Richard Koo - A "Balance Sheet Recession"

Nomura Research Institute's Richard Koo says that what the world is experiencing right now, a "balance sheet recession," is different from traditional recessions. However, Japan recently experienced a similar type of recession, and Koo says we can learn a lot from that country's experiences. Interviewed by Daniel Erasmus at King's College, April 2010.

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[Neophite101]

Our situation is very similar to Japan's, with the exception that we've got more households and commercial real estate firms underwater. However, they had the advantage of cash flow from exports and they started with less government debt. Since our aggregate demand is going to remain depressed until enough people correct their balance sheets, we are going to find fiscal stimulus necessary to prevent decline into a more severe depression.

[EineKleine NachtMusik]

Because in free market economy, you cannot force private sectors to invest more or households to spend more. That's why governments have to spend during the depression. Otherwise, deflationaly death spiral.

[mdcory3470]

Japan will never get out of it's funk if it listens to its economists. They don't tell you that Keynesianism got them into such dislocations to begin with.

[yjfoo23]

Our govn't is one big mafia if you havn't noticed! And it has the monopoly to write law and use forces! I'm not ready to defend anarchy capitalism yet, but i'm leaning towards it. Because it is infinitely better than the monopoly mafia we have today. Think about all the protection money(tax) you have to pay, the the consequence of you not paying! Then think about ebay and the emergence of paypal and the rating system, and its main competitor Amazon. Think of them as mafia but none has monopoly.

[tarpara]

actually the benchmark is the rates on the bond market. 2% is barely inflation and bonds are being issued with sub-2% rates. So he is correct. For housing, its around 3.5% which is still very very low. The point is that Koo is correct about balance sheets. Right now banks still have a lot of "toxic assets" that are causing them to fail the Treasury stress tests. There is a reason that Treasury kept delaying the results of the stress tests, its because bank balance sheets are horrible.

[theslimeylimey]

There is a certain amount of irony in lowering interests rates and flooding the market with money and expecting it to help when low interest rates and cheap money were a major cause of the bubble and the inevitable bust in the first place. That hand was played long ago.

[theslimeylimey]

There was double digit deflation in the 1920 recession but with no QE or stimulus it didn't result in a "death spiral" of deflation. The free market corrected itself and the recession was over in under 2 years.

[Ryan McLafferty]

PAUL KRUGMAN WAS RIGHT..!!!! YEEEEEEE

[cr4zyu]

"5000 years of history" as Koss12100 writes & continues by saying it's all "bunk".

With this 'logic' Koss12100 believes we should learn nothing from the mistakes of the past. This rationale is foolish.

So called 'bunk' are the well excuted plans of those really in control.

Wealth is not 'lost' it merely changes hands. The real policies are attached to a host of global secret agendas 'designed' to bankrupt the middleclass & transfer wealth to the elite. It's Feudal thinking.

[slimraeli]

This video doesn't address what happens when you emerge from this policy with a massive federal deficit. The policy merely transfers the problem from highly leveraged corporations (ie: financial institutions such as Nomura) up to the sovereign level, where EVERYONE is then expected to repay.

Also, it increases the overall leverage burden because the public sector allocates capital inefficiently and increases waste. It's a clever argument, but ultimately only from a self-serving banker.

[pismo10]

History is the only teacher. Walking blindly into the future, repeating all the same mistakes of the past (ie, large central govt trying to control all) is the mother of all blunders.