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 anchors of currency, previously the only anchor, so in the past gold and silver = currency, thus the classic saying 'Gold and silver are born as currency; currency is not necessarily gold and silver.'
Currency: domestically also known as 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 someone else's liability. There is also a classic saying that corresponds to 'One party's surplus is another party's liability.'
In market circulation, it is considered to be the same thing, purchasing power is the same, but these three are clearly different.
In a normal market, it will ensure the reasonable abundance of credit. Since what is earned is credit, if there is a surplus (generally in the market, efforts are made 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 anchor items, but ordinary people may only have access to gold and silver).
Because we used to be in this economic cycle, basically storing currency was correct, because of economic growth, the demand for currency was high. But what if it is a countercyclical period? Then store anchor items because the demand for currency is low, thus interest rates will definitely decline. Although the growth rate of M1 is also declining, M2 will not decrease to maintain normal circulation in society; it may even increase, meaning M2 increases more than M1, or in other words, liabilities M2 are greater than surplus M1.
Due to the corresponding relationship among the three, in a countercyclical situation, M2 is greater than M1, and M2 corresponds to indiscriminate labor, which will inevitably cause M1 to become worthless, and the decrease in the value of M1 will manifest as an increase in the nominal price of the anchor item.
Therefore, store currency in a cyclical period and store gold and silver in a countercyclical period. If there can still be a surplus.
