Inflation, Money Circulation = Gangrenous Liquidity, Rising Gold Price

According to Oxford,

Inflation, the general increase of prices and fall in purchasing value of money.

Deflation, reverse or reversal of inflation.

Stagflation, state of inflation without the corresponding increase of demand and employment.

A situation arises where the quantity of money is not as important as how far its circulation reaches. It slowly becomes insufficient to buy the needs and wants of the population at the periphery of the economy.

For instance in stagflation, there may be money around but it’s not producing the economic flows that it should. This can also be tied to the extent of the circulation and the velocity of money itself. There may be sufficient money around but is becomes locked up in Treasury bonds and not lent into the economy to stimulate economic activity (such is the case now). Asset prices rise in this environment and further make inadequate the money for purchasing such assets.

Alternatively, the reduction of money can happen in situations, like today, when mortgages are at an all-time low of 3.94%, but through fear of falling house prices (reducing creditworthiness) potential job losses and the consequential need to save for the rainy day, house buying drops off. Every situation produces a reduction in the available supply of money and precipitates liquidity crises. This is from where the major threat to monetary stability comes. In our global world, with its plethora of national currencies, a non-national asset becomes protection against inflation, deflation, and stagflation across the globe.

Why should this be good for gold? Gold is both an international asset and international cash. It’s the combination of these qualities (and the liquid nature of gold, in the most difficult of situations) that set it apart from paper money and other assets. It’s these qualities that will force the monetary system to bring gold back into the global, monetary system in one way or another.

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via Inflation, Money Circulation = Gangrenous Liquidity, Rising Gold Price – GoldSeek.com.

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