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John and Amrit,
I think it is important to distinguish between energy density resulting from a centre of mass, which is radiated back out, and the (potential) energy of the gravitational field itself, which is negative. The result of the balance between the positive energy of radiation and the negative energy contained in gravitational fields gives a cosmological equation of state of E=0.
Gravity does not "condense" space. It causes massive objects to accelerate toward the centre of mass due to curvature, as Amrit said, described by the GR metric. So it is "drawing in" mass/energy, not space. In fact, the volume of space in a gravitational field is *expanded* with the curvature, due to a SR effect originally described by Einstein's rotating disc/cylinder examples and applied to gravity due to the equivalence principle. So in effect this accords with Amrit's claim of space being "less dense" in gravity fields. It also provides John's "expanding of the volume", as gravity is *not* the "contraction of the volume" of space.
Just thought, could the apparent cosmic expansion simply be due to a global expansion of space being caused by the *global* distribution of matter fields in the same way? On cosmic scales this may cause an expansion of space on the geometric hypersurface (as observed) and could still co-exist with a globally "flat" geometry? Mmmm...not sure though if this would be observable from within the Universe??
Cheers