Richard Koo at INET's Inaugural Conference

[tairanotomomori]

He's far more relaxed and eloquent speaking in Japanese, but he's doing okay here. He's right. We've seen all in Japan and all the while we saw all those famed American economists giving 'advice' from on high. I have to admit I've derived a degree of schadenfreude from seeing them discredited. I seriously wonder what they are good for, I mean, economists?? What are they contributing to society???

[bourbakis]

A very insightful lecture. I wish policy makers are listening, unfortunately he also has the foresight saying it's very hard in a democracy system.

[baychev]

and talking about china: remember that gross lending is close to 25% of GDP, hell knows how much of this is bad debt rollover, how much is command driven lending and how much is genuine credit demand.

[baychev]

the US became the wealthy state it is largely due to the accumulation of gold, not through production (remember Breton Woods?). with the world repaying dearly for the Marshall plan, the US accumulated the money needed to repay its wartime debts. its economy and taxation have almost 0 contribution. look at the dollar devaluation as well and figure out the rest. no economy can outgrow rampant deficit spending, no way. and this is what we are seeing everywhere.

[peterfdrucker]

@baychev I'm not familiar with the theory that the "the US became the wealthy state it is largely due to the accumulation of gold, not through production".

Yeah, Bretton Woods, I am familiar with Keynes' role in Bretton Woods. What's your point?

Also not familiar w/ the theory tht payments to the US due to the Mars. Plan are what allowed it to pay back its wartime debts. I thought it had something to do the massive increase in the economy.

Point me to the right literature, please.

[peterfdrucker]

@baychev Bretton Woods instituted a regime of fixed exchange rates, was friendly to capital controls, and generally limited the international financial market. You ought to remember that the way Ireland, say, ran its economy was to have a very free regime of capital movement, low corporate taxes, balanced budgets, privatization etc. This doesn't seem to have worked out too well.

[baychev]

@peterfdrucker

this freedom is NOT what bankrupted irish banks. in a sound money system where banks are not levered 40 times this would not have happened. anything but free market capitalism is to be blamed for the current crisis. where was your beloved 'guvmint' when more homes were built than there are families? it was collecting the property and sales taxes and handing the money out like this will go on forever.

[peterfdrucker]

@baychev My "beloved 'guvmit'"?? What gives you that idea? I think you're confused about who you are arguing with. I sure as hell don't blame free market capitalism for the problems in Ireland, or here . . . what gives you that idea?

So banks should or shouldn't regulated by the government? You're suggesting, I guess, that had the government not interfered, banks wouldn't have taken on so much leverage? This is also a new theory I'm not familiar with.

[baychev]

at least on this we agree: you are obviously stupid... or maybe you are an academic :). marginal utility: every dollar you spend or acquire has lesser value to you than the prior one.

yes, china's gov't spending has negative returns given the monumental waste of capital for things that will be prohibitively expensive as soon as gov't spending dies up. trains with ticket prices of a monthly salary? protectionism of $100-toy producers with 0 demand outside from the US?

learn life!

[peterfdrucker]

@baychev Why on earth would every dollar spent necessarily have less "value" (your term). So you're telling me that every dollar spent on a vaccine, say, has a declining value? That clearly doesn't make sense. Whether marginal utility is inverse to spending, accumulation some other variable is a matter of fact, and sometimes value judgment, (like I don't care about lives, so an extra vaccine has no "value" to me.

We'll see about China, maybe you are right, maybe not.

[peterfdrucker]

@baychev b/t/w Marginal utility is just a phrase to describe the change in "utility" (whatever that is supposed to mean) for the change in quantity of something else. You probably mean to say that spending money has a *declining* marginal utility, the utility is less for each extra dollar spent. As I mentioned, this depends on what you are spending the dollar on.

[baychev]

1:"And slogans like "a debt problem can't be solved by more debt," are pretty weak, and totally useless." you are directly inferring that debt could solve debt problems. you seem to be totally unaware of what debt is and its impact to the debtor beyond spending the money.

2-3: organic growth is one where you have POSITIVE return on every dollar spent, gov't spending has negative returns (wasted resources) and 0 money multiplier.

4: the more you spend, the lesser the effect.

hit the char limit.

[peterfdrucker]

@baychev You claims are too general to be true. 1. Clearly it is possible that borrowing can lead to an individual, firm, or government being able to repay debts it otherwise wouldn't be able to. 2. Why on earth do you think government spending *necessarily* has negative returns? You're saying China's government spending has negative returns, for example? 4. I'm obviously stupid . . . the more I spend the less the effect? Effect on what? What are you talking about.

[peterfdrucker]

@baychev 5. What's your point about other people paying the US back in gold? I was talking about the deficit during WWII. Did you mean that the US paid its bondholders in gold, and if so what does this have to do with the original point about the high US deficits and subsequent economic recovery during WWII?

This last point (5), was meant as an example to contradict your generalizations.

[baychev]

@peterfdrucker

really, can you NOT figure out the outcome of an economy 'grows' 2-3% after hedonic and other shicanery adjustments while debt grows by 8-12% a year? and you say debt is necessary to save the economy? it acheives nothing but bringing the reckoning day forward. if you are not good with numbers, abstain from opining on economic matters.

