Koo: The West Must Wake Up And Fear Its Japanese Future

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:


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