Skip past the menu Skip to accessibility controls

Gold and the Dangers of the Low-Liquidity Punch Bowl

Grizzle  ( Original )
JAN 31, 2018

It can’t be repeated often enough. The Fed has kept interest rates so low for so long it has psychologically normalized emergency stimulus conditions for the stock market. Younger traders might literally not remember a time when money wasn’t free and credit wasn’t practically limitless.

This cannot, will not, continue forever. Yet the market is behaving as if that is the most likely reality.

VELOCITY OF MONEY REMAINS LOW (FOR NOW): In such circumstances it is possible that there is an inflection point in the turnover of money, or what economists call “velocity’’ (the rate at which money is spent), most particularly if the value of government-guaranteed debt is ever called into question. Gold is the only practical way of hedging such a development.

It is interesting to note that velocity has continued to decline since 2009 despite the frenzied G7 central bank money printing. Indeed it is at a record low.

ORIGINAL SOURCE: MACRO BATTLESHIP: THE BIG PICTURE by Christopher Wood at Grizzle on 1/28/18