The Escape from Balance Sheet Recession and the QE Trap E-Book

Richard C. Koo

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 640

Veröffentlichungsjahr: 2015

Beschreibung

Compare global experiences during the balance sheet recession and find out what is needed for a full recovery The Escape from Balance Sheet Recession and the QE Trap details the many hidden dangers remaining as the world slowly recovers from the balance sheet recession of 2008. Author and leading economist Richard Koo explains the unique political and economic pitfalls that stand in the way of recovery from this rare type of recession that was largely overlooked by economists. Koo anticipated the current predicament in the West long before others and issued warnings in his previous books: Balance Sheet Recession and The Holy Grail of Macroeconomics. This new book illustrates how history is repeating itself in Europe while the United States, which learnt from the Japanese experience, is doing better by avoiding the fiscal cliff. However, because of the liberal dosage of quantitative easing already implemented, the United States, the United Kingdom, and Japan may face a treacherous path to normalcy in what Koo calls the QE Trap. He argues that it is necessary to understand balance sheet recession in order to resolve the Eurozone crisis, particularly the competitiveness problems. Koo issues warnings against those who are too ready to argue for structural reforms when the problems are actually with balance sheets. He re-examines Japan's two decades of experiences with this rare recession and offers an insider view on the Abenomics. On China, readers will gain a very different historical perspective as Koo argues that western commentators have forgotten their own history when they talk about the re-balancing of the Chinese economy. * Learn from Japan which experienced the same predicament afflicting the West fifteen years earlier * Discover how unwinding of quantitative easing will affect the United States, the United Kingdom, Japan, as well as the emerging world * Examine solutions to the Eurozone problems caused by two balance sheet recessions eight years apart * Gain insight into China's problems from the West's own experiences with urbanisation Koo, who developed the concept of balance sheet recession based on Japan's experience, took the revolution in macroeconomics started by John Maynard Keynes in 1936 to a new height. The Escape from Balance Sheet Recession and the QE Trap offers the world cure for balance sheet recession.

Leseprobe

The Escape from Balance Sheet Recession and the QE Trap

A Hazardous Road for the World Economy

RICHARD C. KOO

Cover Design: Wiley Cover Images: Globe:©iStockphoto.com/DNY59 Currency: ©iStockphoto.com/mu_mu

Copyright © 2015 by John Wiley & Sons Singapore Pte. Ltd.

Published by John Wiley & Sons Singapore Pte. Ltd.

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To my dearest wife, Chyen-Mei

List of Illustrations

Chapter 1

Figure 1.1

The U.S. Housing Bubble Comparable to the Japanese Housing Bubble 15 Years Earlier

Figure 1.2

Europe's Experiences with House Price Bubbles

Figure 1.3

Drastic Interest Rate Cuts Had Little Effect on Economies

Figure 1.4

The United States Regains Bubble-Peak Industrial Production after a Six-Year Period

Figure 1.5

Bursting of the Housing Bubble Weakens Eurozone Economies

Figure 1.6

Industrial Production in Europe

Figure 1.7

Drastic Liquidity Injections Resulting in Minimal Increases in Money Supply and Credit: United States

Figure 1.8

Drastic Liquidity Injections Resulting in Minimal Increases in Money Supply and Credit: Eurozone

Figure 1.9

Drastic Liquidity Injections Resulting in Minimal Increases in Money Supply and Credit: U.K.

Figure 1.10

Drastic Liquidity Injections Resulting in Minimal Increases in Money Supply and Credit: Japan

Figure 1.11

Japan's Corporate Deleveraging with Zero Interest Rates Lasted for over 10 Years

Figure 1.12

Collapse in Asset Prices Prompted Private Sector Deleveraging

Figure 1.13

Cumulative Capital Losses on Shares and Land since End-1989 Reach 1,570 Trillion Yen

Figure 1.14

Japan's GDP Grows Despite Major Loss of Wealth and Private Sector Deleveraging

Figure 1.15a

Japan's Recession Driven by Dramatic Change in Corporate Behavior

Figure 1.15b

Identifying the Underlying Trend in Japan's Recession

Figure 1.16

Japanese Government Borrows and Spends Unborrowed Savings of Private Sector to Sustain GDP

Figure 1.17

Japan's Fall from Its Fiscal Cliff in 1997 and 2001: Weakened Economy, Reduced Tax Revenue, and Increased Deficit

Figure 1.18

Europe in Balance Sheet Recession: Eurozone Private Sector Savings Are Greater Than Their Governments' Fiscal Deficits

Figure 1.19

Except for Three Occasions, Post-1990 Japanese Banks Prove to Be Willing Lenders

Figure 1.20

Contrast between Textbook Economy and Balance Sheet Recession

Figure 1.21

Yin-Yang Cycle of Bubbles and Balance Sheet Recessions

Chapter 2

Figure 2.1

Japan's Money Supply Has Been Kept Up by Government Borrowings

Figure 2.2

Post-1933 U.S. Money Supply Growth Made Possible by Roosevelt Administration's New Deal Borrowing

