Former Reagan Advisor Thinks U.S. Economy Is On A Dangerous Path, But Still Likes These 3 Investments

In a recent interview on the Sachs Realty YouTube show, Steve Hankey, a former senior economist on President Reagan’s Council of Economic Advisers, shared his thoughts on the current state of the U.S. economy and the investments he recommends in light of the potential challenges ahead.

Hankey, who has taught economics at Johns Hopkins University and served as a senior adviser to the Joint Economic Committee of the U.S. Congress, believes that the Federal Reserve’s actions have played a significant role in the recent inflation surge. “The Fed currently poo-poos the quantity theory of money,” Hankey said, adding that “they don’t even look at the money supply. That’s not in the models they use.”

According to Hankey, this oversight led to the Federal Reserve “flying blind” and failing to predict the inflation spike. He and his colleague, John Greenwood, accurately predicted that inflation would reach 9%, which it did in June 2022.

Hankey also expressed concern about the growing role of the government in decision-making, particularly regarding industrial policy. He warns that if the U.S. continues on this path, the economy may slowly unravel. “If we stay on this industrial policy course, this idea that the state is going to run more and more and more things and take more and more decisions, we might slowly unravel,” Hankey cautioned.

Looking ahead, Hankey predicts that the U.S. economy may face a recession later this year due to the contraction of the money supply. “Since March of 2022, we’ve had our fifth contraction we’ve ever had in the United States, and that’s why I think we’re in for a slowdown in the economy and a recession later this year,” he explained.

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Given the potential economic challenges, Hankey recommends three investments for consideration:

1. Gold as a long-term investment 

Hankey notes that gold has always been part of the international monetary system and is attractive because it is not a liability of any sovereign nation.

The price of gold has been surging recently, up 13.1% YTD despite a pullback after hitting a new all-time high last week. This is primarily attributed to central banks, led by China, buying gold at unprecedented levels since 2022. 

2. Iowa farmland as a stable long-term investment 

As a farm boy from Iowa, Hankey points out that farmland is a limited resource that has shown a consistent upward trend in value over time. According to data from AcreTrader, Iowa farmland has appreciated at an annual rate of 8.8% over the past five years.

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3. 10-year Treasury bonds as a potential trade opportunity 

With yields near 5%, Hankey believes that if inflation continues to decline towards the Federal Reserve’s 2% target, the price of 10-year Treasury bonds will increase, providing investors with both a steady coupon and potential capital gains.

While Hankey acknowledges that no investment is entirely risk-free, he believes these three options offer potential benefits in the current economic environment. As investors try to make sense of the current economic climate, Steve Hankey’s insights and recommendations provide valuable food for thought and his perspective as a former Reagan advisor and experienced economist offers a unique lens through which to view the challenges and opportunities that lie ahead.

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Image source: Screenshot from Sachs Realty interview with Steve Hankey on YouTube.