Monday, January 26, 2015

Larry Summers: Europe, US on Brink of Deflationary Spiral for Next Decade

Both Europe and the United States are on the brink of a "deflationary spiral," with Europe's economic morass possibly lingering for a decade,  former Treasury Secretary Larry Summers has warned.

The European Central Bank (ECB)'s 1.1 trillion euro ($1.23 billion) quantitative easing (QE) program represents a positive step, but won't be enough to repair the damaged eurozone economy, said Summers, speaking at the World Economic Forum in Davos.

"Europe is on the brink of a deflationary spiral that could be gravely threatening to the process of growing standards of living, not for a year, but for a decade," he recently told Bloomberg TV.  "Europe is lagging relative to every other region of the world. And the situation is getting worse."

In a deflationary spiral, households and firms cut spending while they wait for prices to fall further, causing the economy to slump, according to the Guardian.

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