Richard Koo: How the West is Repeating Japan's Mistakes
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- เผยแพร่เมื่อ 2 ต.ค. 2024
- In INET's exclusive interview with the Chief Economist at Nomura Research Institute's Richard Koo, he discusses the ideas behind "Balance Sheet Recessions," why QE2 won't work, and how China's monetary policy was effective in the wake of the Global Financial Crisis
In a world where it is "dangerous that everyone is paying down debt, and no one is borrowing money" you know the system is flawed.
True.
No not really.
What does it mean? Well if you pay down debt, it either means you have an income that makes it possilbe to take down liability, or the liability is so great that you really don't have other options, now that is fine for a person or company on the individual level, but if everyone is doing it, it means the liability in the system is so great that options for investments have gone down.
If no one is borrowing money, it means "no one" is buying a house or property, no one is starting a new business, getting a new car, investing in production capability and so on... That means the near future outlook of said economy is very bleak.
It is not a flaw, because how we as individuals work, is very different from how the system works.
At an individual level but not at the level of businesses (no business makes capital investments with cash in hand generally).
The real estate companies can borrow from government at low rates o to build public transit system in tier one cities and build highways and bridges to charge the fast growing car owners, so there will be less real estate construction projects. Even if the US goes into another round of easing and the bubble in real estate market keeps inflating, the government can tighten loan requirements.
Well, yes China has beeng growing because of massive stimilus. But mostly the gdp growth is made up from building these ghost cities. On the gdp that shows up as growth but it's only a fasad. More than that, this whole idea of consumerism will eventually destroy the world. Look how they are living over their, that's not a life , it's not healthy and it's not sustainable. They have all these plastic products and cheap electronics but not even clean air to breath. There wouldbe nowhere to live if everyone where doing like China. An economy is more than numbers, we have to look on the real world and this keynesian econmic system is destroying the world.
The problems with Keynsian stimulus are that in addition to perpetuating the imbalances that created the crisis in the first place, economies end up becoming addicted to them. So you get into this situation where government has to keep plowing it in, making the overall distortions worse and eventually leading to total public finance exhaustion. People like him keep trying to look for an easy way out of massive credit bubbles and I seriously doubt there are any.
Thats exactly what happened, we went from QE 1-2 trillion per round to QE infinity. Keysenians still playing arsonist and firefighter
Interesting to hear as we rebuild from covid-19 and what other countries are doing currently
Google, "List of sovereign states and dependent territories by fertility rate"
.
Don't believe everything you read and watch.
Have some critical view.
If there was no asset bubble crises in Japan the land of the rising sun will overtake and became the world largest economy ha ha ha ha ha ha ha ha.
Overtake the United States
Haha "for 15 years". When did you get out .. hmmm... never. So let me clear this out. 1% wasnt enough? 0%? -0.1 whatever that is? Nothing? How much money heroin do you need for fucks sake?
Actually economists call it Keynesianism too.
The problem of Keynesianism is related to why it works. Consider the economy a farm, and think of capital investment as seed. If there is a shortage of seed, an influx of stimulus can have a multiplicative effect on output. The problem comes if this seed is spread incorrectly, for example over cement or during the winter. Likewise, having a central granary for seed makes it easier for criminals - or the people running the granary - to steal grain.
but the economy isn't a farm
If you put in money in bank reserves, it shows up as excess deposits and if there are no borrowers, those deposits are used to buy assets. The inflation from "quantitative easing" shows up in financial assets first and then makes its way to consumer prices. Also, if you have over $50+ trillion in assets and you print money to buy financial assets, you won't get very much inflation if there is no private sector credit demand. Japan got stuck in a debt deflation, which we avoided.
Thank you for the analysis, how do you think the West ( US, Canada and the EU ) avoided debt Deflation?
@@vladimirpetkov1959 we haven't avoided it, in fact we're all heading for it...
I heard the Ottoman Empire disintegrated because of debt, and WW1 didn't help. So too much debt is bad in the long term.
but this isn't ww1 is it? we have a modern system
@@therealnoodles7638 this world is not sustainable my friend...
I feel very stupid asking this but here it goes anyway. If the company their repairing their debt and it's a long 10-20 year cycle. these companies have a good strong business with steady cash flow. Now the question is, Why doesn't the gov't buy all that debt from these positive cash flow businesses and repair their debt problem faster
One further point of clarification. We must consider what we mean by the idea of a success of an economic system. Feudal economies might not be very utilitarian, but from the standpoint of the feudal elite they work very well. The stubborn appeal of Keynesian economics I think is due to a similarly selfish rubric on the part of lawmakers.
