Richard Koo’s latest note is out, and it’s a doozy.
It doesn’t really contain any new ideas (it’s about the balance sheet recession and how Europe needs fiscal stimulus and all that), but rather it’s a travelogue about a recent trip to Europe, where he introduced his ideas and everyone gobbled them up.
And more miraculously, he was able to convince the famously austere Germans of the need for fiscal stimulus!
Check this out:
Taking the debate to Italy and Germany
My recent trip to Europe began with a conference held on the shores of Lake Como in northern Italy. There I had the opportunity to debate these issues with Jürgen Stark, former Bundesbank Vice President and a leader of German economic opinion.
The panel also included a senior European Financial Stability Facility (EFSF) official and Stephen Roach, previously chief economist at Morgan Stanley and now a professor at Yale University. New York University professor Nouriel Roubini served as moderator.
The Italian business executives making up some 80% of the audience welcomed my balance sheet recession theory thanks to some powerful backup from Professor Roach, one of the very few economists to issue an early warning about the US housing bubble.
Many of the seminar participants said afterwards they found my arguments to be more persuasive than those of Dr. Stark.
European interest in balance sheet recessions is growing
While Dr. Stark probably would not agree with that assessment, I was received at my next seminar—at the Bank of Italy—as “the man who stood up against Jürgen Stark.” The number of seminar participants greatly exceeded organisers’ expectations even though the event was held just before the Easter holiday.
Early the next week, I conducted seminars at the ECB and Bundesbank in Frankfurt, and once again the number of participants was far greater than initially expected despite the fact that everyone was returning from a holiday.
Both chairs and presentation materials were in short supply as a result. Similar scenes unfolded at seminars held by Nomura offices for investors in Frankfurt and Milan.
And here’s where he talks about convincing Germans of the need for more stimulus, which is never an easy task:
Germans will understand need for fiscal stimulus if issue is properly explained
When I arrived at the venue the crowds were overwhelming; a large group of people were actually upset because fire regulations had prevented them from entering the hall.
I spent an hour and a half explaining to several hundred ordinary Germans that most of the eurozone was in the midst of a balance sheet recession and that these countries desperately needed fiscal stimulus. My talk was extremely well received even though I was an unknown Asian economist speaking in English (there was an interpreter present).
Many people thanked me for letting them know that there was a different way of looking at the crisis in Europe based on balance sheet recession theory. Most of the questions from the audience were quite to the point, and while some seemed more like advertisements for environmental issues, in general I felt the audience had understood the message I came to deliver.
To be honest, neither I nor the organisers had any idea how the seminar would turn out. I was actually concerned about the possibility of being shouted down, but nothing of the sort happened.
The experiment proved that even ordinary Germans are capable of understanding the theory of balance sheet recessions—an economic concept not found in any university textbook—if only it is explained properly.
Based on this experience, I find the argument that fiscal stimulus is impossible “because the German people would not tolerate it” completely unconvincing. Even the Germans will understand the need for fiscal stimulus during a balance sheet recession if presented with a proper explanation.
Even Germans can get it! Wow!
If you combine it with this news, that more people in official quarters are opposing austerity, it looks like the tide might be turning.
So anyway, Koo is hot. Let’s hope his message filters up.