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Features

How to fight Europe’s demons of deflation

It’s a real problem, but the answer has less to do with bond-buying than with applied psychology

22 November 2014

9:00 AM

22 November 2014

9:00 AM

Deflation terrifies economists because once it starts, they have no idea what to do about it. When demand in an economy shrinks, companies cut jobs, and with fewer employed demand shrinks even more. The deflationary spiral is self-reinforcing. Central banks can cut interest rates to near zero and slosh money around like drunken lottery winners, but once hope flickers and dies, there is nothing they can do to persuade anyone to invest in the economy.

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