If Keynesian theory was really important to its advocates, they would strictly support spending constraints during times of economic prosperity. This is exactly the opposite of what such advocates do in practice. I am thus moved to believe that the key component of Keynesian economics is the excuse it provides for excessive borrowing and spending during times of economic stagnation and crisis.
Keynesian economics is promoted only insofar as it is an excuse for spending.
They have shifted to modern monetary theorist. It took them a while to admit that they could care less about debts, deficits and raping savers.
Give me the new area there is not inflation? That really matters to my life. Ya a little cheaper tv and cloths that are cheaper but last half the time so really they aren’t. Otherwise inflation is everywhere.
Very little inflation? Please let me know what you have been smoking, as I still need to consume food and get gas, and all I notice was price continuously going up.
debt is the problem.even with japanese efficiency they are failing.its amazing.
Jack Xin its interesting to see where japan will go.i almsot thin k they will be the first to move past capitalism altogethor and into a new epoch.they seem to have surpassed the west ineverything else,it will be interesting to see how things develope.
+Jack Xin Human population leveling off is natural, normal and important. Disrupting an equilibrium in human population of a island by shoving more people will kill Japan. So no, they don't need immigration.
"No, no, and no. Its money printing, which ever way you look at it."
Only if the asset holders (the banks) use their reserves at the Fed to get cash from the treasury which goes into circulation, which is the goal, but since we're in a balance sheet recession isn't happening. The banks are just sitting on it. That's why you need to circumnavigate the banks with direct stimulus.
Physics has a theory of gravity, astronomy has a theory of planetary motion, and many other hard sciences have similar theories that are based on the rigorous use of logic and mathematics.
Perhaps you mean to say that only in economics and theology can failed theories be nevertheless considered valid because some faction of stubborn and politically well placed ideological fanatics refuse to acknowledge their errors.
I agree with your statement that inefficiency and corruption are the root causes of the failure of pure Keynesian economics, but this strikes me as analogous to arguments about communism. I will clarify my original statement, however, that Keynesian economics doesn't work *in practice*.
Additionally, I believe that what we are witnessing is a failure of Keynesian economics due to the exact reasons that Koo mentions: a balance sheet recession. Keynes didn't foresee that in his model.
This is gonna age well
Interesting, but he gives no long term account of what will happen to the debt that the government accumulates through economic stimulus. Obviously dumping money into the economy is guaranteed to temporarily stabilize it. However, to achieve true long term growth you have to do something useful with your stimulus money otherwise you're left with debt and nothing to show for it. Politicians work on election cycle time frames. It shouldn't surprise anyone that their solutions to problems are also based on those time frames. It is irrelevant to them whether their economic strategy pays off in 100 years.
Demography is destiny
If the problem is that government didn't spend enough money, then it's never a problem. No one has problem spending money, ever! But not everyone can produce products people want.
If a politician can't cut spending or raise taxes without fear of loosing his job, the only altenative is to print money. As such, the same politicians will jump at any explanation that allows them to do just that . . . enter Mr Koo. What I don't understand is that he is speaking as if Japan has already fixed their economy with Keynesian economics. Last I heard, Japan was about as bad off as all the other countries using fiat money. Never underestimate the ability of people to delude themselves.
we are now in 2020😅😅😅
@ragp1cker NO, the govt does not need to increase taxes which takes money out of the economy. It's the reverse of spending. Taxation can increase AFTER there's full employment and high productivity.
Inflation occurs when there's too much money (demand) RELATIVE TO SUPPLY, and supply is normally elastic i.e. growth, so inflation occurs when supply is restrained by physics/nature or by some other policy.
@00Billy How about: the real answer to over-eating and a stomache is to never eat again? Just because too much debt caused a problem in the private sector does NOT mean all debt, any debt, is the problem. Koo is saying (as did keynes) when everybody saves and no one borrows you spiral into a worse and worse situation (like the guy starving himself to death to cure his over-eating problem).
Koo is exactly right. We are as Krugman would say-in a liquidity trap. What we need is economic stimulus but with a twist. It must be direct aid to consumers. Or in other words-to get around corporate deleveraging we must directly stimulate people rather than corporations. So this means, increase wages, lower the cost of health care, expand worker protection, invest in education, and lower consumer debt. Then we people instead of corporations are investing in the economy it will improve.
Thanks for making it clear you're an idiot, GJ.
Doesn't work, as evident by many European countries. All that happens is the nation as a whole gets further into debt.
In short - massive and sustained fiscal stimulus won't stop US from going into recession, because massive and sustained fiscal stimulus let China avoid going into recession.
+Tomek Samcik,
In short, you didn't have your ears on when you listened to the video.
