Posts Tagged ‘Richard Koo’

DEBT AND DELEVERAGING: A FISHER, MINSKY, KOO APPROACH

DEBT AND DELEVERAGING: A FISHER, MINSKY, KOO APPROACH

Courtesy of The Pragmatic Capitalist 

The following paper by Paul Krugman is an excellent analysis of the current situation in the United States.  Professor Krugman accepts Richard Koo’s “balance sheet recession” and draws similar conclusions to Koo – primarily that government must maintain large deficits in order to offset the lack of spending by the private sector.  The key component missing in both Krugman and Koo’s argument is the idea that a nation that is sovereign in its own currency cannot default on its “debt”.  Nonetheless, the conclusions we all come to are similar – a temporary deficit is not only necessary, but an economic benefit during a balance sheet recession:

“In this paper we have sought to formalize the notion of a deleveraging crisis, in which there is an abrupt downward revision of views about how much debt it is safe for individual agents to have, and in which this revision of views forces highly indebted agents to reduce their spending sharply. Such a sudden shift to deleveraging can, if it is large enough, create major problems of macroeconomic management. For if a slump is to be avoided, someone must spend more to compensate for the fact that debtors are spending less; yet even a zero nominal interest rate may not be low enough to induce the needed spending.

Formalizing this concept integrates several important strands in economic thought. Fisher’s famous idea of debt deflation emerges naturally, while the deleveraging shock can be seen as our version of the increasingly popular notion of a “Minsky moment.” And the process of recovery, which depends on debtors paying down their liabilities, corresponds quite closely to Koo’s notion of a protracted “balance sheet recession.”

One thing that is especially clear from the analysis is the likelihood that policy discussion in the aftermath of a deleveraging shock will be even more confused than usual, at least viewed through the lens of the model. Why? Because the shock pushes us into a world of topsy-turvy, in which saving is a vice, increased productivity can reduce output, and flexible wages increase unemployment. However, expansionary fiscal policy should be effective, in part because the macroeconomic effects of a deleveraging shock are inherently temporary, so the fiscal response need be only temporary as well. And the model suggests that a temporary rise in government spending not only won’t


continue reading


Tags: , , , , , , , , , , , , , , , ,




THOSE WHO IGNORE HISTORY….

THOSE WHO IGNORE HISTORY….

Courtesy of The Pragmatic Capitalist 

Elderly Asian woman in kimono standing on bridge

My position over the last 2 years has been as follows: this is a Main Street debt crisis.  I have been highly critical of the government’s incessant interventionist policies over the last few years largely because they ignore the actual problems at hand.  First it was Mr. Bernanke saving the banks because he believed the credit crisis started with the banking sector.  The great monetarist gaffe ensued.  Tim Geithner piled on with the PPIP.  FASB jumped on board the bank rescue plan by altering the accounting rules.  And then the icing on the cake was the Recovery Act, which, in my opinion, just shoveled money into the hole that had become the output gap, without actually trying to target the real cause of the crisis – those burdened by the debt.  In essence, the various bailouts primarily targeted everyone except the people who really needed it.

A year ago I posted a story citing the many reasons why we were sinking into the deflationary Japanese trap.  The primary flaw with the US response to the crisis was that we never actually confronted the problem at hand.  I have often cited Japanese economists such as Richard Koo who appear to have a good grasp on the problems in Japan and now in the USA.  In this case, I cited Keiichiro Kobayashi who is now looking most prescient:

We continue to ignore our past and the warnings from those who have dealt with similar financial crises. Keiichiro Kobayashi, Senior Fellow at the Research Institute of Economy, Trade and Industry is the latest economist with an in-depth understanding of Japan, who says the U.S. and U.K. are making all the same mistakes:

“Bad debt is the root of the crisis. Fiscal stimulus may help economies for a couple of years but once the “painkilling” effect wears off, US and European economies will plunge back into crisis. The crisis won’t be over until the nonperforming assets are off the balance sheets of US and European banks.”

Read that last paragraph again.  These are scarily accurate comments.  While the USA claims to have many economists who understand the Japan disease and/or the Great Depression the policy actions we’ve undertaken do not appear to be in line with any understanding of this history.

What we’ve done over the last few years is repeat the mistakes…
continue reading


Tags: , , , , , , , , , , , , , , , , ,




TALKING OURSELVES OFF THE EDGE OF THE CLIFF

TALKING OURSELVES OFF THE EDGE OF THE CLIFF

WSOP No-Limit Texas Hold 'em World Championship

Courtesy of The Pragmatic Capitalist 

Yesterday’s WSJ MarketBeat blog took David Einhorn to task for his op-ed in the NY Times titled “Easy Money, Hard Truths“.  They make the argument that Einhorn is simply pushing his massive gold position.  I fear Einhorn is doing something much worse – helping to scare us all into continued recession.

