QUESTION: Mr. Armstrong. Does deflation accompany hoarding of cash and the velocity you speak of declines? Is this the trait that you write about and part of the reason gold has declined?
ANSWER: People simply save money in times of uncertainty. This is one aspect we have to watch with the turning up of the Cycle of War next year. This can be caused by several different types of events such as civil unrest that materializes into revolution, economic uncertainty during recessions and depressions, and of course times of war. There was such a shortage of money when the Napoleonic War began that England had to simply counterstamp silver coins of Spain with the portrait of George III because there were no coins circulating. The Bank of England began to issue small denomination paper currency notes because of the shortage of coins.
During the American Civil War there was also a shortage of coins and we find small denomination currency backed by postage stamps.
Private companies issues encased postage stamps with advertising on the reverse. This was because of the chronic shortage in coinage.
Silver traditionally becomes cheaper than nickel for it has no practical use as weapons. We saw during the World War II 5 cent nickels replaced with 5 cent silver coins.
As uncertainly prevails, people hoard money and the velocity declines. As a result, unemployment rises for jobs depend upon capital feeling safe and contented. Nobody will start a business when the future is cloudy.