Rather than conventional partisan speak, viewers have the option of listening to what the speaker actually said and means by
* a "Balance Sheet Recession,"
* how this dilemma is unprecedented since the 1930's,
* how the West is going through a unique kind of challenge that Japan faced for the first time since lessons not well learned since the Great Depresion,
* how the West might avoid or fall into the same mistakes Japan did in following conventional economic advice in the face of current economic challenges.
This understanding matters for determining U.S. policy today because repeating conventional mistakes is today advocated by many candidates running for President in this country.
It would be useful to learn something from modern history rather than unnecessarily yet predictably falling into a prolonged recession in this country by repeating mistakes of the past, both in this country and in Japan.
Of course, doing so, would require some actual thought, understanding the difference between microeconomic and macroeconomic logic and its practical consequences, and learning about what is unique in this present period of history at the macroeconomic level.
China is a significant sidebar in this discussion. Their fiscal stimulus was three times the U.S. stimulus with its impact on debt since 2008 in terms of GNP, resulting in a prosperous private sector and a decade or so of 8% growth in China. Looking to the future, the danger in China is its having lent large amounts of money to its provincial governments and more importantly, fostered a real estate bubble, typically involving many middle class Chinese investing about 30% down of their own money on yet unoccupied real estate. These investments of the middle class have gone well beyond repairing infrastructure and meeting affordable demand. This particular expenditure may well represent a bubble waiting to happen with nontrivial potential consequences.
But that is definitely more than is contained in this video. Tomek is blatantly wrong in suggesting "in short" that a Chinese comparison is here the focus.
For those interested in understanding Richard Koo's thoughtful argument, one might rather listen to the actual content of this video, lessons from American history going back to the last precedent in the 1930's, and Japan's bitterly won lessons from about 1989-2005..
In short, It might be worth listening to how America could learn better from its own history and from lessons Japan learned the hard way.
Those inclined to think rather than espouse predetermined views will find listening to this video worthwhile.
+Tomek Samcik I had the same question. He doesn't seem to make that clear. My attempt at a recap. I assume what he's saying is that the private sector is debt saturated. It borrowed in the boom with rising asset prices then comes the bust and asset prices fall. Now they are desperate to pay off debt and avoid bankrupcy and definitely don't want to borrow. [Most money is issued in form of mortgages and car loans in the private sector.] You lower rates to zero or negative and still they don't borrow, just pay off debt. So money is extinguished and no new money born -- ie deflation. Took over ten years in Japan to pay down debt in private sector. Their baby boom is ahead of ours. So in meantime, he's saying government should borrow and run deficits to fill in the void. He mentioned public spending on infrastructure and education in China. This would be a different form of fiscal stimulus than QE which gives money to banks to loan to the private sector which is debt saturated. The QE money just sits in reserve or they speculate in the stock market, creating a bubble there. I'm surprised he didn't mention Roosevelt spending on infrastructure to cure deflation in Great Depression. He says the only QE money he agreed with was the first QE just to rescue the banks from collapse but then there should have been no further. He doesn't seem to emphasize that he means public spending on public programs and infrastructure as opposed to QE, as we know it. I assume that is the crux of it but he doesn't make that clear.
John Maynard Keynes was a very smart man. He was also very wrong on some points, as we have seen by now. Simply put, the economic model that the world is following - developed by Keynes - has proven to be inaccurate.
Lumping the entirety of "Economics" into John Maynard Keynes' own theories does not compute. Disagree with it though I personally may, Communism is a form of "Economics", as is Capitalism, Socialism, and thousands of variants on micro and macro scales. Feel free to learn about it.
So Keynes advice is the problem or the solution? This gentleman appreciates Keynesian style Intervention and pump priming of the Macroeconomy, which can create other kind of problems in the long - run as we saw in Post-War Europe during the 1970s!!!
SYED ADEEL HUSSAIN its the problem obviously
If government spending once, it never ends.. Coz Bubble Grows, bursts and assets prices fall, government stimulus, private sector busy paying their debt, Government huge investment then competes with private, government loses, job loss, again bailout more and more taxes..........Im not an economist but there´s certainly a limit !!
I didn't mean to imply that Keynesianism is a form of eudalism. Again I repeat, Keynesianism is simply based on using a government as a sort of monopoly corporate investment entity. It is capital investment married to collective politics. What I am saying is that the same stubborn adherence to Keynesian economics by champagne socialists is akin to aristocratic enthusiasm for feudal economic theories, or monarchial support for the divine right of kings concept, and for similar reasons.
What will happen moving forward for the US?
@stephentsang2000 He's Taiwanese and he's not working for the Japanese government. Furthermore, how does advising the US not to repeat Japanese's scenario has anything to do with his last name...?
Its always been funny money economics.. there is nothing new here.
