From: "Adam Back" <[EMAIL PROTECTED]> > Consider during periods of high inflation people don't like holding > money, as it devalues too fast. They will hold interest bearing > deposits instead.
Agreed. > During periods of high deflation, they will hold cash if it is the > most attractive "investment". The result will be shortage of cash, > for people who actually want to use it to make purchases because > investors will buy all of it. Right. And a shortage of anything, cash making no exception, is solved automatically (if the market is left alone). The value of a monetary unit will rise until its price will be considered (by the cash holders) high enough - that is, until they will value something else more than the cash. Shortages are NEVER a problem if the market is left alone to clear it - they simply indicate an undervaluation of the commodity. > Perhaps there are some government monetary systems in history which > had this problem. For example gold with sudden shortage of gold > supply, or similar. Once you put the gov't into the equation, all bets are off :) Mark