Debt Deflation Holy Grail

Published on
May 13th, 2020
Duration
53 minutes

The State of Global Macro through Coronavirus Chaos


Debt Deflation Holy Grail

The Interview ·
Featuring Richard Koo & Ed Harrison

Published on: May 13th, 2020 • Duration: 53 minutes

Real Vision Managing Editor Ed Harrison talks to Richard Koo, Chief Economist at Nomura Research Institute. Koo is famous for his work on balance sheet recessions, a rare type of recession where drastic liquidity injections fail to increase the money supply because they remain trapped in the financial system, as there's no low demand for loans since companies focus on minimizing debt rather than maximizing profits. He and Harrison discuss this framework in detail, and use it to analyze our current economic crisis the world faces. Koo draws a contrast between the traditional balance sheet recession, where a bursting of a debt-financed bubble causes a collapse in asset prices and an emergence of debt overhang, with what he refers to as a "pandemic recession," where an exogenous collapse of economic activity leads to disappearing income and a tightening of financial conditions. Koo and Harrison also discuss the various toolkits available to central banks and fiscal authorities worldwide, and Koo shares what he thinks what a sound policy response might look like. Filmed on May 7, 2020, over Skype. To view more of Koo's charts, click here: https://rvtv.io/Koo

Comments

Transcript

  • NC
    Nicholas C.
    25 June 2020 @ 12:46
    Big fan of Koo's interpretation of Japan. However, big differences between Japan and post-pandemic US. Countries don't buy US products as it has no manufacturing supply base. It will not have the income necessary to deleverage due to lack of demand of its limited goods from foreigners. Deflation in short term yes until there is a default in either real or nominal terms.
  • MS
    Moritz S.
    11 June 2020 @ 05:44
    If the private sector doesn’t borrow, then the government has to borrow (during a balance sheet recession). But how will the government ever be able to repair its balance sheet, which is now full of debt?
  • CS
    Connor S.
    3 June 2020 @ 13:52
    The last part on the EU fiscal dis-union is insightful. Thumb up
  • KS
    Kathleen S.
    28 May 2020 @ 21:07
    This comes back to something Steve Keen has said -- when the private sector can't or won't spend it is up to the Federal Govt and the public sector to spend. People also have to stop freaking out about the FED balance sheet and understand how our fiat monetary system in reality works. We are not on a gold standard and a country that has debt denominated in the currency the country creates it will always be able to pay the debt (it makes the money). Underlying resources are what matter --- what good is having saved money when the underlying assets are not there to buy when you need them.
  • vd
    vipen d.
    22 May 2020 @ 17:14
    Great thoughts.
  • RK
    Roger K.
    21 May 2020 @ 19:11
    Richard talks about private sector is not borrowing enough( thus the balance sheet recession) , then what about the corporate bond market and using that money to buy back the stocks??
  • SF
    Stuart F.
    20 May 2020 @ 23:55
    we will tax the rich later is a dog that doesn't hunt. very unrealistic. we know where the money is going, and it isn't coming back
  • SB
    Stewart B.
    19 May 2020 @ 13:20
    Great interview and thoughts. I read the book years ago and liked that too. BUT, this thinking is all about how to fix the problem, not how to prevent the problem. IMHO holding rates artificially low for too long leads to this type of deflationary bust. People and corporations don't typically pay down debt when rates are low - they borrow more. Similar was Japan with the BoJ's policy in the late 80s of Window Guidance.
  • GF
    Gordon F.
    15 May 2020 @ 03:54
    A weak spot in his argument, as I see it, is at the 27:06 mark, where he says, "and then the government withdrawing themselves, allowing the private sector to take over." Once the government starts spending in this way, the private sector becomes addicted to it, and if the government ever tries to withdraw itself, the market and economy immediately collapse. The government spending also, inevitably, puts the government officials in the position of deciding who succeeds and who fails (i.e., who gets government funding and who doesn't), at which point the most important branch of your company is your lobbying office in Washington. This also, inevitably, tends to favor big corporations over small companies or startups. I'm not saying small companies or startups can't succeed, but it certainly tilts the field against them. And not only are the corporations addicted to the funding, but all the people at the government agencies that oversee and regulate these funds and companies are determined to keep their job and influence, and even expand them. As Reagan said, "There's nothing so permanent as a temporary government program." This may all sound good in theory, but in practice it leads to disaster. I expect that we are approaching Mises' Crack-Up Boom on a world-wide level.
    • SB
      Swapnil B.
      15 May 2020 @ 11:08
      I see your point, but I think the weakness in the argument may be lesser for "developing economies" where infrastructure and public works can be carried out by the government without crowding out opportunities for the private sector. In fact, such fiscal expenditure ( long term high Capex-low profit projects like roads, rail and other environmental work) can be an enabler of future growth for the private sector in growing economies while keeping GDP ticking. P.S: This is probably the best time to build/repair roads with less or no traffic
    • AM
      Abigail M.
      19 May 2020 @ 10:46
      There will be no unwind. Buy gold and BTC.
  • JL
    James L.
    15 May 2020 @ 22:14
    Ed never asks about, and Koo never addresses, the end game for sovereign balance sheets. A huge hole in his theory of balance sheet recessions. Aslo, Koo shows his cultural bias. 1920s Americans and Japanese differ in propensity to save from today's consumers.
    • AM
      Abigail M.
      19 May 2020 @ 10:44
      Not a chance in hell for savings. Bailout = moral hazard.
  • DM
    Daniel M.
    16 May 2020 @ 00:14
    Smart guy. So many holes in his arguments though. I'd be very curious to hear his explanation for the great depression of 1921. By most measurements, that was an even greater deflationary shock than 1929. Yet, the government did exactly the opposite of what Koo is proposing, and the economy quickly healed itself without massive government "stimulus" or intervention.
    • AM
      Abigail M.
      19 May 2020 @ 10:44
      He is just another brain damaged Keynesian. The problem is debt based money. There are no savers banks wrote up both sides of balance sheet creating money out of thin air.
  • CE
    Ch E.
    16 May 2020 @ 20:55
    Amazing piece! Loved the clarity on *situational* leadership (assess each situation first carefully and then prescribe the right solution): - During normal or stable times, one can discuss text book theories and debate Keynesian/Austrian tactics. - During a pandemic induced "own goal" or abnormal times, speed of essence - just save everyone quickly to mitigate disinflation and tax the rich later. Had no idea about the German style Nasdap crash in 2001 and how it led to knock on effects in rest of Europe etc. Fascinating!
    • AM
      Abigail M.
      19 May 2020 @ 10:42
      There will never be a normalization. CB cannot unwind. We go from crisis to crisis without ever running surplus. They end game is fair debasement.
  • BR
    Benjamin R.
    17 May 2020 @ 04:09
    Great interview. When the Japan Bubble burst, it was an isolated incident. This time around we might be facing the collapse of the Everything Bubble, everywhere. When Richard Koo argues that massive stimulus in Japan did not lead to inflation, I wonder how much of that was thanks to Japan's ability to let off steam through the carry trade. This time around, there will be nowhere to let off steam because all countries will be hit and the carry trade makes less sense when rates hit zero globally. Might we see more inflation during this balance sheet recession than during Japan's Lost Decade?
    • AM
      Abigail M.
      19 May 2020 @ 10:41
      The only outlet is fiat debasement.
  • ML
    Mark L.
    17 May 2020 @ 22:19
    I wish Ed had asked Richard what happens when sovereign debt explodes through deficit spending. Or, in effect, what happens when the government itself has a balance sheet issue? To what degree and effect are such deficits supportable? Next time, perhaps.
    • AM
      Abigail M.
      19 May 2020 @ 10:38
      Ding ding ding.
  • AP
    Adam P.
    18 May 2020 @ 00:07
    Holy shit, this guy is good.
    • AM
      Abigail M.
      19 May 2020 @ 10:38
      There is no way people will increase savings if they are bailed out. Moral hazard.
  • AS
    Ash S.
    18 May 2020 @ 11:15
    Excellent content!
    • AM
      Abigail M.
      19 May 2020 @ 10:35
      Just another brain damaged Keynesian.
  • AT
    Andrea T.
    17 May 2020 @ 04:45
    If everyone is now doing the right thing by repaying the debt, that means that they all did the wrong thing before by getting into too much debt. We should ask why this is the case.
    • AM
      Abigail M.
      19 May 2020 @ 10:23
      Exactly. It all comes down to debt based money.
  • PV
    Peter V.
    13 May 2020 @ 07:06
    Great. Sadly economist like Koo has a doctrine that is completely wrong (keynes doctrine). In order to increase productivity you need real savings (you actually need austerity) and only then will you get real investments. When Lacy Hunt will come on later this/next week he will give a better perspective on what is the real problem. Anyway great to hear his views.
    • DS
      David S.
      13 May 2020 @ 07:23
      It is too bad that Mr. Keynes is not here to defend himself. He believed in spending money as a counterbalance. His model counts on the deficits being repaid. Maybe even a surplus should be generated to pay for the next crisis. Politicians only listen to the spend side. They are tone deaf to the repayment side. MMT assumes stopping the spending when you reach 2 % inflation. This will never happen with the US Congress. DLS
    • PV
      Peter V.
      13 May 2020 @ 08:22
      Not true, Keynes specifically states that it is a fallacy that demand is created by supply. Ask any African country if their demand is higher than current consumption. Say's law that supply creates demand is turned on its head by Keynes. In order to increase supply (and thereby demand) you need real investments which is equal to real savings. Lacy Hunt will give you the road map for the following years to come. Keynes was a terrible economist and sadly his flawed theories have been adopted by academia and central banks worldwide-. Which is a one of the causes of why we have these massive debt problems.
    • SP
      Seahyung P.
