The Overcapacity Bomb
Tired of all that good economic news about high growth and low inflation? Need something to worry about? How about overcapacity? The global economy is awash in a sea of capacity. Name the product: autos, chips, steel, chemicals, computers, refrigerators, clothes. Now that inflation doesn't terrify people, Cassandras are raising concerns about deflation. They argue that supply is outstripping demand, and a deflationary spiral will send the world into a 1930's style depression. Some proponents of deflation even want to get the Fed to cut rates to boost domestic demand. Let's take time out and consider the issue. So far, deflationary pressures have actually been a boon to the U.S. and, indeed, the New Economy thrives on it. If there is a demand problem looming, it is very much an Asian phenomenon, and therefore the solution lies in Asia.
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