Tuesday, November 25, 2008

Merrill Lynch Economic Outlook Comments

On Deflation:
We are on the verge of entering the eye of the hurricane. The big story is that the savings rate appears to be rising from 1.3% now to over 3% by year-end, and is probably on its way to north of 5% by the end of 2009. How anyone can be talking about inflation as a “near-term” threat (please don’t talk to us about the long-run when we’ll be joining Keynes in the afterlife) at a time when the savings rate and the unemployment rate are going up in tandem? We can’t think of a more deflationary aggregate demand backdrop.
See the entire analysis here.

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