Wednesday, April 22, 2009

The New Economists and Inflation

One of the interesting side effects of the current recessionary environment is a newfound public attentiveness with regards to the economy, specifically within the realm of forecasting future events. Suddenly, a professional wedding cake maker(ice cream shop owner, florist, etc.)  is capable of forecasting annualized rates of inflation, and extrapolating the data out several years into the future. We would propose that this new legion of economic wizardry actually serve a distinct and useful purpose: They provide a readily accessible, highly reliable indicator from which one can apply a decidedly Contrarian strategy towards a number of predictions.

Typically, in order for the contrarian to feel confident about his inverse conclusions, there must exist a Strong Consensus about the future direction of the market price or economic statistic in question. Such a consensus, we believe, has developed within this new class of Economic Observers regarding the prospects for a severe inflation within the next year, two, or three. This sort of herd like thinking has proliferated for several reasons, namely logical foundations, media attention, and familiarity. To put it simply, it just seems logical to most folks that when Government spending measures top the $1Trillion mark, there must be some damage done to the currency, leading to inflation. Most significant we believe, is the average person's ignorance towards the concept of deflation, which serves to render his/her logical foundations utterly useless as he/she attempts to ponder the prospects for Inflation. Regardless of the basis for this conclusion however, we have detected a strong consensus in favor of an inevitable inflationary period. We however, will not be joining this crowd.
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