      13 May 2020 @ 15:17
      If you want investments, you need to increase aggregate demand, you need to increase spending. If you save money in the bank, it just sits there. If the bank decides to SPEND your money by loaning it out, this is a form of demand. If banks don't loan out your money, you can save as much as you want and you'll never get investments. Increasing the supply of money in a bank doesn't translate into investments directly. If you put trillions of dollars in a bank but nobody takes loans from the bank, there is NO investment. There must be corporations and people WILLING to demand CREDIT from the bank, so that the bank will loan it out in the form of investments. You will find Lacy Hunt makes the same argument which is why he believes that despite all the printing, DEFLATION is what we will face since none of the printed money is actually being spent. Either you have not read Keyne's work directly or you are deliberately mischaracterising it. His policies are meant for a very specific situation that being: The economy is working below capacity and the economy is in a liquidity trap. If you add the research of Ken Rogoff and Carmen Reinhart, they would add that another condition for Keynesian policies to be able to work is that Debt / GDP is below 90%, ideally as low as possible. Only in this environment does the Keynesian multiple begin to take hold. People who try to increase fiscal and monetary stimulus in the absence of these conditions are not following Keynes, they are followers of MMT. Keynes also made it very clear in his general theory that whatever money you use on fiscal stimulus, you must get it paid BACK during economic growth by increasing taxes. Yes, politicians generally do not like increasing taxes which means that this last clean-up step of Keynesian policy seldom gets implemented. You can fairly say that this was a failure on Keynes, to acknowledge the political unpalatability of raising taxes, but he never said or supported the idea that you should just pile on debt and treat it like a "free lunch". You seem to be confounding MMT for Keynesianism.
    • BS
      Bevyn S.
      13 May 2020 @ 17:11
      I wouldn't just lump Koo under Keynesism. Hey argues that in a normal functioning economy, recessions do not necessarily warrant government spending. His point is that when there is synchronized delevraging, the benefits of 'letting the weak fail' are outweighed by the downside of systemic failure, which is a fair point. While I think his concept is profound, he still seems to be poking around to understand how we prevent long term systemic fragility, which is the real problem that needs to be solved. I know some may argue that the actions of the Fed and Governments actions are what cause the systemic fragility. But it is certainly interesting to consider that the intervention is not the cause, and to think about how changes can be made to promote systemic durability, outside of just 'letting it all burn down'.
    • PV
      Peter V.
      13 May 2020 @ 19:34
      Not correct. If you want real investments you need real savings. Demand comes from supply. Every country wants to consume more but why don’t they = because there needs to be supply. Richer countries can produce more which is why they have bigger demand. In order to save you have to forego consumption! Real savings is not credit expansion. Real savings is foregone consumption. US runs -5% deficits and obviously needs to start saving. The whole problem is that debt is to high and you cannot solve it with more debt. Remember that debt is future demand brought forward, not a free lunch. It is openly obviously that the FED, BOJ, ECB etc is a huge part of the systemic failure we are seeing. If you stop the business cycle from resetting (allowing defaults etc) you end up with this extreme malinvestment environment we are in. We need to remember that QE and money printing has no economic value and asset prices sky high is basically fake wealth. Living standards increase by higher productivity not that your house has increased in value!
    • BS
      Bevyn S.
      13 May 2020 @ 20:54
      Peter, I highly recommend you read Koo's books, look into Triffin's Dillema, and read Michael Lind's book New Class War. I agree that most assets are overvalued. I agree that Central banks have made mistakes. I'm not saying asset prices shouldn't fall. But there is more to this story. We are more globalized than ever, and have introduced systemic risks that we don't fully understand. We have the Fed torn between interests in domestic and foreign stability. They are just an impotent individual in a bigger game with fundamentally unstable foundations. I believe that is Koo's focus. In a stable framework, he would probably agree with you! All that being said, unfortunately it's not in human nature to be proactive. It does take pain to force solutions. I just hope it doesn't cause war and unnecessary death.
    • DS
      David S.
      13 May 2020 @ 20:54
      Peter V. - It has been a long time since I read Keynes, but he did say the spending needs to be repaid in the good years or at least paid down. I do not think he meant to give it to the wealthy to invest in the stock market and inflate P/Es. I do not think that he meant to loan it to corporations for buybacks. I do not think he meant to to give it to the banks who play in the derivative market. These are all non-productive uses of capital to increase the GDP. I do not remember your quote from Keynes. I do agree with the quote about the fallacy that demand is created by supply. These are not mutually exclusive ideas. DLS
    • DS
      David S.
      13 May 2020 @ 20:59
      Seahyung P. - Thank you for the following quote: "Keynes also made it very clear in his general theory that whatever money you use on fiscal stimulus, you must get it paid BACK during economic growth by increasing taxes." DLS
    • DS
      David S.
      13 May 2020 @ 21:45
      Seahyung P. - I greatly respect Mr. Koo for his thinking through the idea that everyone paying down debt at the same time causes GDP growth problems. Paying down debt is a great use of capital to make the company or person be more resilient. Paying down debt, however, is a non-productive use of funds as far as generating GDP growth. This is the fallacy of composition as explained by Mr. Koo and by Herbert Marcuse of the Frankfurt School of Critical Theory in the 70s. (If you leave early to drive home, you will miss the traffic. If everyone leaves early to drive home, you will not miss the traffic.) I would like to see an expansion of Mr. Koo's thoughts about non-productive uses of capital vis-a-vis the growth in the GDP. If we are going to print money ad nauseum, let us make it help the economy and not just the rich. Someday with proper understanding we may get a multiplier effect. Just giving money to banks and investors causes P/E inflation - a non-GDP growth use of funds. Radically reducing corporate taxes just gives corporations, who have no productive use of funds, the ability to buy back stocks - a non-GDP growth use of funds. We need to develop a list of GDP growth uses of funds and non-GDP growth uses of funds. Printing money during Coronavirus and after should be focused on uses of funds that will grow the GDP until the economy is off the ventilator not just making the rich richer. The rich can do this on their own. I hope Mr. Koo, and/or some folks will work on this. You may be able to share a Nobel Prize. Time for a nap. DLS
    • SP
      Seahyung P.
      14 May 2020 @ 02:36
      -Peter V. Yes, if you want real investments, having savings is a necessary but not a sufficient condition. You also need DEMAND for credit. If banks were stockpiled with cash from depositors, but no corporation or individual was willing to DEMAND Credit in the form of loans from the bank, the money in the bank does NOT get invested, it just sits there. You can have all the supply you want and yet there will NEVER be investment if no corporation DEMANDS credit in the form of loans. INVESTMENT by definition means you are SPENDING money; Investment means that banks SPEND their cash by loaning credit to corporations and corporations are SPENDING that credit to finance their projects. Regarding your comment "Richer countries can produce more which is why they have bigger demand": If by richer you mean that they have more money, well then why not just print money and make your country rich and now they can produce more, the solution to everything is just to print. I think we can both agree that this is an absurd proposition yet this is what your comment entails. Your comment was either poorly-phrased or using the word "rich" to refer to something outside of money supply. If by richer you are referring to countries like the US, you must remember that the US has a privileged position as having the USD as the global reserve currency. This effectively means that it can export its inflation to other countries and get goods for cheaper prices. IE, The US has high demand because it can obtain goods from overseas at cheaper prices, not because the US produces more. Your iPhones, clothing and shoes are being produced overseas, not in the US. The demand increases because the cost to make those goods are much cheaper overseas. It has nothing to do with the US producing those goods more. "It is openly obviously that the FED, BOJ, ECB etc is a huge part of the systemic failure we are seeing. If you stop the business cycle from resetting (allowing defaults etc) you end up with this extreme malinvestment environment we are in. We need to remember that QE and money printing has no economic value and asset prices sky high is basically fake wealth. Living standards increase by higher productivity not that your house has increased in value!" --- Regarding these comments, we are in total agreement. I agree that the current situation in the US is not solvable by QE and instead leads to the results you outlined. However, even though what Koo is talking about here may not apply to the US, that does not necessarily mean that there aren't specific circumstances where it may not be applicable. -David S. Yes, I think overall there needs to be nuance in how and where the money gets spent. Every economic situation is different and yet people get so entrenched and tunnel-visioned into wanting to use the same economic tool/policy to solve every problem, rather than analyse the details of each individual and unique situation. The US FED seems to believe that the current problem is of liquidity in the corporate sector, leading to a liquidity crunch and deflation of assets. Thus they fall back on their time-old policy of inflating assets via QE. As I'm sure you are aware of, the problem is not liquidity, but of solvency, the ability of corporations to pay back the debt they have already taken on is what is impaired, not the supply of credit. You can pile as much more debt and credit as you like, but the corporations weren't going to be able to pay off their debt before, there is no reason why they will be able to pay off even MORE debt now. In situations like this, the money pushed into the system should indeed by invested into productive, GDP-Growth areas, maybe things such as infrastructure or healthcare etc... The issue that I think the political establishment faces is that not only is it difficult to recognise the difference between investing in asset-appreciation VS GDP-Growth (Infrastructure etc...), but it is also difficult to mobilise GDP-Growth projects in a short enough time period to make it effective. Projects don't start overnight, despite the abundance of money, but need to be planned, logistics sorted etc... By the time such projects may be implemented, the current economic conditions may be drastically different and due to the 4 year-term nature of the government, the political powers that may be may decide to stop or delay such projects. I think these (Political) are the issues that get in the way of implementing the sound-economic ideas you have in mind.
    • PV
      Peter V.
      14 May 2020 @ 10:07
      Great to have a debate and I could be wrong. But the essence why Keynes is wrong: Keynes focus on demand and states that aggregate demand determines supply. That is a complete fallacy. Please explain why African countries are so poor (is it just because they do not demand iphones, mercedez, chipotle etc?) Obviously you need to be able to produce these items in order to consume them! On a basic level = wealth is created by production.
    • SP
      Seahyung P.
