Sushi Macro-Economics: Food for thoughts

I re-publish today an interview with Richard Koo from Nomura edited in September 2009. I strongly recommend reading his book "The Holy Grail in Macro Economics: Lessons from Japan's Great Recession" along with the Kenneth Rogoff's book "This Time Is Different: Eight Centuries of Financial Folly" for all who wish to understand the big picture for the years ahead.

I strongly believe that Macro-economics and History should represent a major part of the CFA curriculum.... I will argue later on this point.

Last September 2010 I was very sceptical regarding the effectiveness of a Quantitative Easing Policy when Bernanke launched the QE 2.0 in september 2010 (Read my article Effectiveness of a Quantitative Easing Policy In a Balance Sheet Recession context: a must-read with Nomura's Richard Koo).

Unfortunately, my feeling was right as I wrote at that time "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 succeeded 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. 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... koo