Post Tagged with: "balance sheet recession"
Big in Japan
As I see it, Japan’s problem was that during the 1980s it was so addicted to investment-led growth and artificially cheap financing that it misallocated capital on a massive scale and failed to include the resulting implicit losses in its GDP calculations. If you look at real per capita household income and household consumption growth during the period of Japan’s stagnation, you will find that both of them rose fairly rapidly. This isn’t what typically happens during a US-style financial crisis, when household income suffers
Market volatility and double dip mean re-test of March 2009 low
This extra $4.5 trillion of household mortgage debt is a terrible burden on the economy since consumers make up over 70% of our economy. This is why consumer spending has been so tepid over the past few years. U.S. consumers spent well beyond their means for decades and now that they are so overleveraged their PCE will stay constrained for years. The consumer spending didn’t seem too onerous over the past few years until the Commerce Department lowered their earlier estimates significantly. Also, consumer confidence by any measure you chose is signaling another recession, and any cuts in federal or state government spending could only exacerbate that. U.S. consumers spent well beyond their means for decades and now that they are so overleveraged their PCE will stay constrained for years. The consumer spending didn’t seem too onerous over the past few years until the Commerce Department lowered their earlier estimates significantly. Also, consumer confidence by any measure you chose is signaling another recession, and any cuts in federal or state government spending could only exacerbate that
The Jackson Hole Spaghetti Toss
If the Chairman has to do something, then the real question is what policy response is adequate to a) reviving asset prices and b) returning the US to trend real GDP growth (since the portfolio balance channel appears to be the only one left for monetary policy transmission to work). Many institutional investors may be realizing that is a null set given current political configurations, and so whatever the Chairman delivers – even if he goes boldly where no Fed governor has ever gone before – may have a very short half life, as we saw with the last move of pegging the 2 year US Treasury yield at the fed funds rate
The impotence of monetary policy
For my part, I am with Richard Koo. Monetary policy reflation will not work in a balance sheet recession when fiscal policy is contractionary. But at some point, the Fed will be compelled to act anyway
Roach: Return of the Living Dead
Rather than adding stimulus with the aim of goosing demand to help the economy reach escape velocity, I would say that the central objective of economic policy is to help the economy reach full employment. Doing so will increase demand, increase output, and cut budget deficits tremendously. Policy makers should do this while aiding the economy in reallocating scarce resources to areas that will sustain longer-term productivity growth. In America, that means less resources in finance and housing and perhaps more in technology and infrastructure
INET Video: Richard Koo on Balance Sheet Recessions
Below is a video of Richard Koo from this past weekend’s INET conference in Bretton Woods giving us his latest thoughts on policy responses to a balance sheet recession. He believes that Europe, the U.S. and China have much to learn from Japan ‘s post-1990 balance sheet recession.
Flow of Funds indicates businesses have stopped deleveraging
The Federal Reserve released the quarterly flow of funds report which allows one to see the debt levels outstanding in the U.S. economy. From the looks of it, deleveraging has not continued apace. UBS’ Andy Lees writes: The Fed Z1 flow of funds report for Q4 just released. Total nonfinancial sector debt grew by 5.1%
Richard Koo on QE2, China and Balance Sheet Recessions
Below, INET’s Rob Johnson interviews Richard Koo, Chief Economist at Nomura and author of the 2009 book "The Holy Grail of Macroeconomics, Revised Edition: Lessons from Japans Great Recession" on how his theory on the Japanese balance sheet recession applies today. Koo gave a speech at the 2010 INET conference in Oxford last year with
Davos leaves Nouriel Roubini downbeat about policy coordination and Egypt contagion risks
Piggybacking off of my last post highlighting Nouriel Roubini’s talk with Simon Constable, I wanted to present three videos from Roubini’s appearance on NBC Europe this morning. In the earlier pre-Davos Wall Street Journal interview, Roubini was pointing out that great risks still remain in the global economy. He highlighted the need for policy coordination
Housing Double Dip in Progress
The Case/Shiller Housing Index numbers were below expectations and confirmed that housing is dipping again after a brief respite. In the video below, Robert Shiller explains what this means for the economy.
Koo Calls For Stimulus as Private Sector Deleverages
Richard Koo was on Bloomberg yesterday making a lot of good points about what public sector retrenchment will mean, namely a decrease in private sector savings. With households already highly indebted in many countries, this cannot be a good thing. Nevertheless, from my perspective, he has the politics of this all wrong. Koo says: I
What is a double dip recession?
You hear the term "double dip recession" bandied about in the media a lot these days. But there is no strict definition for what a double dip recession is or what it actually means to an economy. Have no fear; At the weekend, Robert Shiller of Irrational Exuberance fame came up with a working definition