Nomura Chief Economist Richard Koo made a speech this weekend to George Soros’ Institute for New Economic Thinking examining what the West has to fear from the history of Japan’s struggle with a “balance sheet recession.”
The whole thing is worth watching, as Koo outlines in detail how the U.S. economy is starting to look quite a bit like the Japanese did in the 1990s, particularly in terms of a decline in demand for credit.
- 3:00 The U.S. should be seeing 3 or more bubbles with all the interest rate stimulus.
- 3:50 Bankers not lending money is front page news, but when borrowers are not borrowing its not front page, and that is where we are right now
- 5:00 Even with 0% interest rates, demand for funds is contracting
- 7:15 In Japan, the cash flow was significant for companies, but asset prices had collapsed, so companies chose to pay down the debt on their underwater balance sheets
- 9:55 This situation is called a “balance sheet recession;” prior to Japan, the last significant example of this is the Great Depression
Video via Infectious Greed:
Business Insider Emails & Alerts
Site highlights each day to your inbox.