ECB set to cut key rate to less than zero, Mario Draghi signals

By CLAIRE JONES

The comment suggests that the ECB’s next move will take it where no big central bank has gone before: cutting one of its key interest rates below zero. 

Mr Draghi’s words came after he was pressurised all weekend over the dangers of allowing inflation to slide lower – by the IMF, finance ministers and central bank governors from all over the world.

 Central Banks See What They Want in Ignoring Deflation

Federal Reserve Chair Janet Yellen and her international counterparts are suffering from a case of what psychologists call confirmation bias: They keep insisting inflation will accelerate even as it continues to ebb. 

While declining prices can be good news for consumers, disinflation makes it harder for borrowers to pay off debts and businesses to boost profits. The greater danger comes when disinflation turns into deflation, which leads households to delay purchases in anticipation of even lower prices and companies to postpone investment and hiring as demand for their products dries up.

DYI Comments:  Will the consumers dry up their spending as demand for products dry up?  No!  They may postpone purchases as they anticipate lower prices but not dry up.  Cars and trucks will be held onto for 2 or 3 additional years before being replaced or something as mundane as shirts or blouse will be worn a bit longer as well.  This conversation is about banker's who made bad loans who are scared they will not be paid back.  It is as simple as that!

DYI