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Author Koo, Richard,
Title The escape from balance sheet recession and the QE trap : a hazardous road for the world economy / Richard C. Koo.
Imprint Singapore : Wiley, 2015.

View online
View online
Author Koo, Richard,
Subject Globalization -- Economic aspects -- Japan.
Japan -- Economic conditions -- 1989-
Japan -- Economic policy -- 1989-
Description 1 online resource (351 pages) : illustrations (some color)
polychrome rdacc
Bibliography Note Includes bibliographical references and index.
Summary This book details the hidden dangers remaining as the world slowly recovers from the balance sheet recession of 2008. 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. This text 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. 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. He re-examines Japan's two decades of experiences with this rare recession and offers an insider view on the Abenomics. -- Edited summary from book.
Contents Machine-generated contents note: ch. 1 Balance Sheet Recession Theory -- Basic Concepts -- GDP and Inflation Fuelled by Growth in Money Supply, Not Monetary Base -- Japan Fell into Balance Sheet Recession in 1990s -- Plunging Asset Prices Create Balance Sheet Problems for Businesses -- Japanese Firms Rushed to Repair Balance Sheets by Paying Down Debt -- "Correct" Private Sector Behaviour Tipped Japan into Contractionary Equilibrium -- Collapse of Japan's Bubble Destroyed y1,500 Trillion in Wealth -- Why Japanese GDP Did Not Fall after Bubble Burst -- Fiscal Stimulus Saved Japan's Economy -- "Good" Fiscal Deficits Were Not Perceived as Such -- Balance Sheet Recessions and the Limitations of Econometric Models -- Fiscal Stimulus Works in Two Stages -- FDR Made Same Mistake in 1937 -- Reactive Fiscal Stimulus Is Far Less Efficient -- Fiscal Deficits Are Easily Financed during Balance Sheet Recessions -- Self-Corrective Mechanism for Economies in Balance Sheet Recessions -- Two Types of Fiscal Deficits Require Different Responses -- Fiscal Deficits Must Be Viewed Relative to Private Savings -- Consequences of Leaving Things Up to the Market in a Balance Sheet Recession -- GFC Triggered by Insistence on Market Principles -- Volcker Understood Systemic Crises -- Little to Be Gained from Bashing Those Who Have Already Come to Their Senses -- Recovery from Balance Sheet Recession Takes Time -- Forward Guidance Important for Fiscal as Well as Monetary Policy -- Fiscal Consolidation: Better Too Late Than Too Early -- Three Points to Consider Regarding Costs for Future Generations -- Japan Had a Shot at Full Recovery in 1996 ... -- Conflation of Balance Sheet and Structural Problems Extends Recession -- Distinguishing Balance Sheet Recessions from Structural Problems and Financial Crises -- Democracies Are Ill-Equipped for Dealing with Balance Sheet Recessions -- Keynes Also Overlooked Private-Sector Debt Minimization -- Those Who Prevent Crises Never Become Heroes -- Democracy Plus Balance Sheet Recession Equals "Secular Stagnation" -- Appendix to Chapter 1: Summary of Yin-and-Yang Phases of Economy -- ch. 2 Monetary Policy and the Quantitative Easing Trap -- Monetary Policy Impotent without Demand for Funds -- Mechanisms for Money Supply Growth -- Government Borrowing Drove Money Supply Growth in Japan -- Economics Dogged by Incorrect Analysis of Great Depression -- Japanese Monetary Policy Has Relied on Fiscal Policy for Past 20 Years -- Balance Sheet Recessions Triggered by Borrower-Side Problems, Financial Crises Triggered by Lender-Side Problems -- Bernanke Himself Says QE2 Unlikely to Have Major Macroeconomic Benefits -- Real Aim of QE2: Portfolio Rebalancing Effect -- Can Higher Share Prices under QE2 Be Justified on DCF Basis? -- QE2 a Big Gamble for Bernanke -- QE Undermined U.S. Leadership in G20 -- QE with No Income Effect Harms Other Countries -- Dollar-Buying Intervention by U.S. Authorities Would Have Produced Different Outcome -- Inward Capital