[peterfdrucker]

@baychev No, I don't say "debt is necessary to save the economy". I think you are arguing with someone else . . .

What I said was that taking on leverage, even when in debt, does not *necessarily* ruin an individual, firm or nation. It could, but it depends on interest rates, and what is done with the borrowed funds.

Balancing the budget may make things worse - driving up unemployment, lowering demand, and *lowering revenue* making it even harder to pay back the debt.

[baychev]

@peterfdrucker

man, it is not my job to teach you economics, you can do postrgaduate studies if you wish. $10 bill is worth more to a person on foodstamps than it is worth to bill gates. deficit spending to keep construction jobs is a classic example of dellusional thinking: let's produce more of what we already have plenty of because this is what we have been doing and we don't want to adapt to the new reality. if you do not adapt (spending) quickly, you disappear as species.

have a good day!

[peterfdrucker]

@baychev Again, you seem a little confused. What claim are you making? Each dollar spent on the construction sector has less utility? Why is this true? Does this apply if it is the private sector that is doing the spending?

And you are talking about *spending* for heaven's sake! Yeah, Gate's-presumably-doesn't get as great an increase in utility from acquiring $X as the next guy. But does this argument *necessarily* apply for each dollar Gates spends?

[peterfdrucker]

@baychev You are saying that each extra dollar Microsoft spends on hiring an employee, or paying its staff more - has less utility then the last? You have some theory that investment has a declining marginal utility? What are you talking about? Evidently I do need a lesson in economics ... why don't you just give me the references I asked for.

Is every extra grant that NIH gives out worth less utility then the last?

(I'm glad YOU appreciate Keynes' ideas at Bretton Woods, by the way!)

[baychev]

I think Richard does not grasp the consequences of his gov't stimulus suggestion: it inevitably creates 'budgetary cash flow recession'. You cannot solve a debt problem with more debt.

Whether Japan got to here in 8 or 15 years is absolutely irrelevant, the fact is that if interest rates go to 3-4%, the debt interest expense will eat all tax revenues. And raising taxes in a weak economy could only lead to contraction.

[peterfdrucker]

@baychev @baychev In the real world few things are inevitable. And slogans like "a debt problem can't be solved by more debt," are pretty weak, and totally useless.

Koo makes many good points, and a lot of good observations. Consider his point about corporate cashflow and debt, for instance. Or, @ 11:16, re: government refusal to spend.

Also, consider US borrowing and spending to support the war effort during WWII. This did not lead to the inevitabilities you speak of.

[baychev]

@peterfdrucker from a false premise you could never reach to a correct conclusion. debt could cure debt? it is not the sheer amount of debt that is burdening, but the interest and the inability to 'grow' without deficit spending. when you need to borrow to 'grow' this means you cannot possibly grow organically. yes, inflating asset prices with borrowed money works so long as you pump in new money, but the effect of marginal utility is negative.

after WWII the US was repaid with gold!

[peterfdrucker]

@baychev What you've written doesn't make sense. 1. What is the 1st false premise you refer to? 2. What does it mean to grow "organically"? 3. The idea (maybe wrong) is that the US issues bonds in order to invest in its economy, not "inflate asset prices". 4. I don't understand what marginal utility has to do with this. It looks like you don't know what this term means.

5. Do you mean the US repaid *its* bondholders with gold? I meant that the US ran large deficits during WWII.

[davepx]

Excellent piece that should be mandatory viewing, especially in Downing Street. Unfortunately this stop-start piecemeal approach seems to be just where we're headed, without Japan's attention to avoiding social meltdown, and in Brirtain now apparently minus the "re-start" option. His observation about low interest rates being useless in such conditions foreshadows where central banks now find themselves. It takes money to get an economy moving, otherwise it's downhill to 1933.

[pavethemoon]

What is more important - keeping GDP high or getting back to growth as soon as possible? It is arguable that if Japan hadn't done any stimulus, not only would they be in much better shape today, the recession would've been far shorter (albeit more severe). Personally, I'm in favor of letting everything collapse naturally and supporting the unemployed through benefits & social welfare programs. The rich don't need no stimulus.

[eatandtravel]

@pavethemoon

I agree. However, with any collapse, it is very disorderly. I'm afraid we will get a Hitler if we let the economy correct itself.

I do see your point, though.

[lawyer4817]

@pavethemoon hahah, u wont get elected with that view

[rlabier]

Very worhwhile talk, despite the brain dead comments below. Koo talks about a concept of "Balance Sheet Recession" which may be why Keynes is so flawed. And he draws excellent comparisons between Japan's failures, where we currently stand, and where we might do better. Anyone seriously concerned about our current financial system ought give this guy a listen. A deep listen. 'Cause you NEED to understand what he is talking about. Your way of life hangs in the balance - no joke.

[coyote1966]

Who is he?

He was invited whom?

What he is talking about?

Is he Japan's leading economists?

No way.

No way really.

Give me a break.

[UU361]

Where Keynes fucked up is he expected politicians to reign in government spending in good time when in fact they love to borrow and spend even MORE.

Every paper currency in the world is headed for it's true intrinsic value which is ZERO.

All of these debt based monetary system, controled by private bankers have by their very design threw the compounding and exponential functions will always eventually fail.

[teroap]

Keynesian BS

[kancerzx]

It would help if we could see the charts