Friday, July 23, 2010

Krugman wants evidence

Jean-Claude Trichet, quoted by Krugman,  says:
In extraordinary times, the economy may be close to non-linear phenomena such as a rapid deterioration of confidence among broad constituencies of households, enterprises, savers and investors. My understanding is that an overwhelming majority of industrial countries are now in those uncharted waters, where confidence is potentially at stake. Consolidation is a must in such circumstances.
Paul wants evidence of sudden non-linearities.  I have evidence for Paul, the crash of July, 2008.  In mid-July, there was a sudden non-linear desire to quit driving cars with gas at $4.50.  Since then the bond vigilantes have been carefully working with OPEC to manage our oil supplies so that bonds are protected.

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