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Thursday, July 05, 2007

What is a supply-demand imbalance, anyway?

This article from the Instutional Economics blog is intriguing. I generally like the argument against gold bugs that any commodity could just as easily serve as a comparison, and therefore gold is nothing special when compared to paper notes. What is interesting is the following statement:

"Commodities are becoming more expensive in terms of a broad-range of currencies because of supply-demand imbalances in the global markets where commodity prices are determined."

Fair enough. But what exactly is an "imbalance?" Furthermore, why is it that we only complain about supply-demand imbalances when things are going bad. Who is to say that the problem wasn't with the decades-long depression in the price of gold/other commodities?

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