreman was a formidable foe, a huge guy, and Ali strategy was to stay against the ropes and basically let Foreman exhaust himself. And Ali absorbed the punches by being on the rope. So Ali absorbed all the punches and finally landed the knockout blow when Foreman was basically exhausted. And that's the strategy, fundamentally, that the Iranians have used. They've taken a tremendous pounding by the United States and Israel, but they have basically swung and made a knockout blow with the control of the strait. That's the key to the whole thing, because the longer this goes on, we're talking about commodity prices.
The damage that these higher prices are inflicting are increasing with each passing day. And that's why you talk about the UK Having this affordability crisis and price controls coming in United States here. The key is, of course, the pain being inflicted on the United States and the political pain being inflicted on Trump and his allies in the Republican Party. And we have an election coming up, a by election in November that's right around the corner. And it's not looking very good for Trump and his allies precisely because of the price blowback coming out of the Gulf.
So he's got to get out of there as fast as he possibly can to save his political hide. But the problem is you've got three players in the game, Iran, the United States and Israel. And Israel doesn't want to get out.
They want to go up the escalation ladder.
They don't want to get out.
[00:21:00] Speaker B: So if I'm going to ask you about the. If I'm going to ask you about the global economy for the rest of 2026, I mean, there are already 43 million who can't eat tonight in your country without the help of federal assistance and the SNAP program.
If they're facing wage collapse in Western Europe and Affordability crises.
Do we have to divide it into two? Are there two worlds here? Those that are pro NATO and are going to be suffering and those that are going to come to their own deals with Iran. Iran obviously already has links to China and Russia and the global south and brics, of course.
[00:21:38] Speaker A: Well, well, I think this segues into the economic forum meeting in Moscow that you mentioned earlier.
And that's all really about the geopolitics of pivoting away from the United States and pivoting towards, as you would put, at the global south in general.
Now, that pivot just happens at the margin. The important point is that the pivot is occurring, but it's always just at the margin.
The big elephant in the room is the United States.
The world's capital market is in the United States, and you can't disentangle yourself completely from it. So the idea that you're going to just flip a switch and everybody's going to go to the global south and brics and all this is nonsense. It's not going to happen.
But at the margin, it can happen and as a result, It changes things and things are.
[00:22:52] Speaker B: Yeah, exactly. So what are you forecasting? And I don't know, Kevin Walsh, the new boss of the Fed, I don't know how he factors into this as Trump will want him to ease money supply. So what is your forecast then for the global economy?
[00:23:07] Speaker A: Well, my forecast in terms of the global situation, my baseline is that the strait will remain closed for the foreseeable future and there'll be revisions down.
We won't see the growth that we are seeing in these forecasts right now. I think the forecasts are a little bit too rosy right now.
So the strait is one thing, and what happens in the Ukraine is another thing because the Europeans are dead set on increasing the sanctions against Russia. And if they increase the sanctions, it will not only slow down things in Russia, but slow down things in Europe because of the blowback effect.
I think all the revisions are going to end up going down and the pivot, by the way, is taking place. Because now if you look at the International Perceptions Index, the US A year and a half ago had positive scores, always had positive scores. Now they're minus 11, minus 11.
China was always negative and it's plus 7.
So the switch, this is what happens when these Trump and the sanctioners have really performed a master class on how to make enemies. That's what's going on. So they've made a lot of enemies in the global south and in the BRICS countries and what's going on in Moscow.
They're trying to rally the troops in the Global south in the brics and make the pivot.
[00:25:05] Speaker B: Well, just finally, I don't know how much the 1 1/2 trillion IPO for SpaceX in the past 24 hours is militaristic, but can you just finally understand then why NATO nations introducing boomerang policies think Keynesian militarism is the only way out and that the manufacturing missiles and mortar shells is the only way they have by way of a response as they try to seemingly destroy their own economies?
[00:25:36] Speaker A: Yes, well, we have actually since COVID we've moved towards protectionism, interventionism and militarism, all of those things.
And militarism is blatantly a complete waste of money. Because if you produce a drone, what does a drone actually produce?
You're not investing in a person and training a person.
You're not enhancing human capital that's going to produce something in the future. And you're not building a factory that's going to produce something in the future. You're producing a drone. Now. What does a drone produce?
A drone only destroys things.
That's what we have with money, which
[00:26:25] Speaker B: then have to be rebuilt, which increases gdp
[00:26:30] Speaker A: if that's the way you're counting, which I don't think is a very wise and prudent way to be counting.
There are two ways to run a country badly. One is within confidence and two is with the embrace of ill founded and misguided policies. And I think we have a large dose of incompetence and we have a large dose of the embrace of foolhardy and foolish policies. And militarism is a big one. Name one case where militarism ever did anything positive for an economy, quite apart from the death.
[00:27:18] Speaker B: Professor Steve Hanke, thank you so much.
[00:27:20] Speaker A: Thank you. Very good to be with you again.
[00:27:24] Speaker B: That's it for the show. We'll be back on Monday for the perspective from Shanghai on the Trump Netanyahu Epstein war in West Asia. China is Iran's biggest energy customer and is the world's largest economy by ppp. Meanwhile, you can keep in touch via all our social media if it's not censored in your country. And head to our channel goingundergroundtv on rumble.com to watch new and old episodes of Going Underground. See you Monday.
[00:27:42] Speaker A: It.