First off, I have no problem when someone talks their book.  In fact, I almost prefer for people to talk their book.  There’s a certain trust in someone who is willing to “put their money where their mouth is”.  It’s the primary reason why I believe the hedge fund business is such a wonderful advancement beyond traditional mutual funds – the manager’s interests are generally aligned with those of the investor.  If you can find a manager who is not only intelligent, but has a sound moral compass you’ve wandered upon quite a gem.  From all accounts David Einhorn appears to fit the mold.  But I take very serious issue with his recent comments which I believe are filled with half-truths and propaganda that we continually hear from the inflationistas (all of whom have been terribly wrong thus far in terms of their macroeconomic outlook) who are driving the country towards the edge of the cliff.

Einhorn is a great investor and clearly a brilliant man, but for two years I have watched policymakers and fear mongerers misdiagnose the problems that we confront and this is, in my opinion, why we are still wrangling with these issues. In 2008 I wrote a letter to the Federal Reserve saying that this was a classic “balance sheet recession” with problems rooted in the private sector – specifically the consumer.  I told them that saving banks was not the solution and that monetary policy would prove as fruitless in the U.S. as it has in Japan.  I was shocked to receive a friendly response to my letter but not shocked to see Mr. Bernanke implement his Friedman-like monetarist campaign of “saving the world”.  Obviously it hasn’t worked (unless you’re a banker) as we sit here two years later still discussing this wretched credit crisis and the ranks of the unemployed continue to climb.  If we cannot properly diagnose the problems we cannot find a proper cure.  Thus far, we have failed.…
continue reading


Tags: , , , , , , , , , , , , , , , , , , , ,




EXPERT ON JAPANESE DEFLATION: U.S. IS REPEATING JAPAN’S MISTAKES

EXPERT ON JAPANESE DEFLATION: U.S. IS REPEATING JAPAN’S MISTAKES

Japanese montage

Courtesy of The Pragmatic Capitalist

Richard Koo is the Chief Economist at Nomura Research Institute.  For those who aren’t familiar with Koo, he is one of the world’s premiere experts on deflation and one of the head advisors during Japan’s long-running bout with their 20 year balance sheet recession.  Koo describes this recession as one that occurs “after the bursting of a nationwide asset price bubble that leaves a large number of private-sector balance sheets with more liabilities than assets. In this type of recession, the economy will not enter self-sustaining growth until private-sector balance sheets are repaired.”

In an interview in April Koo was highly critical of the government’s response to the crisis.  Koo believes the government has not only misdiagnosed the current balance sheet recession as a credit crisis, but also believes we are at serious risk of a second and potentially worse downturn if further actions are not taken:

“The economy will collapse again and the second collapse is usually far worse than the first. And the reason is that, after the first collapse, people tend to blame themselves. They say, ‘I shouldn’t have played the bubble. I shouldn’t have borrowed money to invest – to speculate on these things.

But a second collapse affects everyone, not just the bubble speculators, and it also suggests to the public that all the efforts to fight the downturn up to that point – all the monetary easing, the low interest rates, quantitative easing – have failed and even fiscal policy has failed. Once that kind of mindset sets in, it becomes ten times more difficult to get the economy going again. So the fact that Larry Summers was talking about ‘temporary’ fiscal stimulus had me very, very worried. That whole Larry Summers idea that one big injection of fiscal stimulus will get the US out of the recession, and everything will be fine thereafter, probably led to President Obama’s saying he’s going to cut his budget deficit in half in four years.

We had these false starts.  The economy would begin to improve and then we’d say ‘oh my god, the budget deficit is too large.’ Then we’d cut fiscal stimulus and collapse again. We went through this zigzag for 15 years.”

Koo thinks the only way…
continue reading


Tags: , , , ,




 
 
 

Zero Hedge

A Storm Is Brewing In The Southern Gas Corridor

Courtesy of ZeroHedge. View original post here.

Authored by Venand Meliksetian via OilPrice.com,

No less than Turkish President Recep Tayyip Erdogan, Azerbaijani President Ilham Aliyev, Serbian President Aleksandar Vucic, Ukrainian President Petro Poroshenko and Turkish Cypriot President Mustafa Akinci attended a gathering in Central Turkey on 12 June. The amount and variety of attendees of this meeting reveal a common interest in one field of geopolitical developments: energy and more specifically natural gas.

...



more from Tyler

Phil's Favorites

Visualizing The Global Export Economy In One Map

By RaulHowMuch.net

Visualizing the Global Export Economy in One Map

President Trump has loudly complained for quite some time about U.S. trade deficits with the world, most recently following the latest G7 summit in Canada. Trump’s rhetoric implies that other countries are enjoying massive surpluses at the expense of American workers. This got us thinking about how the U.S. actually compares as an exporter in the world economy, so we create our newest map.

...

more from Ilene

Chart School

Semiconductors Accelerate Losses

Courtesy of Declan.