Controls Help Keep Bubbles Fuelled by Hot Money in Check -- QE Represents Government Intervention in Asset Markets -- Operation Twist Lowered Long-Term Rates, but to No Effect -- Operation Twist Provided Only Limited Economic Boost -- Bernanke Admits the United States Faces Same Problems as Japan -- FED Overestimates Impact of Quantitative Easing -- "Lower Long-Term Rates = Higher GDP" Formula Does Not Hold during Balance Sheet Recession -- FED Has Also Underestimated Costs of QE -- Unorthodox Monetary Policy Distorts Signals from Bond Market -- Needless QE Acts as Drag on Financial Institutions -- Why FED Embarked on QE3 Two Months before Presidential Election -- Post-Bubble Wage Growth Nearly Identical in the United States and Japan -- The "Inconvenient Truth" of the Real Cost of Quantitative Easing -- BOJ's First Round of QE Was Easy to Wind Down Because It Was Conducted in Money Market -- Redemption of Central Bank Bond Holdings Will Not Reduce Commercial Banks' Current Accounts -- Government Issue of Refunding Bonds to Private Sector Would Absorb Excess Reserves -- Redeeming FED Bond Holdings Has Same Effect as Issuing Deficit Bonds -- Strength of Private Loan Demand Different at Start and End of QE -- Paying Interest on Excess Reserves Would Enable Rate Hikes ... -- But Cost Could Be Prohibitive -- Cost of Winding Down QE Has Yet to Be Properly Analyzed -- Debate over Winding Down QE Sparks "Bad" Rise in Rates -- "QE Trap" Appears Increasingly Likely -- Continued QE Trap More Likely Than Hyperinflation -- BQJ Found Itself in Same Position in 2006 -- FED Admits That Supply and Demand Matters, Too -- FED Changes Course Despite a 1.1 Percent Inflation Rate -- Traditional Phillips Curve Relationship No Longer Holds -- Upcoming Chapters in QE Saga -- Capital Injection Could Also Be Threatened If Blame Shifts to FED -- Sales Should Start with Bonds Maturing Soon -- Final Cost of QE Can Be Calculated Only at End of Fourth Chapter -- Theoretical Debate on QE Has Focused Entirely on Benefits and Ignored Costs -- Central Banks Should Establish a New Reaction Function to Drain Reserves -- Emerging Markets Need Inward Capital Controls to Protect against QE -- Japan Should Learn from Pioneers in QE Using Long-Term Bonds -- Financial and Capital Markets during Balance Sheet Recessions -- Balance Sheet Recession Brings Special Kind of Liquidity-Driven Market -- Is Inflation of 1-2 Percent Too Low? -- Does Inflation Improve People's Standard of Living? -- Absence of Inflation Concerns May Have Lifted Utility of Consumption in Japan -- QE Should Not Be Pursued Any Further Given Difficulty of Winding It Down -- QE a Problematic Byproduct of Balance Sheet Recessions -- ch. 3 The United States in Balance Sheet Recession -- Rating Agencies Need to Be More Tightly-Regulated -- Why Was Lehman Allowed to Fail? -- TARP Prevented Bank Failures but Also Created Turmoil -- U.S. Authorities Changed Course with "Pretend and Extend" -- Fiscal Stimulus Shifts from "Three Ts" to "Three Ss" -- Obama Has Yet to Disclose the Name of the Disease -- Bernanke's "Fiscal Cliff" Warning Saved the U.S. Economy -- Bernanke Declared Monetary Easing Could Not Offset Impact of Fiscal Cliff -- Fall from Fiscal Cliff Triggered Japan's Deflation -- U.S. Households Still Repairing Balance Sheets -- Non-financial Corporate Sector Faced Difficult Years in the Wake of GFC -- U.S. Companies Hit Far Harder by GFC Than by Collapse of Internet Bubble -- Can U.S. Corporate Sector Become Economic Engine? -- Long-Term Rate "Conundrum" Kept Housing Bubble Alive -- Post-2007 Fed in Similar Position to BOJ in 1990s -- Flow-of-Funds Data Suffer from Poor Accuracy -- Bad Data Were Good for Policy Debate -- Estimated Correctly, Private Sector Financial Surplus Continues to Shrink -- Recovery in U.S. Private Sector Demand for Funds May Outpace Japan -- Housing Market Strength during the First-Half of 2013 May Have Contained Temporary Factors -- Fed's Reputation Falls to Earth -- ch. 4 The Great Potential