A Gift from Nature and a Lesson About Panic Economics

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.

All the buying drove stock prices up, well beyond any reasonable levels. Nobody could really explain why the stock prices were so high, but as long as mutual fund managers continued to get inflows of cash, they had to invest it somewhere and so they continued to buy familiar names on the stock exchange. When it all came tumbling down we looked at each other and asked, “What were we thinking?”

I don’t know whether the Chinese have realized that garlic doesn’t cure the flu and are asking themselves why they paid 11 times what they should have, but it’s a great reminder that just a little bit of truth can be stretched a long way and the resulting mass hysteria can send prices skyrocketing. If you were in the restaurant business and used garlic in your ingredients, your profitability is threatened, and the problem will continue long after the swine flu panic has passed because so much of the inventory has already been taken off the market and consumed (or horded).

With each new disaster around the world or revelation about the state of our crisis, more people will pay attention to emergency preparedness and off-grid living. The result will be shortages of the necessary supplies and, should real or imagined threats appear on the horizon, possible panic and price increases. That’s why we encourage readers to take action today, and do everything you can to prepare before the rest of the country figures out what’s happening.By then it will be too late.