      14 May 2020 @ 15:33
      Peter V. Yeah, its great to be able to go back and forth on ideas. African countries are poor because they have a debased currency. As a toy-example, Lets say that it costs the US 400 USD to make a TV and it costs China 800 CNY to make a TV. The exchange rate between USD and CNY is 1:8, (1 USD is worth 8 CNY). Then the US can buy TVs from China at 100 USD, which is much cheaper than 400 USD, thus the US citizen gets goods at cheaper prices and thus demand picks up. China then takes these US dollars and does what? Stores them away and prints more CNY to debase their currency? Why? If China accumulates too much USD as reserves this will cause the CNY to become too strong compared to USD, such that 1 USD may suddenly become worth 7 CNY instead of 8. (This is because when a Chinese TV seller sells to the US, they receive USD. The Chinese cannot use USD to buy anything in China, so they give it to the Chinese bank who exchanges the USD for CNY. If this happens to the extent where the Chinese Bank runs out of CNY, then the CNY is much more scarce compared to USD inside China, thus the price fo CNY compared to USD increases.) If this continues at a rate at which 1 USD becomes worth 2 CNY, then it costs the US the same to buy TVs from either China or US. China does not want this because they wish to export their products forever and get cash flow because their entire economy is based on manufacture and export, so they deliberately devalue their currency to make their products cheaper on a USD basis and thus demand for Chinese TV increases because they are cheaper. Other countries are willing to hoard the USD, since it is the reserve currency, and simply debase their own currency relative to the USD. Why? Because everybody trusts the USD (For now) and so any country that can gather massive reserves of USD effectively has a form of insurance in the future for when s*** hits the fan and they need reserves of a strong currency that they can barter with. Every country knows that in bad situations, people are not going to want to accept CNY, NZD or AUD for their goods, they want the best currency which is the USD. Next to gold, USD is the best thing any country can hoard. Thus, Chinese TVs will almost always be cheaper than US TVs, because the Chinese can pay their workers 1 dollar a day max, whereas you can't do that in the US. The US can produce as many TVs as they like, but because they cost more compared to Chinese TVs, there WILL NOT be demand for US TVs, the Chinese outcompete them. The US is NOT rich because they made TVs, iPhones, Cars etc.. The US has the privilege of having a reserve currency, which effectively allows them export inflation overseas and thus rake the benefit of being able to buy goods from overseas at bargain prices, prices far below what it would cost the US to make the same product. Production by itself does not create wealth. Access to cheaper goods so that more people can buy them causes wealth. "Cheaper", though as the example above illustrates heavily depends on what currencies you are going back and forth from. Keynes doesn't say aggregate demand determines supply. Although it has been some time since I've read the general theory, I am pretty sure he never said that. What he did say was that aggregate demand is capable of boosting GDP, IF (Heavy emphasis on the word IF) prices are sticky. If prices are sticky, aggregate demand can increase real GDP, but if prices are NOT sticky, increasing aggregate demand only leads to inflation. This concept of sticky prices ties into employment levels and whether an economy is working at full capacity or not. Thus, Keyne's ideas (Although he called it the general theory, was really a theory for a very specific situation) were only applicable when essentially, the economy was working below capacity and was in the middle of a liquidity trap. Again, to reiterate a previous point; if you add the work of Rogoff and Reinhart, they would add that Keynesian policies require a 3rd condition: Debt/GDP must be below 90%. Suffice to say, you are more than welcome to show me the exact line or page where Keynes flat out states that aggregate demand determines supply. As far as I am aware, he never said so and instead stated that there were certain conditions (Not always) where aggregate demand could control real GDP growth and employment.
    • SP
      Seahyung P.
      14 May 2020 @ 15:39
      Peter V. By the way, just so that we are on the same page, I don't think Keynesian policies are what is needed for the current situation in the US, simply because it is not a question of liquidity (A lack of credit being circulated) but a question of solvency (The capability of entities to pay back debt). In such a situation you are essentially just propping up zombie companies that deserve to die, by extended them more credit . Having said that, I am just debating with you on what Keyne's ideas were according to Keynes.
    • PV
      Peter V.
      15 May 2020 @ 08:13
      Come on African countries are not poor because of debased currency. That makes no sense. You need to separate money from the equation: Money is a medium of exchange it has no intrinsic value. African countries are poor because they have no productive capability. US is rich (getting poorer by the minute) because it has a lot of productive capacity and innovation. But US is in decline because it has not invested in future productivity advances (they have consumed and yes USD reserve currency basically demands that US consumes/current account deficit). Im out :)
    • DS
      David S.
      18 May 2020 @ 07:35
      I think we can agree that all the money printing all over the world will make money have no intrinsic value especially as a medium of exchange. (Tongue in cheek.) Great discussion. DLS
  • IP
    IDA P.
    18 May 2020 @ 06:43
    Richard Koo has realized that capital controls are the only solution for the Eurozone
  • AR
    Anthony R.
    17 May 2020 @ 14:26
    The young-un introducing these pieces, with their overly hyped/intense delivery, need to calm the heck down. Its really sophomoric. Jeez. He and his two other peers who've come on over the past couple months look totally hopped up on caffine, or something.
    • PK
      Prafulla K.
      18 May 2020 @ 01:04
      Agreed they need to relax , too much hyping
  • MP
    Mate P.
    16 May 2020 @ 21:01
    I might be living in a bubble but if I talk to old friends in Western Europe, I get the feeling they don't desire more money. Which leads me to the question: Is well-being "capped" at a certain income/net worth? Have the upper-middle class in Europe reached a level of well-being where an incremental increase in income/net worth does not improve life quality anymore? At what level do we get to the point (on average) where an increase in income does not lead to more spending? I think that income level might be a lot lower than most assume (very much below hnwi levels) and it takes a huge role in the deflationary spiral in developed countries. Do anyone know if this was researched before? If so, I would be extremely interested.
    • GL
      Gustavo L.
      17 May 2020 @ 15:31
      We have been here already for a while... mainly, the day has 24 hrs, and that will not change... we need to sleep, we can only eat so much and dress so many clothes... u cannot drive two cars with one ass, etc etc
    • GL
      Gustavo L.
      17 May 2020 @ 15:32
      Ohh, and nobody wants kids no more
  • GL
    Gustavo L.
    17 May 2020 @ 15:25
    Does anybody from the ECB and European Union heard this..???
  • JV
    Jens V.
    17 May 2020 @ 09:45
    Great interview! Thanks for getting Mr Koo on RV, my favorite macroeconomic thinker hands down.
  • NS
    Nick S.
    17 May 2020 @ 09:38
    Koo’s theory relates back to when Japanese asset markets collapsed. Thus Japanese companies and households were paying down debts against their assets that were valued significantly lower than the debt held against them. They couldn’t just hand the assets over to the bank because they would lose their businesses of homes. With regards to the UK (& assume Germany & US too), equity withdrawal rates provided by the BoE suggest EWR remain negative - so asset prices are still rising faster than Equity is being withdrawn. An asset crash tends to occur at the end of the positive equity withdrawal rate cycle (2008). This doesn’t mean asset price WILL keep rising. However, culturally and demographically, there remain plenty of reasons why the asset prices will keep rising in a cheap debt environment. And the richest & largest proportion of UK, Germany, US population being over 65’s remain relatively healthy and can continue spending their pensions. They can also cover expenditure of their children (21-40) (who represent another large proportion of society) that are starting their families by using their wealth to pay home deposits, cars or treating the grandkids to new clothes etc. While there is large scale unsecured debt, there is plenty of equity (or grandparent wealth) to pay down that unsecured debt. Or, people have realised they don’t need that 2nd or 3rd car, so the liability is passed back to the car manufacturer at the end of the rental agreement. An extension of this is that while organisations have adapted, and recognise we may not need to provide offices that hold the entire workforce, it is far too early to suddenly close offices down. There still needs to be a large scale improvement in technology that would enable working from home possible - it is currently unviable for too much longer. For much of the UK, we are still using copper wire 20-30mb Internet outside of London. Before we can work from home, the government need to invest heavily in large scale technological infrastructure, which in itself is an economic stimulus. I think his theory is spot on, but if asset prices do continue to rise, we may not experience Japan esq recession until the end of the 2020’s once asset bubble has burst. Just an alternative view in terms of timing.
  • DP
    David P.
    17 May 2020 @ 06:22
    Interesting conversation but i have some doubts about that solution of each countries owning their own bonds. What will prevent Germany to create subsidiaries in Italy to buy their bonds. How does it work with other financial agents OUTSIDE the EU? Are US and Japanese pension funds prevented from buying European bonds? France won't be happy about that with their very large foreign ownership of often negative yielding bonds. The EU will likely remain in a state of perpetual crisis for the near future, the Germans won't budge in a country where the word "Schuld" means both debt, guilt and fault.
  • LS
    Lemony S.
    15 May 2020 @ 00:07
    I highly recommend Curt P.'s comments below, such as "Fisher basically spent the rest of his life after 1929 studying the GD and concluded that the only way to avoid a debt deflation was not to take on excessive debt." I love Koo, and love how he accurately describes what is going on. Sadly, I've now come to the conclusion that he (as others point out below) ultimately can't shake the chains of Keynesianism. The Bernanke praise that he gives, what did that do? It just kicked the can. Sure, the USA recovered better, but are we better off? No. It's just another mirage. As noted by Curt above, if you don't clear out the dry and rotted by letting it burn, the green can't come back. Lacy Hunt knows this and describes in many places why. Other posters below show how hard it is to let the younger generations have a fair shot at making a life, and why fertility rate suffers, and most of it is based on lobbying and generational power mongering. Sad, but true. But keep importing immigrants, that'll make America ... oh yeah, something else entirely.
    • JM
      Jim M.
      15 May 2020 @ 18:00
      Bernanke help save the system Yellen erred in not, as Druckenmiller says, "sneaking in a rate hike here and there" earlier in her tenure.
    • JR
      Jeremy R.
      16 May 2020 @ 00:10
      Well put. In Australia right now, young Aussies are putting off starting families, because the cost of housing is extreme in the 2 major cities Sydney and Melbourne. The government won't permit deleveraging/debt deflation, as this would deflate house prices. This is again due to promises made by government to Aussie baby boomers about their retirement, as Raoul likes to say. Boomers treat their houses as a money-tree slash retirement account, and it is not permitted to fall at any cost.
    • JB
      James B.
      17 May 2020 @ 03:10
      Exactly, big hole in his theory, they had ten years for govt to back off and let private sector take over... We know how that went
  • RK
    Ron K.
