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Today the economics news got scarey.

The Fed is widely expected to cut rates later this month to 0.5 percent, the lowest since the 1950s, and Bernanke said lower rates are feasible but conventional policy is constrained.

Long-term government bond yields have also dropped on mounting expectations inflation in major economies will turn into falling prices, or deflation, and the sharp drop in commodity prices.

Interest rates at 1/2% probably put them below liquidity trap levels, meaning that people will prefer to keep their money to themselves rather than loan it to someone else at such a low return.  And with deflation too? If people learn to expect decreasing prices we have another reason for spending to dry-up.

I haven’t seen much lately on how Asia is expected to wade through this flood of bad news, but I suspect that we will be insulated a bit, even if Asian stocks are taking a hit right now. Where I am in Suzhou, it may be that even more foreign companies will locate here as the need to find cheap labor becomes even more desperate.

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