Bond Yields Surge: How Much Higher Before Economy Breaks? | Steve Hanke

Market Volatility and Affordability Crisis00:00:00

The discussion opens with the surge in US Treasury yields, reaching levels not seen since 2007. Professor Hanke highlights the severe affordability crisis facing median-income households, which is impacting consumer sentiment and will likely influence upcoming political outcomes.

The Root of Inflation and Money Supply00:14:13

Hanke explains that despite Federal Reserve rate hikes, the M2 and Devisia money supply measures are accelerating. He identifies this growth as the primary driver of persistent inflation, arguing that monetary policy should be measured by money supply changes rather than interest rates alone.

Bond Market Pressures and Structural Factors00:20:43

Hanke outlines six factors fueling high bond yields, including excess money supply, massive credit demand from AI investments, tariff-related policies, geopolitical tensions with Iran, and general economic uncertainty. He discusses the potential for a 'bond buyer strike' rather than a traditional bank-run scenario.

Recession Outlook and Investment Strategy00:27:00

While the economy remains resilient due to AI-driven spending, Hanke warns of potential structural risks. He remains bearish on nominal bonds, suggesting that Treasury Inflation-Protected Securities (TIPS) are a better alternative, and reaffirms his long-term bullish stance on gold, predicting it could reach $6,000–$7,000 per ounce.