There was no real change on the end-of-week position of markets. The Semiconductor Index was the most active with an undercut close of the week's swing low Next support level is the 50-day MA.


Despite the swing low undercut in the Semiconductor Index there were no breakout reversals for the Nasdaq or Nasdaq 100; indeed, the weakness may be viewed as a buying opportunity with a test of support.

...

more from Chart School

Mapping The Market

Mistakes were Made. (And, Yes, by Me.)

Via Jean-Luc:

Famed investor reflecting on his mistakes:

Mistakes were Made. (And, Yes, by Me.)

One that stands out for me:

Instead of focusing on how value factors in general did in identifying attractive stocks, I rushed to proclaim price-to-sales the winner. That was, until it wasn’t. I guess there’s a reason for the proclamation “The king is dead, long live the king” when a monarchy changes hands. As we continued to update the book, price-to-sales was no longer the “best” single value factor, replaced by others, depending upon the time frames examined. I had also become a lot more sophisticated in my analysis—thanks to criticism of my earlier work—and realized that everything, including factors, moves in and out of favor, depending upon the market environment. I also realized...



more from M.T.M.

Digital Currencies

Crypto-Collapse Resumes After Japan's Largest Exchange Halts Account Creation

Courtesy of ZeroHedge. View original post here.

What started off as a hopeful week of broadening user adoption is ending on a sour note as Japan's chief regulator launched a probe of crypto-exchanges, prompting the largest to halt account creation sending the entire crypto space lower...

As CNBC reports, the order...



more from Bitcoin

Insider Scoop

Booking Holdings Is Playing Catch-Up In Online Travel Growth Areas, Analyst Says In Downgrade

Courtesy of Benzinga.

Related Benzinga's Top Upgrades, Downgrades For June 22, 2018 Booking Holdings CEO Has Some Winning Travel Tips For ...

http://www.insidercow.com/ more from Insider

Biotech

Opioids don't have to be addictive - the new versions will treat pain without triggering pleasure

Reminder: Pharmboy and Ilene are available to chat with Members, comments are found below each post.

 

Opioids don't have to be addictive – the new versions will treat pain without triggering pleasure

shutterstock.

Courtesy of Tao Che, University of North Carolina – Chapel Hill

The problem with opioids is that they kill pain – and people. In the past three years, more than 125,000 persons died from an opioid overdose – an average of 115 people per day – exceeding the number killed in ...



more from Biotech

ValueWalk

Buffett At His Best

By csinvesting. Originally published at ValueWalk.

Bear with me as I share a bit of my history that helped me create SkyVu and the Battle Bears games. The University of Nebraska gave me my first job after college. I mostly pushed TV carts around, edited videos for professors or the occasional speaker event. One day, Warren Buffet came to campus to speak to the College of Business. I didn’t think much of this speech at the time but I saved it for some reason. 15 years later, as a founder of my own company, I watch and listen to this particular speech every year to remind myself of the fundamentals and values Mr. Buffett looks for. He’s addressing business students at his alma mater, so I think his style here is a bit more ‘close to home’ than in his other speeches. Hopefully many of you find great value in this video like I have. Sorry for the VHS...



more from ValueWalk

Kimble Charting Solutions

The Stock Bull Market Stops Here!

 

The Stock Bull Market Stops Here!

Courtesy of Kimble Charting

 

The definition of a bull market or bull trends widely vary. One of the more common criteria for bull markets is determined by the asset being above or below its 200 day moving average.

In my humble opinion, each index above remains in a bull trend, as triple support (200-day moving averages, 2-year rising support lines, and February lows) are still in play ...



more from Kimble C.S.

Members' Corner

Cambridge Analytica and the 2016 Election: What you need to know (updated)

 

"If you want to fundamentally reshape society, you first have to break it." ~ Christopher Wylie

[Interview: Cambridge Analytica whistleblower: 'We spent $1m harvesting millions of Facebook profiles' – video]

"You’ve probably heard by now that Cambridge Analytica, which is backed by the borderline-psychotic Mercer family and was formerly chaired by Steve Bannon, had a decisive role in manipulating voters on a one-by-one basis – using their own personal data to push them toward voting ...



more from Our Members

OpTrader

Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



more from OpTrader

Promotions

NewsWare: Watch Today's Webinar!

 

We have a great guest at today's webinar!

Bill Olsen from NewsWare will be giving us a fun and lively demonstration of the advantages that real-time news provides. NewsWare is a market intelligence tool for news. In today's data driven markets, it is truly beneficial to have a tool that delivers access to the professional sources where you can obtain the facts in real time.

Join our webinar, free, it's open to all. 

Just click here at 1 pm est and join in!

[For more information on NewsWare, click here. For a list of prices: NewsWar...



more from Promotions

All About Trends

Mid-Day Update

Reminder: Harlan is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

more from David





About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

Learn more About Phil >>


As Seen On:




About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

Market Shadows >>