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A Gift from Nature and a Lesson About Panic Economics

Posted: Tuesday, August 17th, 2010

You might have heard before that garlic is known to have remarkable health benefits, including lower blood pressure, protecting against heart disease and possibly even preventing gastrointestinal cancer. Have you ever heard that it is a cure for influenza? Well, in China there is a long-held belief that garlic can cure the flu, and with the 2009 panic over swine flu, many in China bought up all the garlic they could, both as a preventive measure and to horde it in the event of infection.

Predictably, the price of garlic shot up elevenfold, far outpacing the appreciation in gold for 2009. The shortage of garlic and the reverberation of the price increase ricocheted around the region. And yet, there is absolutely no evidence to indicate garlic prevents or cures the flu. I'm sharing the story because it's a great lesson of what mass hysteria can do. For the last few decades millions of baby boomers have invested in the stock market through their 401k and IRAs. They bought mutual funds because that's what they were told to do, and the mutual fund managers in turn bought shares of stock, because they can't make money unless the money is invested, and eventually there were more mutual funds buying stocks than there were stocks themselves.

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