Warren Mosler — Be the Fed

On the Fed's analysis it is stuck between a rock and a hard place.

The Center of the Universe
Be the Fed
Warren Mosler

See also
Matthew Boesler,  Richard Koo: I Can't Find Anyone To Refute My Argument That America Is In A 'QE Trap' at Business Insider

As Warren points out the Fed just thinks it is in a QE trap. The Fed doesn't need to taper and can continue indefinitely to expanded its balance sheet with POMO as long as it pays interest on reserves (IOR) and there is nothing "the market" can do for force the Fed's hand operationally. 

However, The Fed is also aware of public perception and the political dimension, too. Ron and Rand Paul are already maneuvering to block the confirmation of Janet Yellen. And the moron hoards are ready to storm the gates of the Fed, threatening its independence, if not its existence. So the conundrum the Fed faces is not only financial and economic but also social and political.

Stephen S. Roach — The American Consumer is Not Okay

The spin-doctors are hard at work talking up America’s subpar economic recovery. All eyes are on households. Thanks to falling unemployment, rising home values, and record stock prices, an emerging consensus of forecasters, market participants, and policymakers has now concluded that the American consumer is finally back.

Don’t believe it. First, consider the facts: Over the 21 quarters since the beginning of 2008, real (inflation-adjusted) personal consumption has risen at an average annual rate of just 0.9%. That is by far the most protracted period of weakness in real US consumer demand since the end of World War II – and a massive slowdown from the pre-crisis pace of 3.6% annual real consumption growth from 1996 to 2007.

With household consumption accounting for about 70% of the US economy, that 2.7-percentage-point gap between pre-crisis and post-crisis trends has been enough to knock 1.9 percentage points off the post-crisis trend in real GDP growth. Look no further for the cause of unacceptably high US unemployment....

Project Syndicate

The American Consumer is Not Okay


Stephen S. Roach was Chairman of Morgan Stanley Asia and the firm's Chief Economist, and currently is a senior fellow at Yale University’s Jackson Institute of Global Affairs.

Merijn Knibbe — True Keynesianism – Richard Koo edition

Unfortunately there was a period in the economics profession, from late 1980s to early 2000s, where many noted academics tried to re-write the history by arguing that it was monetary and not fiscal policy that allowed the US economy to recover from the Great Depression. They made this argument based on the fact that the US money supply increased significantly from 1933 to 1936. However, none of these academics bothered to look at what was on the asset side of banks’ balance sheets.
— Richard C. Koo

Real-World Economics Review Blog
True Keynesianism – Richard Koo edition
Merijn Knibbe

The Future of Central Banking - INET Hong Kong

Keynote panel on "The Future of Central Banking" at the Institute for New Economic Thinking's "Changing of the Guard?" conference in Hong Kong. Featured panelists include Liu Mingkang and INET Advisory Board members Charles Goodhart, Richard Koo, and Adam Posen, with Fung Global Institute President and INET Advisory Board member Andrew Sheng moderating.

The Future of Central Banking - INET Hong Kong
INETeconomics

Matthew Boesler — Richard Koo Answers The Most Critical Question About The Western Economies: Is The Deleveraging Over?

The shift to negative net savings in the household sector is supposed to be bullish for the U.S. economy. The implication is that at the end of 2012, households finally started borrowing again – spending again – as opposed to paying off past debts.

Koo, however, suggests that observers are missing the details, which paint a much bleaker picture 

In fact, according to Koo, the way in which the household sector shifted to net negative savings at the end of 2012 has only been observed twice before in recent memory. The first time was following the collapse of the internet bubble in 2000, and the second time was following the collapse of Lehman Brothers in 2008.

Business Insider
Richard Koo Answers The Most Critical Question About The Western Economies: Is The Deleveraging Over?
Matthew Boesler

Lars Syll — How much whipping can democracy take?

Whither goest Europe? Lars calls on Richard Koo to answer and Koo doesn't like what he sees as he compares present conditions to Europe post-WWI.

Lars P. Syll's Blog
How much whipping can democracy take?
Lars P. Syll | Professor, Malmo University
(h/t Kevin Fathi via email)

Winterspeak — Koo goes cuckoo

Richard Koo became famous for his concept of a "balance sheet recession," which many confused with MMT. Now Koo makes clear how far he is from MMT.

Winterspeak.com
Koo goes cuckoo
Winterspeak

Martin Wolf — The balance sheet recession in the US

Last week (in Debt, deleveraging and crisis in the US), I discussed what happened to US debt and borrowing, prior to and since the crisis. In this post, I look at the associated pattern of income and expenditure. It looks at the macroeconomics of deleveraging or what Richard Koo of Nomura Research calls “balance sheet recessions”. 

I look at this through the lens of “sectoral financial balances”, an analytical framework learned from the work of the late Wynne Godley.

Read it at The Financial Times | Martin Wolf's Exchange
The balance sheet recession in the US
by Martin Wolf
(h/t Scott Fullwiler via Twitter)

Ramanan responds at The Case of Concerted Action with a couple of Godley quotes.



Martin Wolf On Wynne Godley’s Sectoral Financial Balances Approach

FT — Richard Koo’s semi-successful attempt to persuade Germans about balance sheet recession

Koo's conclusion:  "I therefore expect German policymakers will continue to focus on treating the patient’s diabetes while largely ignoring his case of pneumonia."