Figure 2.3

In Addition to Near-Zero Interest Rates, Central Banks Have Flooded the Financial System with Liquidity

Figure 2.4

United States May Be Facing a QE “Trap”

Figure 2.5

United States May Be Facing a QE “Trap”—GDP

Chapter 3

Figure 3.1

United States in Balance Sheet Recession—U.S. Private Sector Saved on Average 6 Percent of GDP since 2008

Figure 3.2

“Pretend and Extend” Stabilizes U.S. Commercial Real Estate Market

Figure 3.3

U.S. Households Are Still Saving More Than Borrowing at Zero Interest Rates

Figure 3.4

U.S. Nonfinancial Corporations Suffered Greatly during the First Two Years of GFC

Figure 3.5

Data through 2013 Q2 Show U.S. Corporate Sector Running Steady Financial Surplus in Contrast to Subsequent Releases

Figure 3.6

There Are Gaps between the Two Definitions of “Private Sector” in the U.S. Flow-of-Funds Data

Chapter 4

Figure 4.1

Kuroda BOJ Shocks the World by Announcing It Will Double Japan's Already Substantial Monetary Base

Figure 4.2

Japan's Nonfinancial Corporations Continue to Run Financial Surplus

Figure 4.3

Japanese Households Still Characterized by Financial Surplus

Chapter 5

Figure 5.1

Eurozone Government Bond Spreads Relative to German Bunds

Figure 5.2

Foreigners Owned 74 Percent of Greek Government Bonds in 2007

Figure 5.3

Eurozone Fiscal Deficits

Figure 5.4

Neuer Markt Collapse in 2001 Plunged Germany into Balance Sheet Recession

Figure 5.5

German Private Sector Refused to Borrow after IT Bubble Burst

Figure 5.6

German Households Stopped Borrowing Altogether after IT Bubble

Figure 5.7

German Nonfinancial Corporations Also Deleveraged after IT Bubble

Figure 5.8

German-Eurozone (ex-Germany) Competitiveness Gap Has Macro (50.2 percent) and Micro (49.8 percent) Origins

Figure 5.9

Irish Households Increase Borrowing after IT Bubble and Begin Deleveraging in 2009

Figure 5.10

Spanish Households Increased Borrowings after IT Bubble and Are Deleveraging Today

Figure 5.11

Germany Recovered from Post-IT Balance Sheet Recession by Exporting to Other Eurozone Countries

Figure 5.12

Spain's Nonfinancial Corporations Deleveraging in the Midst of Credit Crunch

Figure 5.13

Spain in Balance Sheet Recession: Spanish Private Sector Increases Savings Significantly after Bubble

Figure 5.14

Irish Nonfinancial Corporations Are Also in Financial Surplus

Figure 5.15

Ireland in Balance Sheet Recession: Irish Private Sector Increased Savings Significantly after Bubble

Figure 5.16

Portuguese Households, Unaffected by IT Bubble, Are Deleveraging Now

Figure 5.17

Portuguese Nonfinancial Corporations Deleveraging in Midst of Credit Crunch

Figure 5.18

Italian Households Stopped Borrowing in 2011

Figure 5.19

Italian Nonfinancial Corporations Started Deleveraging in 2012 while Facing Credit Crunch

Figure 5.20

Peripheral Bond Yields Jumped on Destabilizing Capital Flows

Figure 5.21

“Competitiveness Problem” Attributable to Divergence of Eurozone Money Supply Growth

Figure 5.22

Future Convergence of Eurozone Unit Labor Costs

Figure 5.23

Eurozone in Balance Sheet Recession: Private Sector Increases Savings Significantly after Bubble

Chapter 6

Figure 6.1

China Passes the Lewis Turning Point

Figure 6.2

Labor Demands Skyrocket after Passing Lewis Turning Point: Japan

Figure 6.3

Labor Demands Skyrocket after Passing Lewis Turning Point: South Korea

Figure 6.4

China May Grow Old before It Grows Rich: Ratio of Working Age Population Has Started to Fall in China

Figure 6.5

China May Grow Old before It Grows Rich: Working Age Population Is about to Shrink in China

Figure 6.6

China May Only Have 15–20 Years to Escape from Middle-Income Trap

Guide

Cover

Table of Contents

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Foreword

The global economy underwent a major ordeal after the housing bubbles in Europe and the United States burst in 2007. Almost six years have passed since the Federal Reserve followed the Bank of Japan's lead a decade earlier and took U.S. interest rates down to zero, yet the unemployment remains elevated and industrial output has only recently recovered to the levels of 2008. In Europe, the unemployment rate is running near the euro-era high of 12 percent even though the European Central Bank (ECB) also cut interest rates to zero. The picture for output is even bleaker: Although German industrial production has recovered to the levels of 2007, output in France and Spain is no greater than it was in 1994, and in Italy production has fallen back to 1987 levels. United Kingdom industrial production is no higher than it was in 1992. In Japan, which was geographically far removed from the Western bubbles, the mood has improved since “Abenomics” was launched at the end of 2012, but industrial output remains stuck at the levels of 2003. Some have dubbed this situation “secular stagnation.”