of Abenomics -- BOJ Already Had a Massive QE Program in Place -- Why Didn't Japan's Institutional Investors Follow Their Overseas Counterparts? -- Yen Fell and Stocks Rose Because Japan's Institutional Investors Stayed in Bond Market -- Honeymoon Altered Japan's Economic Landscape -- Bond Market Reaction Ended Abenomics's Honeymoon -- Private Sector Continues to Save after One Year of Abenomics -- Japan's Growth over Last Year Attributable to Fiscal Policy -- Can the Abe Administration Overcome the Trauma of Balance Sheet Recession? -- The Trauma of the Balance Sheet Recession Will Be the Last Effect to Go -- Focus of Structural Reforms Must Shift from Lenders to Borrowers -- Is Japan's Slump Due to Shrinking Population or Balance Sheet Problems? -- Slump in Domestic Demand Was Due to Balance Sheet Recession, Not Decline in Working-Age Population -- Personal Financial Assets Have Already Been Invested Somewhere -- Corporate Debt Pay-Downs Weighed on Consumption and Investment -- Real Bottleneck in Japan's Economy: Lack of Loan Demand at Private Companies -- Balance Sheet Recession Has Taught Japanese How to Be Frugal -- Is Japan Really Closed to Immigration? -- Japanese Economy Would Cease to Function without Foreigners -- Agricultural Reforms a Major Step for LDP Government -- Structural Reforms Are Microeconomic Policies That Take Years to Work -- Scale of Structural Reform Is Also Important -- We Should Not Expect More Good Fortune -- Kuroda May Be Trying to Close Gap between Expectations and Reality ... -- BOJ and Government Must Stress That Inflation Overshoot Will Not Be Tolerated -- BOJ Had Weapon to Prevent JGB Crash during Balance Sheet Recession -- No One Has Criticized Japan for Currency Manipulation -- Japan Supported Global Economy for Four Years after Lehman Collapse -- Real Effective Exchange Rate Does Not Fully Express Japanese Firms' Pain -- Rising Fiscal Deficits Caused by Change in Corporate Behaviour -- How Should Japan's Tax System Be Reformed? -- Fiscal Stimulus Introduced to Offset Consumption Tax -- Current Corporate Earnings Based on Massive Fiscal Deficits -- Working Down Public Debt Will Require Bold Policies to Lift Japan's Growth Rate -- Incentives Needed to Restore Japan's Economic Vitality -- More Effective Land Utilization Could Propel Growth -- Japan Needs Bold Tax Reforms Modelled on U.S. and Hong Kong Systems -- Policies Need to Change Perceptions of Japan at Home and Abroad -- ch. 5 Euro Crisis -- Facts and Resolution -- Euro's Adoption Lowered Interest Rates Sharply -- Maastricht Treaty Acted as Constraint on Credit Risk.
Note continued: Greece Was Spoiled by Euro, and Germany Reacted Violently -- Germans Believed Structural Reforms Required a Crisis -- German Balance Sheet Recession Eight Years before GFC Started the Crisis -- German IT Bubble Brought about Euro Crisis -- ECB's Rate Cuts Create Bubbles outside Germany -- Misunderstandings Regarding Lack of Competitiveness in Southern Europe -- Money Supply Growth Much Lower in Germany -- German Reforms Responsible for Only Half of Competitive Gap -- Germany Benefited Most from Euro -- One More Mutual Dependency between Germany and Eurozone Periphery -- Spain's Vicious Balance Sheet Recession -- Ireland's Household Sector Forced to Pick Up Pieces after Massive Housing Bubble -- Irish Businesses Remain Net Savers -- Portugal's Balance Sheet Recession Began Quite Recently -- Italy Is in Same Position as Portugal -- Why the Polarization of Eurozone Government Bond Yields? -- Eurozone Allows Investors to Buy Government Bonds of Member Countries with No Currency Risk -- Eurozone-Specific Fund Flows Amplify Economic Swings -- Meaning of "Fiscal Space" Differs Inside and Outside Eurozone -- Maastricht Treaty Is Defective and Should Be Revised Immediately -- In Practice, Fiscal Stimulus Requires EU and ECB Approval -- Ban on Buying Other Nations' Debt Ideal Way to Stabilize Eurozone -- Efficiency Gains from Single Currency Remain Intact -- Different Risk