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Old 09-06-2011, 04:32 PM
sugarkang sugarkang is offline
Join Date: Oct 2008
Location: Cali, Small-Govt Liberal
Posts: 2,186
Default Re: Booze and Money (Tim Fernholz & Megan McArdle)

Originally Posted by Parallax View Post
CPI is not a number central bankers pull out of their behind. It is based on things people actually buy. Why do you think we have CPI less food and energy?? Because the good old CPI has food and energy items in it!
Okay, when I said CPI is an illusion, I did not mean to suggest that it is completely irrelevant. CPI is an inadequate measure, not an irrelevant one. That's why I said that updates to CPI have been suggested, but haven't been implemented.

You see this is exactly the problem. What you are stating is called Say's law which essentially says supply creates its own demand. Now in ordinary times this works. But these are not ordinary times and if you don't believe me find me the last instance when the yield on US treasuries fell below 2%.
House prices have returned to historical levels. But when demand is low, people don't just start buying them. They need to drop further. I'd consult Robert Shiller who runs the Case-Shiller indices on house prices.
The mixing of populations lowers the cost of being unusual.
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