Tuesday, August 24, 2010

Koo Says Maintain Fiscal Stimulus to Avoid Double Dip

Nomura Chief Economist, Richard Koo, has it right!

Governments must maintain fiscal stimulus measures to prevent their economies from sliding back into recession, according to Richard Koo, chief economist at
Nomura Research Institute Ltd. in Tokyo.

“Political momentum all around the world now is to try and reduce budget deficits,” Koo said in a speech in Johannesburg today at a function hosted by Nedbank Group Ltd. “If you try to reduce budget deficits, we’ll enter the double dip.”

“This is no time to cut budget deficits,” said Koo. “This is a different disease -- this is not a normal recession by any stretch of the imagination.”

“The market is saying if you have highways or schools to build, do it now.”


Tom Hickey said...

Apparently the bozos in charge never heard of Minsky's financial instability hypothesis and Irving Fisher's debt deflation theory of deflation. Looks like we may be headed over the cliff if they don't wake up soon.

mike norman said...

Unfortunately I think you're right, Tom. We could see some hefty spending cuts pushed after the midterms. If not offset with big tax cuts, we're going down hard.

Mike Sandifer said...


I find it interesting that supply-siders,including the Austrian so-called economists, claim there is all this inflation that will lead to hyperinflation, yet the economy sinks and interest rates are low and falling.

And their claims that we need less debt, more savings and investment, and lower taxes stand completely at odds with the current circumstances, such as the growing $1.8 trillion in corporate cash languishing on the sidelines, again, with a sinking economy. In addition, consumers continue to save, etc. They've gotten some measure of all they want, but still don't see the results they predict.

And if the increases in the federal deficit and debt were a problem, surely interest rates on government debt would rise, but they're falling.

In short, I can't see any predictions these supply-siders and liquidationists make that aren't at odds with current evidence.

Also, some of them still claim they will be right in the long run, redefining inflation as merely increases in the monetary base, even if the money doesn't make it into the economy, the situation of which we have now. They cling to Say's Law, which doesn't even apply to monetary economies and can't be persuaded otherwise. It doesn't occur to them that there could be no inflation if Say's Law held, if I'm interpreting it correctly.

Of course, many of these same people say the markets are currently(and often) wrong, yet say the government can't know enough to play positive active roles in the economy. If this were true, why not just hire these kooks to run the markets? Also, why shouldn't most or all of them be rich?

Obviously, I consider these approaches to even have internal contradictions and hence are not even well thought out.

MortgageAngel said...

Double dip? Looks and feels like a continued slip! Please get out of our house, NUMBSKULLS!! www.goooh.org

Beautiful outside, isn't it?

Ryan Harris said...

Congress won't spend when the economy is in the toilet and won't tax when inflation is rising. So for MMT to be applied, a non-political body has to tax (and spend). But Everyone hates the Fed. It would be require a revolutionary change in thinking and rework in the entire structure of our constitution. Steep hill to climb.

googleheim said...

Well, fellow bloggists

I think the only way anyone is going to smell the music and march to the coffee is when there is another dip.

That is what triggered the first stimulus and bailouts, and that is what is going to happen to trigger the second wave.

We can only hope that the bankers will not get any more and the "printing" will be for the people and not for bombs or banks.

Ramon.Morata said...

... I am also a R. Koo. .. We are not in a normal recession, we are in a balance sheet recession

Ramon.Morata said...

Mike, thanks for linking, in commenting on facebook.

Mike Sandifer said...


I posted an answer to your question to me in the comments section for "China Cuts US Treasury Holdings By Record Amount".

Sorry, but I just saw it tonight.