Monday, October 14, 2002

Morgan Stanley's chief economist says the globalization of the service economy is going to be a primrose path to deflation:
The US and a US-centric world are in the throes of the most disinflationary pricing cycle ever experienced in services. To the extent that the globalization of services is only in its infancy, the once-natural cushion against deflation is likely to get thinner and thinner. The endgame of global deflation can no longer be dismissed out of hand. Unlike the past, it will now be exceedingly difficult for services to save the day.
Makes sense to me. Considering that the only way we're staving off recession now is record borrowing thanks to Greenspan's continuing housing bubble, deflation would be very bad for the US economy. And global deflation is even scarier. Though Brazil probably wouldn't mind.

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