    16 May 2020 @ 21:49
    Great interview and content and Richard Koo has the best hand motions and gestures while he speaks!
  • AK
    Anthony K.
    16 May 2020 @ 21:44
    I remember reading Koo's book on a flight to Lake Tahoe right after it came out and I can say he has absolutely nailed the path. I also think he is right here. If you do not get hands into the money of the people this time you are going to have a household balances sheet credit crisis in the middle of this crisis and then a depression is 100% guaranteed. Any people here who love financial history I guess you can look at this as you are living in an absolute historic time which will be remembered 100 years from now.
  • JG
    Johan G.
    16 May 2020 @ 19:58
    Brilliant job Ed and Richard Koo! Thanks! I learned a lot! Loved his idea of a fiscal dis-union in the EU if they can make it work in practice.That could solve a lot of problems. Most people don't realize that both Greece and Italy run a primary surplus on their budget, only after servicing interest they go negative.
  • MM
    MARTIN M.
    16 May 2020 @ 01:18
    Good, insightful, conversation. One point: We didn't need "perfect knowledge" to tell the difference between good and bad companies coming into this. It was painfully obvious that we entered this with what amounted to history's greatest corporate debt volcano, and we knew precisely where it was located. In fact, this was the phenomenon that was destined to make the next recession, at a minimum, a true rival to the last, regardless of the catalyst.. COVID became a convenient excuse to once again embrace egregious moral hazard risk...
  • LK
    Lauri K.
    13 May 2020 @ 07:47
    This was a great interview, thank you! My problem with the implication of spending our way out of the crisis is that there is no way to stop the fiscal stimulus after the people are relying on it. It's the same reason why keynesian economics don't work. I think economic crises should be dealt in the same way as we deal with Hurricanes. Three's some early wanring signals of it coming and that's the time to prepare. During the hurricane we go into hiding and let it run its course. Afterwards we restart and repair the damage, help those whose houses were destroyed and so on. I guess in theory it would be possible to stop hurricanes before them reaching the shore, but the amount of resources spent on preventing them greatly outweigh the resources needed to ride through them and repair damages. The same can be applied to economic crises, in theory preventable, but massively inefficient to do so.
    • JK
      Jens K.
      13 May 2020 @ 09:32
      Your reasoning seems more like a moral argument than a economic one. The reason that the great depression became a depression is because of ideology/morals rather than sound economic policy. Hugh Hendry make this argument very clearly in his interview with George Gammon.
    • PV
      Peter V.
      13 May 2020 @ 12:43
      First of all Hugh Hendry is not the truth oracle! It is a fact that worldwide debt to gdp are at ATH's. The system cannot handle credit contraction (it simply crashes) and the more credit in the system the more unstable. History is repeating. Basically the Keynes idea is that there is such a thing as a free lunch (which is what Richard Koo, politicians and central bankers all base their policies/ideas on) and now the world is again relearning that there is no such thing as a free lunch. See Daniel Want interviews !
    • JK
      Jens K.
      13 May 2020 @ 16:55
      My point was not that he is an Oracle but rather that where tried to look past morals. Yes. Keynes idea is that there is a free lunch in unique environments that have no risk for inflation. These environments are not the places you want to be in.
    • LK
      Lauri K.
      13 May 2020 @ 18:48
      I haven't noticed GG had interviewed Hugh Hendry as well, thanks for the recommendation! I went and listened it through, but I don't think my argument is moral. They were talking about the difference between the 1920s recession and the great depression. I think Hugh's point totally agrees with my analogy between hurricanes. The thing to focus on is the recovery, not the severity of the crisis. Like implied, the economic crises can be mitigated with various policy interventions, but their results should be judged only after the full cycle. We prevented the 2008 money market meltdown and 2011 Eurozone crisis by issuing unprecedented levels of monetary stimulus. This alleviated the crisis but resulted in the weakest recovery ever. The U.S. has faired a lot better, but in Italy, Spain and Greece we already have a lost generation due to unemployment and overinflated asset prices. These unresolved problems also make this current natural disaster much harder to deal with, since the stimulus has lost most of its potency. This lost generation is once again losing their jobs and looking at a very gloomy, almost hopeless future. These are the same level horrific, scarring experiences Hendry was talking about. So it seems there will be massive pain and inequality either way. I'm just saying that surrendering against the forces of nature is more efficient than staging a relentless fight. The other unaccounted benefit of a shock of suffering is the psychological reset. When you experience extreme pain or fear, or any shocking emotion, it resets your comfort level psychologically. When we persevere through extreme economic pain, it's like giving an adrenaline shot to everyone economically. The recovery would be almost unbelievable. The post WWII world had many examples of this. This doesn't happen when we mute the pain. These same rules apply to debt. A massive wave of defaults and banktrupcies release massive amounts of assets to new investors that can start from zero, where the only way is up. If the same assets are tied in paying debt, they cannot generate new wealth before they are paid off. This causes the balance sheet recession like Mr. Koo eloquently explained. The problem with his solution is that the incentives and agent problems result in the debt not being reduced when times are good. The rich wont be taxed later. That was my initial point, so I guess the circle has been completed.
    • JK
      Jens K.
      14 May 2020 @ 10:25
      Thanks for your very thoughtful reply. "The problem with his solution is that the incentives and agent problems result in the debt not being reduced when times are good. The rich wont be taxed later. That was my initial point, so I guess the circle has been completed." This is a great point. I believe that Keynes greatest weakness is the political implications. Reality have shown that the idea that the governments should only run deficits during economic downturn seldom happens. With that being said, the reason that the southern countries of the Eurozone has had so horrible results I would argue is because the framework of the currency union makes it impossible to implement Keynes policies. It is when the states spending shrink at the same time as the private sector contracts that we get the sad results in Greece, Italy and Spain with extremely high unemployment numbers.
    • JR
      Jeremy R.
      16 May 2020 @ 00:17
      @Lauri - well thought out, and well written. Do you have a blog, I'd like to read more of your thoughts if so!
  • JR
    Jeremy R.
    15 May 2020 @ 04:43
    Koo holds Japan aloft as a champion of fiscal stimulus keeping "GDP above the bubble level" - yet the Japanese government is still doing stimulus budgets to this day, 30 years later. This is more run of the mill Keynesian argumentation "but for stimulus spending, things would have been even worse."
    • JR
      Jeremy R.
      15 May 2020 @ 06:17
      The best critic for more than a decade now, of Krugman-style political points scoring and Keynesian argumentation has been Prof Robert Murphy of the Mises Institute https://www.youtube.com/watch?v=UmYtyl8s05w
    • JP
      Joel P.
      15 May 2020 @ 09:19
      Remember Japan is aging economy (with almost zero immigration) and to repair balance sheet takes time. In another words, Japanese gets older in the process of repairing. So by the time they finished, consumption pattern has changed permanently.
    • JR
      Jeremy R.
      16 May 2020 @ 00:04
      @Joel - but isn't the point of Keynsian stimulus supposed to be that it temporarily resolves falls in aggregate demand, when the bust comes after the boom? How is 30 years of stimulus spending on bridges to nowhere temporary? No, I think what's really happening is Japan is not permitting the creative destruction of capitalism by keeping inefficient zombie companies alive, and insolvent zombie banks solvent, and this is the true reason growth has been "lost" for 3 decades. It's an economic malaise or comatose, nobody is allowed to fail due to promises made by Japan's government to Japan's boomers - as Raoul likes to say.
  • SL
    Steven L.
    15 May 2020 @ 23:01
    Richard Koo brillant, plain spoken man. He knows what works because he developed the correct models. Nice interview EH!
  • AB
    AJ B.
    13 May 2020 @ 17:37
    Mr. Koo does not understand the Austrian philosophies. Malinvestment is not for or against government spending, but illustrates how credit creation leads to malinvestment. Austrian economist believe in "bankruptcy". This means malinvestors loose title of their assets, and must start over. The "capital" (real estate, factories, equipment, vehicles, etc.) is then "released" from the balance sheet. Government credit creation is what "traps" capital on balance sheets and causes his balance sheet recession. He is correct. If we allow bankruptcies it will be painful, however the "capital" does not vanish. Factories do not disappear into thin air when a company goes bankrupt. New "entrepreneurs" are able to take title of the factories at depressed prices. Due to the depressed price they are able to focus their efforts on improving the factory rather than make interest payment like the last owner. The entrepreneurs ability to focus his efforts on improving the factory rather than pay do-nothing bankers is a benefit to society as a whole since the factory can now produce more and better goods.
    • NA
      Naiem A.
      13 May 2020 @ 18:12
      What Austrian philosophers don’t seem to understand is that companies live in an ecosystem of co-dependency where one company’s spending is another’s income. Bankruptcies of bad companies will lead to bankruptcies of good one as there will be no time for the good companies to fine alternative income streams. In the current situation, good and bad companies alike will be swept away and once gone, these ecosystems do not come back easily. This will cause untold human misery.
    • JV
      Jan V.
      13 May 2020 @ 18:27
      The normal workings of a free market will witness many people lose or quit their jobs, and many businesses will go bankrupt or shut down for a variety of reasons, but these job losses will roughly cancel out with newly created jobs and businesses, leading to a negligibly small number of people being involuntarily unemployed at any point in time. Only when central bank manipulates the money supply and intrest rate does it become possible for large-scale failures across entire sectors of the economy to happen at the same time, causing waves of mass layoffs in entire industries, leaving a large number of workers jobless at the same time.
    • NA
      Naiem A.
      13 May 2020 @ 19:06
      Can you define ‘normal working free market’? I can’t think of a single economy in the world were the government is not (or has ever been) a prominent actor.
    • JV
      Jan V.
      13 May 2020 @ 19:20
      For example: the recovery from the depression of 1920-1921. Taxes and government expenditures were reduced. Wages and price levels were left to adjust freely (lower in this case). This lead to a return to full employment in less than a year.
    • NA
      Naiem A.
      13 May 2020 @ 19:44
      1920-1921 is a very narrow time period to cherry-pick. It was the reductions in tax and liberalized rules on credit in that time period that led to the debt bubble in the subsequent decade, which culminated in he 1929 crash: http://www.thebubblebubble.com/roaring-twenties-bubble/
    • CY
      C Y.
