Many brothers ask me, what is the relationship between gold, silver, currency, and credit? What are M1 and M2?

First, gold and silver: are one of the currency anchoring items, previously the only anchoring item, so in the past gold and silver = currency, which led to the classic saying: 'Gold and silver are naturally currency, but currency is not necessarily gold and silver.'

Currency: domestically also called M1, which is the real printed money.

Credit: Actually, what circulates in the market is credit, which is essentially liabilities. So what about currency? Currency exists in banks, and what circulates in the market is the liabilities M2 released by banks based on M1; the money you earn is actually the liability of one party. There is also a classic saying corresponding to this: 'One party's surplus is another party's liability.'

In market circulation, it is believed that this is one thing, and the purchasing power is the same; in fact, these three are obviously different.

In a normal market, there will be a reasonable abundance of credit. Since what is earned is credit, if there is a surplus (generally, the market will strive not to leave a surplus, high wages, high prices, high-interest rates, low wages, low prices, low-interest rates), then it must be stored upstream, which means either storing currency M1 or storing gold and silver (or other anchoring items, but ordinary people may only have access to gold and silver).

Because we used to be in this economic cycle, it was basically correct to store currency, as the economy was growing, and the demand for currency was high. But what if it is a counter-cyclical situation? Then store anchoring items, because the demand for currency is low, thus interest rates must decline. Although the growth rate of M1 is also declining, M2 will not decrease in order to maintain normal circulation in society; it may even increase, which means M2 increases more than M1, or in other words, liabilities M2 are greater than surplus M1.

Because of the correspondence among the three, in a counter-cyclical situation, M2 is greater than M1, and M2 corresponds to indiscriminate labor, which will inevitably cause M1 to lose value, and the decline in the value of M1 will manifest as an increase in the nominal price of anchoring items.

Therefore, store currency in a pro-cyclical situation, and store gold and silver in a counter-cyclical situation.

If there is still a surplus.