Thursday, 25 June 2015

Mad Money Outpaces Thrift on a Grand Scale

F.A. Hayek once explained "...saving at a continuously high rate is an important safeguard of stability" and that a high rate of saving would also "...tend to mitigate disturbances arising from fluctuations in credit". 

As fluctuations in credit brings about fluctuations in the quantity of money, an ever expanding money supply hence brings about disturbances to an economy. On the flip side, increased saving is a safeguard of stability. 

Based on Hayek's insights, the development in the ratio between money supply and saving especially during the last fifteen years should make economic alarm bells all over the U.S. chime. The only question is how long they will sound the alarm before the markets react.