Central Banks Have to Avoid Deflation at All Costs

James Rickards, an advisor to the White House and the Pentagon, believes it�s the start of a new currency war.

'Central banks have to avoid deflation at all costs and that�s really what they�re worried about. They�re worried about it in Europe, the U.K., the U.S. and all over the world'- James Rickards

�We�re not always in a currency war, but when they start they can go on for a very long period of time. They can go on for five or 10 or 15 years. They�re not over quickly. The reason they�re not over quickly is that there is no natural resolution,� he said in a recent interview with CBC�s Lang and O�Leary Exchange.

�As soon as one country, particularly the U.S. which started the global currency wars in 2010, tries to cheapen its currency, then other countries retaliate. Some of them cheapen a currency by cutting rates, but others can always put up import duties, capital controls and other techniques they can use to fight the currency war.�

The ECB cut its main refinancing rate to 0.25 per cent, held the deposit rate it pays on bank deposits at 0.0 per cent and cut its marginal lending facility � or emergency borrowing rate � by 0.25 per cent to 0.75 per cent.

The Eurozone economies remain fragile, barely growing after two years of recession. But the real fear is deflation, Rickards said, because it would leave the debt-to-GDP ratio of these countries in a danger zone.

- Source, CBC:

http://www.cbc.ca/news/business/currency-war-feared-after-eu-cuts-rates-1.2423595