Effectiveness of a Quantitative Easing Policy In a Balance Sheet Recession context: a must-read with Nomura's Richard Koo

Thursday, October 7, 2010

The belief that QE2 is coming and will be successful at reflating the economy and asset prices is pervasive. If QE1 was successful at reflating wall street, it never succeed in reflating main street.

Here is an insightfull interview of the famous Richard Koo from Nomura who explains the Balance Sheet Recession in Japan and the effectiveness of fiscal and monetary policies. The financial markets need a QE2 because the first one failed and the recovery is one of the weakest we noticed since WWII.

We are in a consumer recession: the balance sheet of households need to be repaired, the output gap is massive, massive spare capacities are available, the U6 underemployment rate has stabilized at 16,5%. How can the QE2 be effective?

This interview of Richard Koo is a must-read. It was published in september 2009. It is not obsolete at all. Please note the similarities between Japan and Europe and the USA: if it is not so amazing, it is defintitely, frightful...


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