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Koo on S&P downgrade


jjsto
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I am of the believe that Richard Koo pointed out what was (is) going to happen to the US in his very fine 2003 book 'Balance Sheet Recession'.  I also would recommend this book more than his recent 'Holy Grail' Book.

 

Mr. Koo probably is one (of several) reasons why I have been in the deflation (or at least non-inflation) camp for so long and loved the FFH deflation derivatives. Interesting times indeed :)

 

I am also reminded of two other books that point out that we really know nothing anyway.  Who would have predicted a US downgrade and bonds having a huge rally.  Board members my be interested in 'Everything Is Obvious: *Once You Know the Answer' by Duncan Watts and 'Being Wrong' by Kathryn Schulz.

 

 

Cheers

JEast

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Koo is sharp but I can't get with his "print money until the problem goes away" philosophy about fighting deflation.

 

It would be like putting out a wildfire by blowing up the levees, IMHO.

 

Actually he is not in the "print money" camp. He thinks QE is wasteful and of little use. He is in the increase G camp. And with 2 year treasury yields as they are today and I do not see what is wrong with it (no politics just economics)

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Koo is sharp but I can't get with his "print money until the problem goes away" philosophy about fighting deflation.

 

It would be like putting out a wildfire by blowing up the levees, IMHO.

 

Actually he is not in the "print money" camp. He thinks QE is wasteful and of little use. He is in the increase G camp. And with 2 year treasury yields as they are today and I do not see what is wrong with it (no politics just economics)

 

Perhaps I'm confused (it wouldn't be the first time!) but I could have sworn that Mr. Koo blames the Bank of Japan for slamming on the brakes of liquidity too early for the continuing deflation over there.  :-\

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Perhaps I'm confused (it wouldn't be the first time!) but I could have sworn that Mr. Koo blames the Bank of Japan for slamming on the brakes of liquidity too early for the continuing deflation over there.   :-\

 

Well, you do not want to leave ZIRP too soon. Even Milton Friedman criticized the Bank of Japan on that. Zero interest rates with deflation is not expansionary, real interest rates is what should be followed (check 10y TIPS today 0%!). I thought you were talking about heterodox monetary tools like Quantitative Easing.

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  • 2 months later...

Krugman on this point:

 

http://krugman.blogs.nytimes.com/2011/10/12/venn-in-the-course-of-economic-events/

 

I really don’t understand Koo’s position. I agree with him that a lot of people are debt-constrained, and cannot respond to lower real interest rates by spending more. But not everyone is in this position — if nothing else, by definition there must be creditors as well as debtors, so someone is able to respond to interest rates. In general, it’s almost always a bad idea in economics to assume that incentives of some kind don’t matter at all.

 

And the diatribes against unorthodox monetary policy seem to me to come completely out of left field, not derived in any way I understand from Koo’s basic analysis. They have the feeling of arguments half-baked on the spot out of annoyance that people aren’t totally buying Koo’s insistence that fiscal policy is the answer; as you can see, I’m for fiscal policy myself, but see monetary policy as a useful supplement.

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Perhaps I'm confused (it wouldn't be the first time!) but I could have sworn that Mr. Koo blames the Bank of Japan for slamming on the brakes of liquidity too early for the continuing deflation over there.  :-\

 

 

I don't think so -- I think that was pretty much everyone else.  Richard Koo is in the camp that blames Japan for fiscal consolidation too soon -- twice.

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