It's a bird! It's a plane! It's .. Richard Koo to Europe's Rescue?

Richard Koo, Chief Economist at the Nomura Research Institute, is renowned as one of the world’s leading experts on Japan’s lost decade, and throughout the crises in the US and Europe he’s been at the forefront of debates on what's ailing the economy, what the economy needs, and what won't do much for the economy. But one of his recent appearances may have sparked a change in european economic policy

After giving this presentation two years ago, Richard Koo walked right back into the capital of fiscal austerity and

earlier this month at George Soros’ Institute for New Economic Thinking in Berlin.

Both presentations are based on his seminal contribution to macroeconomics – the balance sheet recession:

The “balance sheet recession” and its counterpart, the “inventory recession,” are both influenced by a lack of borrowing.

In the more common inventory recession, the central bank takes inflation-fighting moves to cool down an overheating economy. Lenders react by requiring a higher interest rate

But balance sheet recessions arise after the bursting of asset-price bubbles, where the demand for debt becomes inelastic as the economy begins de-leveraging.

What makes balance sheet recessions especially problematic is the remedies. During the de-leveraging process monetary policy is effectively useless because everyone’s trying to get rid of debt, not pile more on. So the only tool to fix a balance sheet recession is fiscal policy.

After Koo once again advocated the presence of and remedies for a balance sheet recession, it seems the European authorities are finally listening, as there seems to be some serious counterweight to the German adherence to fiscal austerity.

But Koo still sees three problems with Europe.

Is it too little too late? Or is this even the right approach?

The world needs us monkeys, so SOUND OFF!