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European Central Bank President Mario Draghi Almost Says "Deflation"

ECB President Mario Draghi appears to prefer the phrase "low inflation" to the word "deflation."

But if psychoanalyst Sigmund Freud were around today, he might conclude that deflation is on Draghi's mind.

Read this excerpt from an April 23, Spiegel Online article:

One of European Central Bank President Mario Draghi's most important duties is watching his mouth. One ill-considered utterance is enough to sow panic on the financial markets.

But during a press conference earlier this month, Draghi allowed himself a telling slip.

Speaking to gathered journalists at the Spring Meetings of the International Monetary Fund and the World Bank, Draghi twice almost uttered a word he has been at pains to avoid. "Defla...", Draghi began, before stopping himself and continuing with the term "low inflation."

Yet despite Draghi's efforts, the specter of deflation was omnipresent in Washington during the meetings. And it is one that is making central bank heads and government officials nervous across the globe. The IMF in particular is alarmed, with Fund economists warning that there is currently up to a 20 percent risk of a euro zone-wide deflation. IMF head Christine Lagarde has called on European central bankers to "further loosen monetary policy" to address the danger.

The reason for concern is clear: Ever since the Great Depression at the beginning of the 1930s, deflation has been seen as one of the most dangerous illnesses that can befall an economy. Several countries at the time fell victim to a downward spiral consisting of falling prices, rapidly rising unemployment and shrinking economic output -- a morass that took years to escape. Because prices were falling, people stopped spending in the hope that everything would become even cheaper. Companies were unable to sell their products and many went broke, which led to millions of people losing their jobs and a further squeeze on consumption.

Japan provides a more recent example, where the economy has been largely stagnant for years amid falling prices. Is the euro zone now facing a similar nightmare?

You can read the entire article by following the link below:

http://www.spiegel.de/international/europe/ecb-prepares-measures-to-combat-possible-deflation-a-965636.html