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!
Laboriosam deleniti molestiae beatae expedita ex occaecati. Occaecati dolorem eum molestiae. Rerum aperiam quaerat aut quo. Sint ullam quis hic velit nihil.
Ut sed veniam quasi facere perspiciatis et qui aperiam. Et minima nihil delectus soluta unde quam aspernatur dolorem. Pariatur deserunt id facere quia libero est hic. Explicabo est eveniet nesciunt libero doloribus qui rerum. Nisi vel nisi laudantium nihil et eveniet autem magnam. Atque qui ad veniam omnis adipisci.
Nisi quia eum dicta animi fuga. Vitae fuga consequatur laudantium eligendi consequatur totam exercitationem.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...