It may take a few minutes to wrap your head around it, but this chart from Richard Koo, borrowing heavily from the insights of W. Arthur Lewis, is a pretty good framework for understanding the history of the world since the start of the industrial revolution:
For most of human history, technological progress was achingly slow, especially when it came to agricultural productivity. Unable to boost yields, populations couldn’t expand unless additional farmland were brought under cultivation. There were about as many people alive on Earth in the age of Caesar as there were more than a thousand years later. When that finally changed, farmers moved to urban factories and joined the proletariat. Read more
Helicopter money won’t work in Japan, says Nomura’s Richard Koo in a note on Tuesday, because when the typical Japanese citizen finds a 10,000-yen note lying on the ground, she will turn it in at the nearest police station rather than spend it.
Put differently, a helicopter money policy can only work if the people in a country have little sense of right and wrong.
Koo, of course, is talking about the effectiveness of actual banknotes being thrown out of helicopters in the sky. It’s one of four ways he thinks helicopter money policy could be implemented — since the real challenge with helicopter money is how it would be distributed, and to whom. Read more
This is a guest post from Richard Koo, chief economist of the Nomura Research Institute and, amongst many other things, author of “The Holy Grail of Macroeconomics, Lessons from Japan’s Great Recession”, which lays out his balance sheet recession thesis in detail.
The post is an updated extract from his most recent note for Nomura and reproduced here, with his permission, for your arguing pleasure…
The US, the UK, Japan, and Europe all implemented quantitative easing (QE) policies, but the understanding of how those policies work apparently differs greatly from country to country, leading to very different outcomes. With the US economy doing better than the rest, there has been some debate in Europe as to why that is the case. Read more
Nomura’s Richard Koo put out a note on Tuesday reacting to the rise in JGB yields since the Bank of Japan went into QE overdrive that seems worthy of some attention.
He thinks the Bank of Japan, in reaction to yields heading upwards, needs to declare that it will not tolerate overshooting of inflation. They’ll need to rein themselves in:
What can the BOJ do? To begin with, the Bank and the government could make it clear that they are targeting a 2% rate of inflation but at the same time, they will not under any condition tolerate a significant overshooting of that rate.
Japan’s Masaaki Shirakawa gave notice on Tuesday that he would be leaving his post as governor of the Japanese central bank on March 19, three weeks earlier than slated.
Can we blame Shirakawa? His departure now coincides with that of two deputy BoJ governors who would be replaced by Abe-nominations (we resisted the urge to go for ‘Abominations’; it wasn’t easy.).
If Shirakawa had stuck around he presumably would have found himself the head of an increasingly mutinous court. Read more
Nomura’s Richard Koo is back, suprising us with another note following quickly on his last. But we can see how it happened. Heck, some people are suggesting that the West’s balance sheet recession is over. Read more
Abenomics: it’s as divisive as it is fun to say.
We should start this round with Adam Posen, who used to sit on the Bank of England’s Monetary Policy Committee and penned an Abenomics op-ed in the FT on Wednesday. Read more
The Bank of Japan’s unprecedented joint statement with the Japanese government after the central bank’s October meeting raised eyebrows around the world. The BoJ was already widely seen as having come under increased political pressure in recent months as the country’s economy had slowed; so what did the joint statement mean?
The statement contained a couple of key declarations: “The Bank strongly expects the Government to vigorously promote measures for strengthening Japan’s growth potential”, and “The Government strongly expects the Bank to continue powerful easing as outlined in section 2 until deflation is overcome.” Read more
From Citi’s Michael Saunders and Ann O’Kelly: Read more
Nomura’s Richard Koo is back to bang the balance-sheet-recession-drum and has taken a look at falling unit labour costs across the eurozone periphery and where they are likely to meet Germany’s as they creep upwards.
(This is the good type of convergence.) Read more
Nomura’s Richard Koo has written a fascinating account of his meeting with “a number of influential politicians, academics, and senior government officials” in Berlin last week.
First, he heard that some Germans don’t think Greece should have ever been admitted to the eurozone. One of them even said Greece was not really a modern nation-state, Koo writes. Another politician/academic/official was more positive, saying both Greece and Ireland had become more competitive of late, as wages and prices had fallen. Read more
Ancestors of the eurozone crisis, with Richard Koo – from the Nomura economist’s latest note (our emphasis):
In 2005, I told a senior ECB official that it was unfair to force other countries to rescue Germany by boosting their economies with loose monetary policy without requiring Germany to administer fiscal stimulus, when it was Germany that had become so deeply overextended in the bubble. The official responded that that is what a unified currency means: because Germany could not be granted an exception on fiscal stimulus, the only option was to lift the entire region with monetary policy.
Nomura’s Richard Koo is kinda with Christine Lagarde when it comes to the Greek tax problem.
But eurozone bonds (aka eurobonds) are not the solution, he says. Firstly, Greece needs to address its mutual distrust problem with Germany, and persuade the Germans that it will get serious about this tax collection thing: Read more
Nomura’s Richard Koo has been banging on about the similarities between Japan’s balance sheet recession and the current financial malaise for a long while.
His main point has always been that the financial system won’t recover unless corporates and households complete their deleveraging journey. Read more
We think the following chart from Nomura’s Richard Koo on Wednesday is something that every inflationista and goldbug should study closely:
Back in October 2011, James Ferguson, banking analyst at Arbuthnot Securities, warned that the EBA’s tough new capital rules could be about to make the eurozone crisis a whole lot worse because the absence of fresh capital meant banks would have no other choice but to contract their assets.
Or as he wrote: Read more
Richard Koo, the balance sheet recessionista’s balance sheet recessionista, tucked this chart into the back of his note last week:
An important question given struggling financial stocks, a stalling US economy, US public sector cuts and concerns over the impotence of QE3. Take your pick, really.
Fortunately it was also a question tackled Friday morning in a special conference call hosted by Nomura’s US banking analyst Brian Foran, Japan banking analyst Ken Takamiya, and Richard Koo from the Nomura Research Institute. Read more
Apologies for the public school levels of surname chicanery in the title but a couple of big hitters have weighed in before the Fed Chairman’s special appearance on US Markets Live on Wednesday.
Richard Koo, chief economist at Nomura Research Institute and analyst-in-chief of “balance sheet recessions“, writes in his latest note that the Fed’s lack of options today is reminiscent of the BoJ’s predicament a decade ago. Read more
For the commute home, where no-one criticises your fiscal policies,
- More on Goldman’s bearish commodities turn. Read more
Nomura’s Richard Koo — he of ‘balance sheet recession’ fame — has been inspired.
He’s spent a week with Chi Hung Kwan, of the Nomura Institute of Capital Markets Research and an all-around China expert, and come back with the discovery that the “conventional wisdom on [the] Chinese economy has begun to collapse.” Read more
Strong praise for the new Japanese prime minister, Naoto Kan, from one Richard Koo, FT Alphaville says. Nomura’s chief economist says Japan is nearing the the end of its 25-year balance-sheet recession — which may hold lessons for the US. Read more