Nothing that a partial global pand3mic can't solve.
japan is collapsing because of population decline... all the workers are aging and nobody is coming along to replace them
Keynesian economics does work. It depends simply on considering a nation state as an enormous centrally run business with all economic sectors under the government's indirect control.
The problem is one of inefficiency and the lure of corruption. Simply put, it is virtually impossible, even for well intentioned individuals, to match the efficiency of many local decision makers. This is magnified by the lure of greed and the greater ease of graft and corruption offered by a centralized system.
he says japan oversaddled themselves with debt and now the economy is wrecked because they have to deleverage.. later in the video: solution to chinas problem is sustained and massive fiscal stimulus...
I think there's a differentiation between corporate debt and governmental debt.
The Holy Grail, transformation of Consciousness. Hands and Brains Unbound, the illusion of World Order and the Revolution Ascending. Lifting humankind beyond the 'veiled' mind of thought. Novus Ordo Seclorum.
@007Bengals
isnt that like taking stimulants for insomnia ? Or maybe heroin might be a better analogy.
Alright so what he's saying is that the government should bail everyone out or do a giant epic QE then the economy would start growing again?
I don't think so, I think he's saying direct public investment is the way to go, not bailouts or quantitative easing.
But if you borrow and spend money in the same time, how do you pay the debt? I'm confused though. This makes sense, but basically it is just accumulation of debt for the private and public sector. The government does not always have money to provide stimulus, especially with people demanding lower taxes. For countries like Canada, money is needed to be spend to support the public health care infrastructure. The banks then have to have money available to provide to people who decide they want to eventually spend their savings. The money goes into the economy but the bank loses assets. With existing debts, say their balance sheets are under water, the companies and banks need to pay off the debt that they have anyway.
Whenever government funds programs that that are not being provided by the private sector (e.g. state provided health care, social security checks), it is providing the economy with so called "automatic stabilizers". This is the sort of thing that constitutes non-discretionary government spending in the short term. When the economy tanks because a bubble bursts, or whatever, the checks keep going out, despite the fact that the government loses tax revenue as employees are laid off. In this sense, the public sector naturally starts to accumulate the debt of the private sector as it deleverages when the economy slumps down. This also somewhat softens the blow of the downturn as extra money can circulate through the economy without getting lost in the financial sector. A key point here is that to provide effective fiscal and monetary stimulus, countries have to borrow money in their own currency, which is why countries on the Euro (e.g. Greece and Portugal) are struggling with funds while the U.S. isn't.
Automatic stabilizers work the other way too. When the economy turns up and starts to boom, the government starts to gain more revenue through taxes as employment recovers and also reduces its expenses as fewer people need the benefits of the social safety net. The budgetary surplus is then used to pay down the public debt. This also naturally combats inflationary pressure. Unfortunately, how many politicians run on a platform of reduced government spending and higher taxes? This bias toward fiscal expansion is the biggest problem with using discretionary fiscal policy to fix macroeconomic problems. Normally, lowering the federal reserve rate to incentivize borrowing is enough to fix a recession, but monetary policy is currently rendered ineffective because the interest rate required to restore a full employment economy would be lower than zero, and that can't happen.
I hope this helps clear up any confusion!
+Edward Bottle That pretty much answered every single question I had after the video, thanks!
they pay back the debt, everytime a treasury bond matures, the debt is paid back. Then the government sells another bond to someone else and credits their account, they have no problem doing this. Debt paid back. The government can freely destroy and create money whenever they need to. The debt is meaningless if you issue your own currency. But if it is pegged to some currency or using a foreign currency then debt becomes problematic.
First he says that QE2 was a bad idea, then he says that we need big governement to play a key role to keep the GDP from falling. Now he's contradicting himself.
QE is bond and asset inflation because as everyone is deleveraging, the QE stops at financial sector and doesn't circulates to the real economy. big government meant fiscal expenditure, roads, bridges, high speed rails, technology investments, more infrastructure for schools, physcial projects. Perhaps read a bit to understand the difference between monetary operation and fiscal policy. Also interest rate isn't monetary policy, credit control is. Bit late, but still.
Ffs I've been saying this for a while
While I understand what you're saying, the key component behind Keynesian economic theory is to aid the private sector to balance out supply/demand. I don't personally see this as a good thing (I'm very capitalist in my economic views.) Regardless, comparing Keynesian economics to fedual economics isn't fair; if you want a fair comparison, compare Keynesian to capitalist, or socialist. I don't believe Keynesian economics leads to the best economy for most people.
00:30 *CHEER UP* _(it's only financial Armageddon ;)_
What a Keynesian...
was going to pass on this video, but then saw this call was made 10 years ago