The Escape from Balance Sheet Recession and the QE Trap
By Richard Koo
Published by Wiley (£26.99)
(Buy on Amazon)
Economist, author, and ‘balance sheet recession specialist’ Richard Koo is back with a new book: The Escape from Balance Sheet Recession and the QE Trap.
Koo “anticipated the current predicament in the West long before others”, says investing site ValueWalk, “and issued warnings in his previous books: Balance Sheet Recession and The Holy Grail of Macroeconomics.”
In this new book, Koo, chief economist at Japanese bank Nomura, “issues warnings against those who are too ready to argue for structural reforms when the problems are actually with balance sheets”.
The FT’s Martin Wolf recognises Koo’s major idea. “Richard Koo has a big hammer. It is the idea of ‘balance sheet recession’, which happens when the indebted focus on paying down debt. But people with hammers tend to view everything as a nail.”
“The diagnosis of ‘debt trauma’ [where individuals and companies are discouraged from borrowing following a balance sheet recession] is persuasive”, he writes. “Less persuasive is the view that it is right to see just about everything through the lens of ‘balance sheet recessions’.” But “least persuasive is the view that QE [quantitative easing] creates the risk of catastrophe, including of very high inflation.”
On his New York Times blog, economist Paul Krugman is unimpressed. “Koo’s original analysis — which we all admire, and for which we all give him credit — made the case for a fiscal solution, and he not only rejects any alternative but insists that it would be a terrible thing for reasons unclear. And it’s really too bad, because he’s hurting his own credibility.”
Still, writes Wolf, “Read Koo. He has a hammer, even if everything is not a nail.”