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« Intuition and Economics | Main | ETF Update: Go Short »

July 09, 2009



What Gregor said

Mike C

Excellent post, Dr. Jeff. It is absolutely flabbergasting to me the amount of misinformation I've heard in the MSM (just the other day a very highly rated talk show)

The Conclusion: It is not proportional or linear. It is another case of pop economics intuition leading one astray. Let us suppose that the oil market is near a tipping point. A demand curve intersecting slightly above the production capacity leads to a price spike. At a slightly lower point, producers may still want to generate some revenue. It is all about the shape of the supply and demand curves.

It is mind-boggling to me the amount of people, supposedly educated and understanding economics, who don't understand the concept of elasticity of demand, and that changes in price and supply/demand do not have to be 1:1 linear. Good example of a mistaken heuristic?

To change the subject, I'm curious what your thoughts/position are on this thesis of a very long drawn out deleveraging cycle. From a report:

This is what former IMF Chief Economist Ken Rogoff (now at Harvard University) had to say to the USA Today on the matter: “The kind of deleveraging we need to see takes six or eight years … The retrenching of the U.S. consumer is a huge adjustment the whole world is going to have to absorb”

Also, just curious if you have an opinion on the inflation/deflation issue. Buffett says:

Well, I don't worry about deflation at all. We won't see deflation in any significant amount in your lifetime, which is more relevant than my lifetime. We've taken action in fighting the economic war that we face that certainly sows the seeds of substantial inflation down the road. Not in the next six months or year or two years, but we have done things that raise the probability of really high rates of inflation at some point. We're flooding the system with dollars. We're monitizing debt. We're doing all the things that lead to that.

Hussman says we'll see a doubling of prices in the next 10 years.

That said, I've read some extremely compelling/persuasive notes that deflation will reign because the amount and magnitude of credit contraction will overwhelm monetary and fiscal stimulus:

Make Sure You Get This One Right

Barry had an interesting post on this subject in his Think Tank:


The Statement: Bill Gross said he'd work for free

The Reality: Bill Gross won't even work.

The Conclusion: There is no "New Normal," it's just marketing hype.

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