The world is being driven towards deflation by a dangerous risk-aversion imposed by the regulators on banks

Sir, John Plender writes “The Eurozone is being driven towards deflation by a moralistic drive for austerity that does nothing to arrest rising debt as a percentage of GDP because the harder hit economies have shrunk” “World faces threat of a descent into intractable deflation”, January 7.

Wrong! The Eurozone, and others, is being driven towards deflation by a dangerous risk-aversion imposed by the regulators on banks; and which have these making much higher risk-adjusted returns when lending to the “safe” than when lending to the “risky”.

Since risk-taking is the prime oxygen for any true forward movement, the economic bicycle is stalling and falling; and no QEs or fiscal stimulus could in the medium and long term stop that stop from happening… but only make the awakening worse.