Read it at The Financial Times | FT Alphaville
Richard Koo’s semi-successful attempt to persuade Germans about balance sheet recession
Posted by Kate Mackenzie

(h/t Scott Fullwiler via Twitter)

Reading not so far behind the lines in the post, Germany is pursuing disaster capitalism, and "structural reform" is basically wage repression in the name of competitiveness — in other words, an international race to the bottom in which workers take the hit with a vague and unenforceable promise of benefitting eventually from trickle down. Same old neoliberal nonsense.

Zero Hedge — Richard Koo On The Three Problems With Bullish Speculation On Europe

Richard Koo's latest thinking.

Read it at Zero Hedge
Richard Koo On The Three Problems With Bullish Speculation On Europe

Submitted by Tyler Durden

Edward Harrison — Chart of the Day: Monetary Transmission Mechanisms

Edward Harrison explains the difference between monetary base and money supply in MMT terms.

Read it at Credit Writedowns
Chart of the Day: Monetary Transmission Mechanisms

by Edward Harrison

Cullen Roche — Koo, the BSR and the coming “fiscal cliff”

Read it at Pragmatic Capitalism
Koo, The Bsr And The Coming “Fiscal Cliff”
by Cullen Roche

Izabella Kaminska — Monetary blanks in the Eurozone

Izabella Kaminska expands on Richard Koo.

Read it at The Financial Times
Monetary blanks in the Eurozone
Posted by Izabella Kaminska

(h/t Andy Blatchford via email)

Konczal — Administration switching positions toward balance sheet recession?

The White House also looks to be on team balance sheet....

When Noam Scheiber wrote about how the administration viewed the economy in late 2010, he explicitly contrasted its wonks’ opinions with that of the balance sheet recession theorist Richard Koo. So is this a revolution within the administration? Is this why it is now pushing for writedowns and refinancing, after having left housing on the side for the past three years? Let’s hope so, since I consider being three years late to the party better than never showing up.

Read it at Rortybomb
Is the Administration Joining Team Balance-Sheet Recession?

by Mike Konczal

Still no sectoral balances mentioned. I guess they haven't discovered MMT yet, or Wynne Godley, either.

John Carney — Why Does Bernanke Lie to Us? Why Can't He Just Admit What the Problem Is?

Read it at CNBC NetNet
Why Does Bernanke Lie to Us? Why Can't He Just Admit What the Problem Is?

by John Carney | Senior Editor

John explains correctly (from the POV of MMT) that this is a "balance sheet recession" in the sense that the issue is excessive leverage as a hangover of the financial crisis and that the private sector continues to deleverage. The increased saving and deleveraging results in demand leakage, and debt-adversity creates reluctance to borrow. Moreover, the financial crisis has resulted in tighter credit, fewer qualified loan applicants, and a reluctance to borrow in the face of adversity or uncertainty.

All well and good. However, John cites Reinhart & Rogoff as a chief piece of evidence. But R&R is about public debt, whereas the issue is excessive private debt applying the analysis of Irving Fisher and Hyman Minsky. Moreover, R&R is a flawed study as many have pointed out.

Bill Mitchell, Watch out for spam! and We will not pay for your crisis

Cullen Roche, Debunking Reinhart And Rogoff and Further Debunking Reinhart & Rogoff

Yeva Nersisyan, The Myths About Government Debt and Deficit as Told By Carmen Reinhart and Kenneth Rogoff and More Reasons to Doubt Rogoff and Reinhart

Richard Koo, Paul Krugman, and the MMT economists, as well as Post Keynesians like John T. Harvey all cite private debt as the issue and say that the government's fiscal balance has to increase to make space for increased private desire to save in the face of the external sector saving as well. This means larger government debt, since deficits are required by law to be offset with tsy issuance. 

While deficit doves warn that the budget must be balanced over the business cycle, MMT economists dismiss this as unfounded. See Scott Fullwiler on the intertemporal government budget constraint (IGBC) in "Interest Rates and Fiscal Sustainability."

So John is correct that Bernanke and the Fed are not coming clean, but the issue is private sector indebtedness and saving-deleveraging rather than public debt, either presently or in the foreseeable future owing to a supposed IGBC.

is this a depression?

the answer is yes -- but the claim is heavily reliant on definition.

Read it at Decline and Fall of Western Civilization

is this a depression?

by gaius marius

Richard Koo: "The IMF and the OECD are people who know nothing about anything."

Couldn't have said it better myself!

Brad DeLong: Richard Koo Is Right

Bretton Woods Blogging: Old Economic Thinking Is New, or Is It that New Economic Thinking Is Old?

Prof. Brad DeLong tell us that the basic principles of monetary economics are nothing new.

"Take, say, yesterday morning's panel with Carmen Reinhart and Richard Koo--both were making arguments the logical structure and framework of which seemed to me to be straight out of Walter Bagehot's Lombard Street. And Lombard Street was published in 1873.

"Richard argued that--just as in Japan in the 1990s--the collapse of asset values had created a world desperately short of financial assets, in this particular case savings vehicles of moderate and long duration. The impairment of balance sheets thus left households and businesses anxious to cut back on their spending in order to rebuild their balance sheets. Since the interest rate could not fall any further to clear the market for savings vehicles, recession followed. The recession would, he said, last until and unless the supply of financial assets to serve as savings vehicles rose to levels consistent with financial-market demand. And government could materially accelerate this process if it stood up while the private sector was standing down: if it spent, invested, and borrowed in order to boost the market supply of savings vehicles."

Brad concludes:

"My view is that Richard Koo is right, and economic core governments should be frantically engaging in expansionary fiscal policy right now until the wake-up call from financial markets comes, and then they should stop.

"The main takeaway point, however, is that this is all the macroeconomics of 1873."