      14 May 2020 @ 01:13
      Absolutely right. Capitalism simply can not efficiently allocate financial resources without credit discipline.
    • LS
      Lemony S.
      14 May 2020 @ 23:45
      I suspect Naiem is a victim of first order thinking here. Disruptions happen I'm sad to say. No, the economy and freedom aren't about you. Sometimes circumstances require change and no one is entitled to a smooth ride.
    • NA
      Naiem A.
      15 May 2020 @ 10:18
      Yes Lemony, disruptions happen but people like you will turn a blind eye to the free ride being given to banks and corporations who hold sway over government ($2 Trillion and rising) and lecture everyone else about self dependency during a crisis. It’s Socialism for the wealthy, capitalism for everyone else.
    • LS
      Lemony S.
      15 May 2020 @ 21:59
      I don't turn a blind eye to that at all. I believe they should fail just like the rest of us, if we make bad decisions. There should be consequences. Surprised?
  • JM
    Jim M.
    15 May 2020 @ 17:55
    There's 6-7 RV stars for me - people I make sure to watch and re-watch. He's one of 'em.
  • RY
    Roy Y.
    15 May 2020 @ 15:43
    Always great to hear from Richard Koo .... Thank you at RV ...
  • GV
    Gabriel V.
    15 May 2020 @ 05:13
    Even if sovereign bonds were held only by that country's citizens, the economic conditions in a certain country would still affect the euro. Germany, for example, would still be affected by the Italian government's out-of-control spending. Italy's debt would be exacerbated by higher costs of borrowing. Also, how would this system work for ex-pats, people with dual citizenships? Either every country has to follow the same monetary and fiscal policy, or the eurozone has to become less centralized. This middle ground will no longer work. However, it is impossible to convince EU countries with different cultures and policy goals to follow the same policy.
  • CT
    Crispim T.
    14 May 2020 @ 22:49
    Keynesians have been failing for decades. It is tragic, yet comical. A dream land. Gold also failed, yet people still hope for a miracle. If you haven't been paying attention, you really should. Bitcoin (BTC) is the only way out of this hole, and the future of value.
    • LS
      Lemony S.
      14 May 2020 @ 23:22
      I'm already in -but I'll ask anyway- for whom?
    • RD
      Riki D.
      15 May 2020 @ 03:33
      With all the major Gold index's rallying off massive bases and past their significant top resistance levels, if sure doesn't feel like it has failed. Its pretty hard to park something that has provided balance for a thousand + years in a bucket and call it a failure. But agree, bitcoin has some merit, but obviously too volatile to even think it would be used in the day to day at magitude - besides, governments aren't going to loose control of their monetary and fiscal ability - are they?
  • RD
    Riki D.
    15 May 2020 @ 03:29
    An excellent interview and extraordinary access to Mr Koo's charts. Wow RV and RK!
  • OT
    Omar T.
    13 May 2020 @ 13:21
    Let’s say the government did what he suggests. Wouldn’t you just postpone the pain when the gov has to repair its balance sheet and reduce its debts?
    • SW
      Scott W.
      13 May 2020 @ 13:27
      Yes, overindebted economies cannot grow. Which Japan & Europe have made painfully clear.
    • LS
      Lemony S.
      14 May 2020 @ 23:53
      Yes, he describes what's going on precisely but then fails to realize the "stimulus" is just more can kicking. Listen to Lacey Hunt on why.
  • RM
    Russell M.
    13 May 2020 @ 15:52
    Balance sheet recessions simply adjust mal investment. Big bubbles are the result of repeated government intervention to prevent market adjusting economic dips. Once the economy becomes dependent on government fiscal spending, it is tough to withdraw that spending because beneficiaries strongly lobby against it.
    • TN
      Tim N.
      13 May 2020 @ 16:42
      Exactly - at some stage we will need a reset or debt jubilee. Not sure if its this crisis or the next.
    • LS
      Lemony S.
      14 May 2020 @ 23:48
      It's the next. This is an artificial crisis, not a structural one. It WAS leading to a structural one ...
  • JP
    John P.
    13 May 2020 @ 16:09
    What Richard Koo provided me with here, was a stop loss scenario to the EUR/USD short trade I am in. What I mean by that is, when applying Raoul's framework and deciding (individually) to enter a short EUR against the Dollar position, it still left me with the question in my mind, if I'm wrong, how can I know quickly. Not from a technical perspective, but fundamentally. Richard clearly showed a potential solution and more than that, the focus required from ECB policy that could avert a disaster (especially with the currency). Knowledge on the other side of the trade is what RV continues to provide for me!
    • SP
      Seahyung P.
      14 May 2020 @ 05:26
      Completely same boat as you, Im also short EUR/USD and heard Koos proposal as a situation in which to stop myself out. Best of luck for our positions!
    • LS
      Lemony S.
      14 May 2020 @ 23:47
      What's the point of even bothering with a monetary union anymore, if not for a [fake] fiscal union? The Euro model was built to fail.
  • tc
    thomas c.
    14 May 2020 @ 01:52
    The best thing that may. come out of the pandemic maybe a break in the endless cycle of produce and consume. borrow, borrow borrow and consume more. Maybe people will have time to reflect and consider what could be a better and more productive life. That would give us a more productive economy. Savings have to go into something that adds more value to life, not the WS casinos and another trip to the mall. It won't be what it was. Otherwise it's just wash rinse and repeat. Everyone is focused on the vaccine but as the death and infection profiles emerge it's obvious older people with poor health are the victims. The first vaccine against the virus is prevention but our health system. is designed like our financial system. Both the Fed and Pharma let the problems grow and then come in with the expensive silver bullet. We need to find a better way.
    • LS
      Lemony S.
      14 May 2020 @ 23:36
      No, our citizens are undisciplined and fat. Then THEY look for the silver bullet. Consume consume consume indeed. On top of that, these people were born at the right time so they should be grateful they made it this long and self quarantine if they don't want to live with risk = what every man has done for the history of the world.
  • JK
    Jeff K.
    14 May 2020 @ 02:26
    I find it interesting phrases like “once the vaccine is found” are used very commonly, even by smart folks like Ed. Does anyone here realize that no vaccine has EVER been created successfully for a corona virus? It certainly hasn’t been for lack of trying for many decades now. There are inherent reasons why corona type viruses have resisted vaccines attempts, which will continue to challenge our technical scientists despite the supposed effects massive effort going into this particular one. I just think we should be careful assuming a successful vaccine will ever come for this thing, and perhaps our best hope is medicines and other treatment protocols we will hopefully discover.
    • BB
      Blake B.
      14 May 2020 @ 04:57
      Yep, I remember smarter folks than me saying hope isn't a good investment thesis. That is basically what our markets are running on now. Lots of hope, no change.
    • LS
      Lemony S.
      14 May 2020 @ 23:34
      Thank you Jeff! I was going to include this tangent as part of my post. It's this mindless following of the news (globalist) cycle that has nothing to do with medicine or reality, but keeps getting repeated. Notice how that keeps happening in the culture; propaganda is strong. The truth is, doing nothing from a liberty AND an economic, and a fairness point of view would have solved all the problems here. But periodicals and TDS media would have talked about the 87 year old grandma dying all day long and we can't have that ...
  • KG
    Kurt G.
    14 May 2020 @ 03:46
    The US saved its way out of the depression through a deleveraging and increased savings. Most orthodox Keynesians hate talking about private sector savings, mostly because they'd be out of a job. There's nothing sexy about telling people you overpaid for a bunch of assets (or relied on inflated asset prices), now you need to pay back your debts or declare bankruptcy. Koo basically dismissed this when he said malinvestment isn't an issue. Um, it's THE issue. And no wonder no one wants to borrow at zero rates - the assets are overpriced (that's the malinvestment) and potential buyers are too leveraged! Lacy Hunt and Daniel Lacalle have both written and elaborated on this at length. Fisher basically spent the rest of his life after 1929 studying the GD and concluded that the only way to avoid a debt deflation was not to take on excessive debt. Hunt has cited numerous instances, including the 2011 McKinsey Institute report, that all found all financial crises required deleveraging. (As an aside, it would be great to have a moderated debate or discussion between Hunt and Koo.) Koo seems to advocate government spending to re-leverage whatever deleveraging the private sector does. I wish he would've cited a single case of a country coming out of a financial crisis where government deficit-financed fiscal spending, not deleveraging and private sector saving, restored the country to vibrancy, i.e. modest (or low) and declining overall debt to GDP, real GDP above 3%, fertility rates above replacement, etc. Otherwise, if he's wrong - and they're always wrong, there's no evidence Keynesian or neo-Keynesian ideas have ever worked coming out of a financial crisis, see the McKinsey study and Hunt's work - it's the road to perdition, with the imbalances getting greater and greater, making the eventual crisis that much worse. The US was smart enough to kill off its central bank twice previously. Once this storm passes, we'll again rue the day we decided a third time to outsource our money and interest rates to central banks and economists. That day grows closer with every Keynesian disaster.
    • NA
      Naiem A.
      14 May 2020 @ 06:30
      And where do you think Savings come from ? the probem with Austrians is that they never talk about Private Sector Debt: https://twitter.com/ProfSteveKeen/status/1260384477928292352/photo/1
    • KG
      Kurt G.
      14 May 2020 @ 13:13
      Private sector debt is the sine qua non of all virtually all credit crises and subsequent debt deflations. Also, there's nothing Austrian about Fisher and the McKinsey institute.
    • LS
      Lemony S.
      14 May 2020 @ 23:31
      Kurt, great post, I reference you above. What's the proposed model instead of a central bank? You might see a different one when the MMTers come along, just going with direct spending and taxation, no mirage of stimulus now. Do we leave it up to the politicians? Are you suggesting doing away with the Treasury entirely, in terms of policy? Thanks.
  • BB
    Blake B.
