Japan has long been the looming economic warning to those who believe that the U.S. is in a proper recovery.
Now Nomura’s chief economist, Richard Koo, is explaining just how real the threat is.
He sees the current economic positions of the U.S. and UK something beyond the typical recession and more like the recent Japanese variety, according to The Diplomat.
Japan has endured years of stagnation even though the Bank of Japan flooded the country’s money supply. No one wanted to take on new debt in Japan, and so no matter how cheap money became businesses and private consumers were more concerned with clearing off their balance sheet then taking on new loans.
What Koo is essentially saying is that America is no different than Japan, and that no matter how hard or how fast quantitative easing came, this is a balance sheet crisis and no one wants to take on new debt.
As an ex New York Fed economist, Koo outlines how the U.S. government has to respond to this.
- This recession is a distinct balance sheet problem that cannot be solved by monetary policy, or quantitative easing, and must instead be addressed by fiscal policy.
- While Bernanke is now starting to agree with Koo, he needs to take actions which suggest that he doesn’t see QE as the solution to the U.S. crisis.
- Those actions could see a dramatic end to the government’s QE program or a potential move towards fiscal stimulus.
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