The word “hoarding” may conjure up images of pack rats piling old newspapers and magazines up to the ceiling. But it’s actually an economic term with a technical meaning.
Hoarding in economics refers to the acquisition of an asset which is held, and not spent, transferred or used in transactions. Gold hoarding means the acquisition of a stash of physical gold with no intention to sell it.
Cash hoarding is the same thing. When consumers hoard cash, they pile it up in checking accounts or pull physical bills out of the bank and stick it in a safe place.
The noun form of hoard refers to a gold hoard or cash hoard held and not spent. Hoarding can be prudent in times of extreme uncertainty or financial distress. It’s like saving for a rainy day. Then when the rainy day comes, you keep saving. But, hoarding is the opposite of spending and if everyone hoards and no one spends, then the economy grinds to a halt.
This is what happened in the Great Depression. Another name for hoarding cash is a “liquidity trap.” If no one spends money, then prices drop, which makes people want to spend even less because they’re waiting for prices to drop even more. It feeds on itself.
This article details how Americans are now hoarding cash in checking accounts at the highest levels since the 1991 recession. This could be a leading indicator of another recession. The drop in consumption reported on April 27 in the first quarter GDP estimate seems to confirm this.
It’s too soon to call a recession, but cash hoarding, Fed tightening, declining consumption and a near-inverted yield curve make a powerful case that a recession may be coming soon. In that case, stocks could drop 30% or more in a matter of weeks.
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