    14 May 2020 @ 05:09
    Richard Koo is a funny and smart guy but he's talking lots of hopium. Any stimulus will just double the debt in 5yrs, then double it again 5yrs after that, and so on and so forth until the US dollar looses global reserve status. I don't think there is ever going to be any interest rate increases over 2.75% in my lifetime, let alone central bank balance sheet deleveraging. If anything, we're closer to -2% NIRP than we are 2.75%
    • LS
      Lemony S.
      14 May 2020 @ 23:27
      Yes, this is evident in his praise of Bernanke. Sure, the US had a better response/recovery than the rest but WE STILL HAD huge debts that only made things worse in the future. The pay me later thing is always coming, which is your point here, and a good one.
  • JE
    J E.
    14 May 2020 @ 16:52
    Koo seems like just the brilliant guy that the CBs need, like Keynes, to trot out and justify limitless interventions - because more is always better, even when the policies have ended in disaster after disaster and are largely self-inflicted. The other fallacy I see here is the effect on wealth distribution. If currencies are devalued by CBs, the poor are disproportionally disadvantaged to the rich - even with a later clawback via taxes, because of inflation. Inflation hurts the poor now because they spend all their income on goods. Deflation, if simply allowed, would fix the wealth distribution by making everyday items cheaper for the poor by deflating asset prices. I guess what I'm saying here is that the best solution is to burn the Eccles building down to the ground and build a nice public park for The People on it's ashes. It's an idea..
    • LS
      Lemony S.
      14 May 2020 @ 23:24
      I deal with it a bit in my post above, but yes I don't really understand why he is so pro-helicopter money and why he claims "they are doing the right thing" in the balance sheet recession period. They do that because it's their only (survival) option, not because it's the right thing. They did the wrong thing (before) which forced this action, by the way.
  • gc
    guillaume c.
    14 May 2020 @ 20:48
    A Keynes disciple. We never had the proof that Keynesianism works. The government can't employ everyone and won't avoid deflation. Even more if it's for building roads to nowhere for old boomers. The CB and gov won't avoid inflation either when it's going to be a supply problem for commodities. The occidental economic world is stuck with a 1970's calibration with 4% growth. Been 30 years that the can is pushed down the road by monetary stimulus. The adjustment is coming.
    • LS
      Lemony S.
      14 May 2020 @ 23:22
      What will the adjustment be?
  • DS
    David S.
    13 May 2020 @ 06:41
    Thanks for interview. Mr. Koo is one of my favorite thinkers and RVTV contributors. My problem is this is not a balance sheet depression. It is a pandemic following a massive increase in corporation and private debt. With low interest rates we ended up with much more debt before the pandemic struck. It is now fashionable to think that any amount of US debt is acceptable FOREVER. If this were true (borrowing from another RVTV commenter) there is no need for federal taxes. The US government can just print money. What a siren song! Because of the pandemic we must print to save people and the economy. I have not seen the American consumer nor the American government withholding much spending, especially spending other people’s money. I fear that this will be true until it all blows up. This pandemic is just the ticket to start the beginning of the end - even worse for Euroland. I agree with Mr. Koo we must spend our way out of the pandemic. Do not, however, think that we were ever in a balance sheet recession with most companies paying down debt in the western world before the pandemic. Who knows where we go from here?? DLS
    • KS
      KEVIN S.
      13 May 2020 @ 10:37
      I may have to watch the video again to see if I missed something but, I don't think Mr. Koo was suggesting we WERE in an balance sheet recession going into the pandemic but that we WILL go into a balance sheet recession (depression) as a result of the pandemic shock. I can't disagree with that logic. The mindset of individuals and corporations will change as the result of a shock that no one considered probable prior to the pandemic. People who can, will move to save more and accelerate debt reduction. If no one is on the other side to borrow that increased savings and debt reduction (especially for efficient productivity purposes), money velocity decreases, productivity and efficiencies decrease, deflation and insolvency increase. This could take a very long time to cycle out of.
    • RM
      Richard M.
      13 May 2020 @ 15:14
      David, not sure about your statement that "most companies paying down debt in the western world before the pandemic". I thought U.S. corporate debt was at its highest level ever (probably from taking out loans to buy back shares???). Maybe I'm wrong but I thought I saw one of Raoul's charts showing that. ????
    • DS
      David S.
      13 May 2020 @ 23:21
      Richard M. - I agree. The whole sentience is "Do not, however, think that we were ever in a balance sheet recession with most companies paying down debt in the western world before the pandemic." I admit I should have been more clear, sorry. It is the "Do not, however, think that makes it a negative. I will do better next time. DLS
    • RM
      Richard M.
      14 May 2020 @ 22:11
      David, thanks for the clarification. I misinterpreted the sentence, now I see what you meant.
  • GC
    Gino C.
    14 May 2020 @ 21:29
    This is now in my top 10 RV interviews all time. A fantastic listen and spot on!
  • AE
    Abou E.
    14 May 2020 @ 18:21
    Way better than the Kyle Bass interview. No politics and very very informative
  • DP
    Duane P.
    14 May 2020 @ 16:13
    I have to say I wasn't a big fan of this guest's philosophy but I think Ed did an excellent job trying to pushing back with competing theories, particularly those of the more Austrian school. It really shed light on Koo's mindset. The fact that he basically admits to the misallocation of resources but just said, basically, "that's the cost of doing things this way" was interesting. Great job Ed!
  • BS
    Bevyn S.
    13 May 2020 @ 22:14
    Such a shame folks are just dismissing Koo as just "another Keynesian." Anyone who read his books knows this is not the case. Koo really does deserve more recognition as an independent and innovative thinker. I hope people take the time to set their biases aside and really listen. Thanks for sharing this interview, RV.
    • NI
      Nate I.
      14 May 2020 @ 03:57
      His theories are mathematically beautiful and he is definitely an eloquent speaker, but almost nothing he said matched the reality we are seeing today. Virtually no company has made any attempt to fix their balance sheet (quite the opposite) and most households couldn't even if they wanted to.
    • JA
      John A.
      14 May 2020 @ 04:01
      No offense, it I’m not sure if you understand what Keynesianism means. Keynes is the originator of the idea that government needs to step in and make up for missing private spending. As much as I think that Mr. Koo is brilliant, he believes that government should step in and spend where we have decided in our private lives not to. Government gets its money from you and me. Who knows better how to spend private capital, you and me or D.C.?
    • BS
      Bevyn S.
      14 May 2020 @ 14:59
      Koo talks about a supercycle that the world is in of synchronized private sector credit contraction, wherein Keynesian principals apply and are helpful. He does not argue that Keynesian principals always apply. He argues that during the beginning of the supercycle it is destructive and inflationary. Read his books to better understand. This is not pure Keynesian thought. That being said, I don't agree with everything he says. I personally identify more with the Austrian school. My point is he has an interesting framework that ties in issues introduced with globalization of the economy. The world's business and economic cycles are more and more merging onto the same wavelength (which is the root of the problem IMO). He very elegantly weaves the current macro landscape into economic theory. I wish he'd take it a step forward to propose a long term solution to systemic fragility, but he falls short.
    • TS
      Timothy S.
      14 May 2020 @ 15:21
      Nate, the crash that just happened was companies trying to emergency fix their balance sheets. He was speaking about Japan over the last few decades for the most part. His prediction was that the US will turn into japan after this.
  • JA
    John A.
    13 May 2020 @ 13:53
    IMHO, Mr. Koo is still trapped in a Keynesian mindset, where government can effectively replace private spending with government spending. Government spending necessarily comes at the expense of taxation (even lower private spending), or government debt. If through debt, that excessive debt can weigh heavily on the productive economy, as we have seen for 12 years in the U.S., and even longer in Europe and Japan. If government takes from me to spend, they are making the judgment that their spending priorities are better than mine. They are making no room for the idea that maybe I know best what to spend, and when not to in my private life. I wonder if the statist types have ever thought about the idea that if private entities have chosen not to spend, maybe there is a reason for that? Maybe there are corrections that the economy NEEDS to make, like he destruction of non-productive companies to make way for newer, more productive enterprises. What we now see, instead, is a world heavily weighted with debt, and used to support dying companies. If we’d ever like to see growth again, let the fire come, and clear the field for new seeds.
    • SW
      Scott W.
      13 May 2020 @ 14:01
      Spot on
    • SG
      Scott G.
      13 May 2020 @ 14:37
      Whilst I agree with your argument John, in normal circumstances, I also believe the argument Mr Koo made during this interview around the speed of response needing to outweigh the 'selective criteria' is the key element here. There will come a point, where any non-productive companies are handed back the reigns that are now burdened with the added weight of new debt, and it's at this point that natural selection with run its course and these companies will perish.
    • LJ
      Lawrence J.
      13 May 2020 @ 14:39
      I agree with you. Here is another question, where does the wealth go? It seems that someone or groups of people have captured this wealth. Also, if debts are reset to equal the assets, what precludes people from starting to produce again.. That seems logical to me.
    • NA
      Naiem A.
      13 May 2020 @ 14:56
      it seems like you are stuck in the defunct Austrian mindset
    • SP
      Seahyung P.
      13 May 2020 @ 15:32
      These are honest questions, not trying to start a fight. Do you think Mr Koo's ideas can never work? Or do you think there might be particular situations (for example Debt/GDP is below 10%), where his ides might be effective? In the above example, if the economy is not overweighted by debt, but for whatever reason spending has declined forcing supply to work below capacity, then would a policy be feasible? Or do you see his ideas as being implementable no matter what? One last question is, why would I ever assume that private entities have good reasons for doing anything? Humans are habitually irrational and I never put it above us to make stupid reasons for anything. If all corporations were purely rational, surely they would never fail because they were always choosing actions that allow them to profit and stay solvent. Do you think this is a fair point or do you think I'm being too cynical?
    • TE
      Thomas E.
      13 May 2020 @ 16:46
      I agree with your logic. The system needs to clear before we can resume better growth. The last time the system cleared was during WWII and all of the capital destruction that came with it (forest fire). However, that causes a lot of pain - pain that the government and general public don't want to take. Also, while it would ultimately benefit younger generations I highly doubt the older generations would accept the system clearing because it would wipe out most of their wealth (i.e. retirement accounts, real estate, and pension plans).