Weights Should Be Applied to Domestic and Foreign Government Debt -- Next-Best Alternative to Risk Weights Already in Place? -- Separation of Sovereign Risk and Banking Risk a Rejection of self-Corrective Mechanism -- Joint Issue of Eurobonds Would Only Solve Half of Eurozone's Structural Defects -- Draghi Unaware That There Are Two Kinds of Recessions and Fiscal Deficits -- Outside of Greece, Capital Flight Is the Problem -- Explaining Balance Sheet Recessions to the German Public -- Even Germans Understand Need for Fiscal Stimulus If Properly Explained -- Excessive Focus on Fiscal Deficits While Ignoring Growth in Private Savings -- Lack of Private Loan Demand Biggest Problem for Germany -- Germany Unlikely to Announce Stimulus Package -- Disadvantages of Euro Exit for Greece -- Argentina's Experience Also Suggests Euro Exit Would Have Few Merits for Greece -- Germany's Competitive Gap with Other Countries Will Also Disappear in a Few Years -- Draghi's LTROs Prevented Collapse of Eurozone Financial System -- "Grand Bargain" with ECB Is an Empty Promise -- Double-Dip Recessions and the Eurozone's Bad Loan Problem -- EBA's Lack of Understanding of Systemic Crises Leads to Rash Actions -- Cypriot Bank Resolution Could Worsen Financial System Jitters -- Vicious Cycle of Creating New Bubbles to Paper over Old Ones -- EU Election Results the Result of Economic Policy Errors -- European Policy-makers Mistake Balance Sheet Problems for Structural Problems -- Policy-makers Need to Ask Why Eurosceptics Made Such Gains -- Disappointment with Established Parties Led to Rise of Nazis and World War II -- Continued Disregard for People's Voice Puts Democracy in Jeopardy -- U.S. Voters Had Policy Choices, Unlike Their European Counterparts -- The Euro Can Be Saved with Two Repairs -- ch. 6 China's Economic Challenges -- China's Local Governments Began Borrowing en Masse -- Decoupling Would Not Have Been Possible in Ordinary Democracy -- China's Remaining Problems Include Overcapacity and Income Inequality -- China Understands Political Ramifications of Inflation -- China's Shadow Banking Sector: Misunderstandings and Realities -- Problem: Sharp Growth in Lending to Local Governments Post-Lehman -- Decoupling of China and Developed Economies to Continue -- Problems Facing China's Economy -- China Has Already Passed the Lewis Turning Point -- Rapid Economic Growth Continues until Lewis Turning Point -- U.S.-Led Free Trade Regime Enabled the Emergence of Asia -- Economy Starts to Mature Only after Passing the Lewis Turning Point -- Local and Global Lewis Turning Points and Inequality -- China Increasingly Tolerant of RMB Appreciation as Transition to Consumption-Led Economy Proceeds -- The West Is Conflating Problems of Trade Imbalance and Financial Crisis -- Liberalized Financial Sector and Capital Flows Could Weaken RMB -- China Could Fall into the "Middle-Income Trap" If It Neglects to Advance Its Industrial Base -- Japan, Korea, and Taiwan Escaped from Middle-Income Trap -- Labour Disputes Increase Sharply after the Lewis Turning Point Is Reached -- The Dilemma of Patriotism with an External Enemy -- Working-Age Population Peaked Just as the Lewis Turning Point Was Reached -- Will China Grow Old before It Grows Rich? -- The Next 15 to 20 Years Are Critical -- Uncertainty Due to Corruption and Lack of Legal Infrastructure Must Be Removed ... -- Appealing to Patriotism without Creating External Enemies -- China Could Become a World-Class Nation for the First Time in Two Centuries -- Chinese Ambition and Industry Must Be Steered in Right Direction.
Note Online resource; title from PDF title page (ebrary, viewed October 16, 2014).
ISBN 9781119028161 (e-book)
1119028167 (e-book)
9781119028178 (ePub)
OCLC # 893680454
Additional Format Print version: Koo, Richard C. Escape from balance sheet recession and the QE trap : a hazardous road for the world economy. Singapore : Wiley, 2015 xxv, 320 pages 9781119028123

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