This author indicates confidence influences POG more than inflation or deflation
pei-intl.com
Taken from Market Myths on the Princeton site
>>In the case of a gold standard era such as the Great Depression, the
rate of spending declines but the hoarding of gold increases.
Hyperinflation, such as in Argentina in the 1980's and Germany in
the early 1920's, emerges when the consumer cannot hoard gold
and thus he hoards tangible goods which causes prices to escalate
rapidly. When gold is available, as was the case in the AS during the
1930's, money supply contracts causing deflation as consumers
hoard their gold by withdrawing their saving from the banks. In each case, the consumer's lack of confidence in the system remains the
common denominator and the effects of deflation and hyperinflation
become indistinguishable in the final analysis. If interest rates and their effect upon the system were truly linear, then neither trend
would be possible. Government could theoretically raise interest
rates fast enough to prevent hyperinflation or lower them fast
enough to prevent depression. Unfortunately, the Federal Reserve
lowered its discount rate from 6% to 1.5% between 1929 and 1931,
faster than at any time in history, with no effect whatsoever in
relaxing the deepening depression. Interest rates rose rapidly during
the hyperinflation of Germany and Argentina, again with no effective
change in trend.<<
bold added
I believe this may have been posted here before but it is an interesting essay and worth reading for those who may have missed it |
