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by Daaboom on 6/2/08
http://www.nytimes.com/2008/06/02/opinion/02krugman.html?hp Paul Krugman's is praising Ben Bernanke efforts to save the market from a financial crisis.
He also attacked the conventional wisdom that the FED is not doing enough to calm inflation. I cannot agree with Dr. Krugman enough. Recent inflations are all felt in (and limited to) the energy and food sector. That is a classic signal that the economy should substitute away from a specific sector.
What makes this different from normal price adjustment is the fact that it is difficult to substitute away from oil. Nobody wants to give up their cars, or plan their travel on public transits. But, there's no better way for the market to yell "There's no more oil" than high prices.
So, the alternatives are
(1) You bit the bitter pill now, and change your lifestyle, find substitute (probably expensive substitute) to oil. The economy keeps on chugging along.
(2) The FED slow the economy down with higher interest rate, so less oil are consumed. No investment is substitute is made. All these just delay the end of the oil era.
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