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 maximize 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.
The U.S. housing situation looks a lot like Japan
Rate cuts, just like in Japan, have failed to create growth
The U.S. has a housing bubble pop, just like in Japan
See the rest of the story at Business Insider
For the latest investing news, visit Money Game. Follow us on Twitter and Facebook.
See Also:
- Nobel Prize Winner Explains How America's Economy Is Becoming... EUROPEAN!
- The 19 Cities Where Home Prices Just Won't Stop Falling
- Construction Spending Comes In Just Above Expectations, But Last Month Revised Down Big
No comments:
Post a Comment