Fed Fail

I.M.F. Warns of ‘Sizable Risk’ of Deflation in Euro Zone 

The International Monetary Fund warned Wednesday of “a sizable risk” of deflation in the euro zone, and called on the European Central Bank to begin buying huge amounts of government bonds to help hold down borrowing costs for troubled countries. 

In a report on the state of euro zone policy, I.M.F. staff said there was a 25 percent risk of consumer price deflation before 2014, and that the danger was greatest in countries like Italy where growth is slow and tax increases have made inflation appear higher than it really is. 

Deflation, a destructive decline in prices that can be extremely difficult to reverse, would make it even harder for countries like Greece, Italy and Spain to get government debt under control, the I.M.F. said, because falling prices and wages would further depress tax receipts.

Bernanke to Economy: Drop Dead by Yglesias