The Ultimate Guide To How The US Economy Is Now Identical To Japan

Richard Koo

If you’re looking for one guru to listen to in the course of this ongoing economic crisis, Nomura’s Richard Koo should be your man. He’s developed a theory on our current economic situation, based on the Japanese experience and the U.S. Great Depression, called the “Balance Sheet Recession,”  outlined in his book The Holy Grail of Macroeconomics.

Recent weak economic data suggests that what we’re actually experiencing isn’t a recovery, but rather a slow bump along the bottom in which growth will never really blast off.

What’s the reason? There may be plenty of money in the system, but it’s just going to sit on bank balance sheets because no one wants it, according to Richard Koo. No level of easy money, created through low interest rates and quantitative easing, will be able to convince debtors it’s time to take on more debt again.

Instead, their priorities are now different: Pay down debt, not maximise profits, according to Koo.

So if the government won’t spend, then there’s no one to spend, and growth will be weak.

And yet, with all of this being known, it appears the U.S. government is making the same mistake, cutting spending at a time where it’s the only player left in the game.

Don’t believe us? Check out the slides that tell the story, from Richard Koo.

[slideshow]
[slide
permalink=”the-us-housing-situation-looks-a-lot-like-japan-1″
title=”The U.S. housing situation looks a lot like Japan”
content=””
image=”http://static.businessinsider.com/image/4de902ea49e2aec7030f0000″
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[slide
permalink=”rate-cuts-just-like-in-japan-have-failed-to-create-growth-2″
title=”Rate cuts, just like in Japan, have failed to create growth”
content=””
image=”http://static.businessinsider.com/image/4de8ffe44bd7c878500d0000″
caption=””
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[slide
permalink=”the-us-has-a-housing-bubble-pop-just-like-in-japan-3″
title=”The U.S. has a housing bubble pop, just like in Japan”
content=””
image=”http://static.businessinsider.com/image/4de8ffe5cadcbb2c340e0000″
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]
[slide
permalink=”and-theres-no-longer-demand-for-new-credit-4″
title=”And there’s no longer demand for new credit”
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image=”http://static.businessinsider.com/image/4de8ffe74bd7c85b52030000″
caption=””
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]
[slide
permalink=”this-isnt-a-short-term-problem-deleveraging-takes-time-5″
title=”This isn’t a short-term problem, deleveraging takes time”
content=””
image=”http://static.businessinsider.com/image/4de8ffe9ccd1d502411b0000″
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]
[slide
permalink=”the-us-is-now-in-a-new-economic-paradigm-paying-down-debt-is-more-valuable-than-maximizing-profits-6″
title=”The U.S. is now in a new economic paradigm; paying down debt is more valuable than maximizing profits”
content=””
image=”http://static.businessinsider.com/image/4de8ffeaccd1d50141250000″
caption=””
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]
[slide
permalink=”japan-experienced-weak-gdp-growth-just-like-the-us-is-now-7″
title=”Japan experienced weak GDP growth, just like the U.S. is now”
content=””
image=”http://static.businessinsider.com/image/4de8ffec49e2ae3575460000″
caption=””
credit=””
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]
[slide
permalink=”japans-government-was-willing-to-spend-to-grow-the-economy-8″
title=”Japan’s government was willing to spend to grow the economy”
content=””
image=”http://static.businessinsider.com/image/4de8ffec4bd7c87450160000″
caption=””
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]
[slide
permalink=”much-like-treasuries-in-the-us-japanese-bonds-did-not-see-their-yields-rise-as-the-government-spent-more-9″
title=”Much like treasuries in the U.S., Japanese bonds did not see their yields rise as the government spent more”
content=””
image=”http://static.businessinsider.com/image/4de8ffeecadcbb5730210000″
caption=””
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]
[slide
permalink=”and-cutting-spending-like-were-planning-now-damaged-japans-recovery-10″
title=”And cutting spending, like we’re planning now, damaged Japan’s recovery”
content=””
image=”http://static.businessinsider.com/image/4de8fff149e2ae4d7a0d0000″
caption=””
credit=””
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]
[slide
permalink=”the-government-needs-to-step-in-because-private-sector-demand-will-be-weak-11″
title=”The government needs to step in, because private sector demand will be weak”
content=””
image=”http://static.businessinsider.com/image/4de8fff2cadcbb2c34120000″
caption=””
credit=””
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]
[slide
permalink=”adding-tons-of-cash-through-quantitative-easing-doesnt-mean-were-going-to-get-huge-inflation-12″
title=”Adding tons of cash through quantitative easing doesn’t mean we’re going to get huge inflation”
content=””
image=”http://static.businessinsider.com/image/4de8fff4cadcbb2b340c0000″
caption=””
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]
[slide
permalink=”because-no-one-wants-the-cash-13″
title=”Because no one wants the cash!”
content=””
image=”http://static.businessinsider.com/image/4de8fff64bd7c873500e0000″
caption=””
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]
[slide
permalink=”the-government-needs-to-step-in-and-use-the-money-14″
title=”The government needs to step in and use the money”
content=””
image=”http://static.businessinsider.com/image/4de8fff749e2ae4d7a100000″
caption=””
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]
[slide
permalink=”or-else-it-just-will-remain-in-banks-limiting-economic-growth-15″
title=”Or else it just will remain in banks, limiting economic growth”
content=””
image=”http://static.businessinsider.com/image/4de8fff8cadcbb2b340f0000″
caption=””
credit=””
credit_href=””
]
[slide
permalink=”the-deficit-didnt-rise-when-the-government-spent-in-the-wake-of-the-great-depression-16″
title=”The deficit didn’t rise when the government spent in the wake of the Great Depression”
content=””
image=”http://static.businessinsider.com/image/4de8fff9cadcbb2e320e0000″
caption=””
credit=””
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]
[slide
permalink=”last-time-it-took-30-years-for-the-us-to-return-to-normal-interest-rates-17″
title=”Last time, it took 30 YEARS for the U.S. to return to normal interest rates”
content=””
image=”http://static.businessinsider.com/image/4de8fffbcadcbb43320c0000″
caption=””
credit=””
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]
[slide
permalink=”but-couldnt-all-this-debt-come-back-to-get-us-18″
title=”But couldn’t all this debt come back to get us?”
content=”Check out Niall Ferguson’s presentation on the decline of the west >
image=”http://static.businessinsider.com/image/4dda6534ccd1d5e90b050000″
caption=””
credit=””
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]
[/slideshow]