    • TN
      Tobias N.
      13 May 2020 @ 17:32
      Well spoken I think we have a painkiller culture where men (and women) become so afraid of any pain. Pain that in a stoic way gives rise to pleasure if you go through it, instead these post war generations, especially those with the baby boomer mindset creates a dangerous unstable society in the end. Fear of the small pains will cause us a much larger one, question is.. will the Powell generation have no choice but to face it now or will they once again manage to push it forward for a blow for future generations to absorb. We clearly saw how asset prices was the main concern, that says everything about this weak and destructive generation in charge.
    • TS
      Timothy S.
      14 May 2020 @ 15:17
      Government debt doesn't weigh down on the economy, private debt does. The gov has no desire or need to pay it down. Private entities, however, have a tremendous need to pay it down. Gov debt is financed mainly through the wealthiest people in the world, who sit on cash and need to park it somewhere. Money piling up, not being circulated, is the burden my friend.
  • PB
    Paul B.
    14 May 2020 @ 00:54
    He is right...The slow down or reversal of Personal Credit is the Western Global Killer. In Australia we are largely max out, and if we seek to pay that down instead of lever up then its game over
    • CP
      Curt P.
      14 May 2020 @ 12:08
      yup. A money system built on the premise of ever expanding credit creation doesn't do well when it runs out of debtors.
  • MS
    Mark S.
    14 May 2020 @ 01:37
    So much nonsense, where to begin. Sure the balance sheet recession concept makes sense, but Koo is just another economist with the same mindset that government (central banks) need to interfere with free markets to avoid recession at all costs---as if that is even possible. When are these economists gonna learn that recessions are a normal and required part of capitalism. Encouraging projects with IRRs = 1%!! Great just what we need, to waste valuable resources on more bridges to nowhere, 'Good grief Charlie Brown'. Assets need to deflate so the next generation can afford housing and to save for retirement. Poorly managed households and companies and governments need to fail, period, and the whole fiat experiment needs to die with it, end of story. Excess capacity needs to die (i.e. zombie companies need to die), the free market must be allowed to reallocated resources, government policies are greatly impeding this process, on the premise that somehow nobody should suffer!?! Deflation is a good thing for consumers. Nobody wants to pay more for things, nobody wants inflation, except debtors of course, hence their brainwashing efforts to enlighten us on how inflation is too low, how we need more inflation, more nonsense. Get rid of them all them all, the whole lot of them, they've all had their chance to prove themselves for 30+ years and frankly few of us are impressed. Time for true capitalism to make a comeback, time to shrink government in every way, time to vote in more libertarians, engineers, doctors and scientist, boot out those useless Poli-Sci majors and lawyers and PhD economists. Term limits and pragmatic thinkers, would go a long way to edging us in the right direction. Sorry, ranting a bit there, regards all and best of luck in these difficult markets, M.
    • CP
      Curt P.
      14 May 2020 @ 12:07
      Great points. All inflation would do is help the rentier class, b/c as you said the rentier class is highly levered. It would not lower house prices, and therefore it would not increase household formation, and thus not increase fertility rates. Anyone with half a brain can look at the West and see that the biggest problem it has is too many non-working people (aka retired aka pets) supported by too few working people. The income/wealth transfer from the working to the non-working is involuntary, and corps get in the middle of it to skim off as much as they can. Get rid of healthcare for the non-working, allow age discrimination health insurance, tax the sh*t out of unused housing (too many or too much house),etc. We must get that cashflow from working to non-working reversed. Part of the reason this crazy system exists is b/c of the exploitation of China as a giant vassal - Chinese peasants are making it possible for US Boomers to live like kings. And that whole situation is dependent on US Naval control of China's SLOCs. Sorry Boomers, the US Empire is in retreat from Eurasia, and so there will be some serious changes in the core.
  • KB
    Ken B.
    14 May 2020 @ 11:44
    Fantastic interview. Richard Koo is outstanding mind.
  • MP
    Michel P.
    14 May 2020 @ 11:05
    Excellent video I have learned so much. Thanks Real Vision !
  • AA
    ALI A.
    14 May 2020 @ 09:23
    Engaging episode
  • GB
    Gold B.
    14 May 2020 @ 09:11
    Mr Koo's espoused form of rampant central planning again makes you wonder why it only sounds great on paper
  • CC
    Cornelius C.
    14 May 2020 @ 08:13
    I think we already know what will happen? The middle class will be scared and try to repair theyre balance sheets. The corporations will continue to take on debt and forget about balance sheets as theyre incentivised to take risks with the government backstop. Lending collapses due to less people borrowing leading to lower interest rates leading to more corporate malfeasance then rinse and repeat.
  • MT
    Mahmut T.
    14 May 2020 @ 06:34
    It’s quite a gift Robert , thanks
  • JH
    John H.
    14 May 2020 @ 05:06
    Fascinating and inthralling ........great interview......thank you
  • JD
    J D.
    14 May 2020 @ 01:58
    Despite disagreeing with almost everything that Mr. Koo said, I appreciate RV bringing him on. It's always good to have your beliefs challenged by another perspective. And thank you, Mr. Harrison for asking him about malinvestment.
    • DL
      Darryn L.
      14 May 2020 @ 04:49
      I read his book years ago and I have to say I think he's got it pretty right up to now at least.
  • sk
    saner k.
    14 May 2020 @ 03:45
    i liked the way he is explaining things, one of the best interviews i believe.
  • NI
    Nate I.
    14 May 2020 @ 03:27
    "Balance sheet recession". That's plausible except that none of the zombies are trying to fix their balance sheet. In fact, the only thing stopping them from borrowing even more money to buyback stock and goose management options and bonuses is a bond market that won't lend them any more without them incurring a debt rating downgrade. What we have is an "absence of fraud and racketeering enforcement recession" that allowed this insane situation to develop in the first place.
  • PP
    Patrick P.
    14 May 2020 @ 02:23
    Fed unwinding their balance sheet? Really!!?? Here's all you need to see... https://www.usdebtclock.org/ This is a slow motion train wreck... Protect yourself with hard assets... Gold/Farm Property/Income producing real estate/and a quality business plus anything else that protects your wealth from TPTB slowly stripping you financially naked. You are in a financial war....and if you haven't figured it out yet you don't have a lot of time left.
  • GB
    Gary B.
    13 May 2020 @ 23:38
    Like previous commenters, if 2008 was a balance sheet recession, what company repaired its balance sheet? Corporate and individual debt has skyrocketed without a requisite increase in assets - thus no repair of balance sheets even with rates pegged at zero.
    • DH
      Dale H.
      14 May 2020 @ 01:16
      Barrick repaired its balance sheet. Actually it should go out now and borrow money at 2% to buy stakes in other smaller gold companies.
  • AA
    Aaron A.
    14 May 2020 @ 00:59
    So, he’s a die hard socialist. Just give money to all businesses and individuals...he must have advised congress on the cares act
  • CW
    Christopher W.
    14 May 2020 @ 00:45
    Legend
  • nw
    nathan w.
    14 May 2020 @ 00:33
    I like him.
  • SB
    Scott B.
    14 May 2020 @ 00:05
    I am not sure why I had such a negative response to this specific interview. The level of (apparently) inept financial alchemy indicated by this discussion is remarkably revealing and frightening to behold. What are is Mr. Koo talking about!!?? Moral hazard and hubris evidenced in nearly every sentence spoken. Monetary policies of the kinds discussed are an experiment at best, leveraging monies that are not theirs from positions that they are not elected into. And they pay themselves handsomely for this shenanigans - no matter if their experiments work!! What are we doing giving them this power!!??? One of the clearest indications in recent memory that our judges and juries are firmly in the hands of a small group of so-called banking elite. Very unsettling.
  • SB
    Steve B.
    14 May 2020 @ 00:01
    Brilliant.
  • AR
    Alejandro R. | Contributor
    13 May 2020 @ 21:43
    This should be moved to the Masterclass section. Grandmaster Koo has just confirmed Global Balance Sheet Recession Theory for the world.
    • AC
      Andy C.
      13 May 2020 @ 23:17
      Has the rainmaker returned?
  • DS
    David S.
    13 May 2020 @ 21:55
    It is great that the Italians have improved their balance sheets. Why would they want to invest these hard-fought victories into Italian bonds? It seems to me that would be high risk. If they really wanted to increase their risk, they could buy Italian government IOUs on the open market. I am very pro-Italian. They know how to keep their money safe. DLS
    • SP
      Steve P.
      13 May 2020 @ 22:05
      Significant portion of Italian GDP is black market / mafia. Sending that money outside of Italy has less to do with management than corruption.
    • DS
      David S.
      13 May 2020 @ 23:10
      forecast T. - I agree. I was including black market money. The Italians- the government, the corporations and the people, - are very smart. They know how to deal in and with the black market money. You will not see any of it going into Italian bonds backed only by the government. They have been dealing with government risk since the Renaissance. I would keep it out of the banks just because it can be bailed in to save the bank. With Euroland banking system, that is pretty risky everywhere. DLS
  • AH
    Allan H.
    13 May 2020 @ 22:59
    Excellent. If Mr. Koo, were to come back on RV, would love to put a few questions forward, as others would as well.
  • DM
    Daniel M.
    13 May 2020 @ 22:34
    the kid at the start of these videos is annoying
  • PT
    Peter T.
    13 May 2020 @ 21:57
    set up the people with a BTC wallet send them hard money give rich people a tax
  • ar
    andrew r.
    13 May 2020 @ 21:10
    Good interview, quality guest. However, I still have not yet seen a speaker on RV get the depression correct. Too long to explain, but if anyone cares here's a better analysis. https://mises.org/library/fake-history-depression
    • NA
      Naiem A.
      13 May 2020 @ 21:50
      No mention of the Private debt bubble that grew up in the prior decade. Hardly a complete picture
  • SM
    S M.
    13 May 2020 @ 21:48
    Truly Brilliant Learned a lot about balance sheet recession, Japanese recession as well as Europe. Thank you, I want to know his view on EUR/USD In current condition ?? 🤔
  • DS
    David S.
