Deflation

Though government intervention throws a wrench into things and prevents a pure ‘free market,’ there are still fundamentals that hold true. Take supply and demand for instance. With increased demand, the price of a product will rise up to the point at which the consumer will pay for it. If the asking price is too high, buyers pull back, and then there is more supply than the demand warrants. The price then falls to the point at which consumers begin to buy again.

 In a recessionary or debt-based environment, what happens when people no longer have the credit or excess money to purchase things? If they are more focused on saving and paying down debts, how much money is left for discretionary spending? Will most people dine out less often, buy less TVs, and put off getting a new car?

 These questions are relevant because if the supply of money is reduced, then in turn, demand will be reduced across the board. This would result in the value of everything falling, and gold and silver will not necessarily be immune to that fall, either. In this situation, having cash on hand may be a smart move. As long as societal collapse is averted, and the system remains intact, bargains will be able to be had for those with the cash.

 Look at it this way, if the majority of people are unemployed, underemployed, or paying off a debt, that means they have less cash for everything else. Cash is in demand for them, so its value actually goes up….even though the government is debasing the currency at the same time. Not confusing at all, right?

 Really though, in any case, you’ll want to have cash on hand anyway. In the event of a bank holiday or some unforeseen situation, you will need something to hold you over until the circumstance subsides. Also, keep in mind that inflationary bubbles often end with a deflationary crash. It all comes down to the timing of it all. In a deflationary environment, cash is king. No, your debit card is not cash.

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