    13 May 2020 @ 07:18
    Even Mr. Koo cannot save Euroland. If you preclude Euroland citizens from investing in any other Euroland’s bonds, what is the difference from being China? If I were Italian, I might buy US treasuries or hoard cash. Interesting idea, but I do not think it will work. DLS
    • PC
      Philip C.
      13 May 2020 @ 10:55
      Indeed. Why would an Italian buy Italian government bonds unless the interest rate were attractively high to reflect the risk premium? The problem isn't the need to restrict ownership, but the fact that nobody in their right mind would want to own Italian bonds at the sub 0.5% interest rate that the Italian government can afford. Fiscal disunion would only work if Italians and others in their respective countries were _compelled_ to own their government's bonds. That is one form of financial repression that is potentially on the horizon.
    • MG
      Marcus G.
      13 May 2020 @ 12:27
      I also see practical problems. Either you have to go for capital controls or "coercion"- bonds (forced exchange of deposits above x€ for domestic bonds).
    • DS
      David S.
      13 May 2020 @ 20:41
      Italian bonds are priced so low because the ECB is buying all of them. Even if everyone else in the world could by Italian bonds, the interest would bankrupt the Italian government. This is not just about Italy; we are talking many other Euro countries have the same problem. I think a positive solution for Euroland is above everyone's paygrade. Something should have been done years ago. This is not a black swan; everyone has known this for years. Even with the Fed’s printing press, we may be in the same situation shortly. Common sense? DLS
  • AK
    Ado K.
    13 May 2020 @ 17:44
    I am a strong supporter of Ludwig von Mieses (Ed:s pronunciation was just sugar) and of Austrian economics. The idea that government could avoid mal investment by effectively allocating QE is laughable. The deflation is the cure to the mal investment that has been made, and we could survive the cure, it is the governments medicine that will kill us. Monetarists and Keynesian's live in the world of "deflation is the problem" when it in fact is deflation that is the very cure to the rescission. When it comes to Richards suggestion of nationalizing bonds it is practically impossible. Let me explain, Italians invest in a hedge-fund in New York that buys German bonds, in today's world it is more legal entities that buy rather then individuals. Money will still flow from Italy to German bonds, it will just happen via hedge funds or ETF:s in US.
    • CP
      Curt P.
      13 May 2020 @ 18:15
      Let me explain how the Italian bonds for Italians can work. Italians get paid X% coupon on italian bonds, non-italians (that includes US or Cayman or whatever funds) get X-Y% where Y is a withholding tax.
    • AK
      Ado K.
      13 May 2020 @ 20:29
      If all Eu countries apply giving less to foreigners there is the obvious risk of foreigners just not choosing to buy any EU bonds. The bond market is competitive and if Europe is going to discriminate against foreigners Russia or the US might not. We in Europe should be very careful to think that everyone in the world is just dying to throw their money into our pseudo bankrupt countries. But nonetheless interesting idea that really made me think. Thanks Curt.
  • DM
    Dominic M.
    13 May 2020 @ 16:58
    Outstanding conversation—hat off to Ed and Richard Koo.
    • KD
      Kenneth D.
      13 May 2020 @ 20:28
      Don't forget Jack.
  • RA
    Robert A.
    13 May 2020 @ 19:21
    Never heard that last bit before! Fiscal Dis Union—allow each Country to issue and sell Bonds to ONLY it’s citizens. Very interesting, and the notion that rates MIGHT actually come down is interesting as well (kind of hard for me to fathom and I would never have had the notion of this unless prompted by DR. KOO). Perhaps this “fiscal disunion” concept would work even if rates went up and a not unsubstantial rate differential developed between the Countries (Citizens of other Countries couldn’t take advantage of the higher rates outside their Country).
    • PN
      Panos N.
      13 May 2020 @ 19:47
      interesting theory, not really applicable though. Are countries supposed to fully fund themselves and restrict just EU capital or all international capital flowing in?
    • DS
      David S.
      13 May 2020 @ 20:24
      What Italian will buy an Italian Bonds? Personal deposits in an Italian bank are at risk as Brussels can bail in deposits to save the bank like Cypress. How many investors in Argentina buy Argentina bonds I wonder? One must be careful with any money you have left. How many Italians have German Bunds, I wonder? DLS
  • FB
    Frank B.
    13 May 2020 @ 20:15
    Brilliant! RV is doing wonders for delivering this content to the public. His books have been out there for years but it's interviews like this that really steer your attention. Ed as always a fantastic interviewer.
  • JC
    Joseph C.
    13 May 2020 @ 13:58
    Excellent. Really appreciate Ed, he always brings as much to the table as the guest. This interview seems half over however. There are some really important questions that need answering. - why didn't the US go into balance sheet recession in 2000 and 2008? Fiscal policy was certainly not massive in either of these recessions. - if Japan was successful in keeping their GDP from falling and they have a large export surplus, why is their economy still in need of massive support after 30 years? Germany was able to fix their balance sheet recession in 5. - most importantly, how do we exit this recurrent boom bust financial universe? The problem with Bernanke and co. is that they fixed one problem only to sow the seeds for the next larger crisis. This theory is all well and good but ultimately I would like to invest my money in something other than the latest Fed Ponzi Scheme.
    • CP
      Curt P.
      13 May 2020 @ 14:14
      2000, the US was saved by household borrowing (on housing) 2008, the US was saved by corp borrowing (fracking, share buybacks).
    • TY
      Tony Y.
      13 May 2020 @ 14:39
      Credit was not as loose in 2000. It was just starting. My wife had to get a secured credit card in 1998. By 2004 every college kid could get one at a football game.
    • JC
      Joseph C.
      13 May 2020 @ 15:06
      Yes, this is my point exactly. The expected reaction should have been for the US to hunker down and repair their damaged balance sheets but instead the US did the exact opposite. After a short pause, American individuals and corporations went even further into debt. Mr Koo's theory predicts one thing but the exact opposite happens. Why? Those are the questions I would love to have him come back to RV to answer.
    • CP
      Curt P.
      13 May 2020 @ 20:09
      @Joseph, the reason the US public went deeper into debt post2008 is: - millenial generation (college, new housing, etc) - immigration: more mortgages, drives up house prices - lower interest rates for longer - products which made life livable without owning the asset (the use-case economy) Never underestimate the American consumer to take on more debt. They have been living at the center of a global empire for 85 years with all the tribute that comes for it. They are simply incapable of understanding risk.
  • PN
    Panos N.
    13 May 2020 @ 19:41
    How is 2008 a balance sheet recession according to Koo's definition? Domestic credit growth was around 5% after only been negative for 2 years, household debt expanded post-2013, plus the Fed running an expansionary monetary policy. And corporates funding stock buybacks with more debt also having a credit growth effect, no?
  • MT
    Mark T.
    13 May 2020 @ 19:11
    Great interview. I laughed when Mr. Koo said, go ahead and give the money to everyone and you can just tax the rich folks later. I think he's making a big assumption there about the ability for the US government to act rationally. In american politics, the rich folks can buy themselves tax cuts and can buy their way out of tax increases.
  • MG
    Marcel G.
    13 May 2020 @ 18:56
    really well articulated and clear interview with a great moderator and great guest. Well done
  • JV
    Jan V.
    13 May 2020 @ 18:16
    Keynesians always fail to explain what gives birth to these excesses in the first place. Suddenly we wake up in a world that suffers from a balance sheet recession... Purposing a cure without seeing the real disease is laughable imo.
    • NA
      Naiem A.
      13 May 2020 @ 18:23
      You should read up on Minsky's Financial Instability Hypothesis https://www.economicshelp.org/blog/6864/economics/financial-instability-hypothesis/
  • VS
    Victor S.
    13 May 2020 @ 18:13
    Although Macro POV is all about living, breathing, and forecasting the future, it'll be great if the RV team can just quickly mention the date when the interview was actually conducted. It'll be much helpful for us to go back to such a date and see their forward vision with them from that date.
    • VS
      Victor S.
      13 May 2020 @ 18:15
      Nevermind - just saw the description that mentions the filmed date. My bad.
  • CP
    Curt P.
    13 May 2020 @ 14:13
    The solution to any recession is More Credit Growth. The problem is Who is going to borrow. Normally that can happen if there is a large surge of young people. The most common method in modern history has been to find more and more innovative ways to get public, corps, and gvmts to borrow - usually by creating a need/desire they must scratch and by creating access to credit for which previously there was limited. For example, the consumer economy financed by credit cards. Or a war economy financed by gvmt borrowings. The restriction is usually convincing the target borrower that they need to borrow, which is always achieved by manipulation. Oh, you don't think you need to borrow b/c you are happy with your house and car? Well, it is now illegal to have a house older than 10 years or a car older than 2 years. Here's your loan, sucker.
    • TY
      Tony Y.
      13 May 2020 @ 14:38
      I think generations are setting up for a fight. Boomers need the stock market to stay high. Millennials needs debt relief on student loans. Socialize losses or socialize student loan debt. It’s all bad.
    • AR
      Alexander R.
      13 May 2020 @ 15:19
      The idea that you can solve debt problem with more debt is insane. It works for a while butultimate collapse of the system is inevitable If debt used for improvement of productivity it is a different story, but that is not the case for the last 20 years We increased debt to waist resources At this point the whole system will collapse through currency debasement My only hope is that after destruction phase we will avoid bubble creation at least so my kids can live in a better world Of course my grandkids will repeat the same mistake again :(
    • CP
      Curt P.
      13 May 2020 @ 17:08
      @Tony - Boomers are gonna get wrecked. Why? B/c the most important thing to the society is fertility rates, and Boomers are not fertile, only young people are. If Millenials do not breed, the society will enter a demographic death spiral. So any and all things must be done to get them to breed. Some easy solutions: cut off healthcare for the olds; tax the sh*t out of housing for people who have too much/many house; universal healthcare for all under 65; etc. You see what i am getting at? Make the olds spend spend spend, so that youngs can pay off debts and buy housing, and have one spouse take care of kids. The olds are a huge parasite on the backs of the youngs.
    • CP