Richard Koo On Why Europe's Austerity Will Cause Deflationary Spiral - News and Current Events | futures io social day trading
futures io futures trading


Richard Koo On Why Europe's Austerity Will Cause Deflationary Spiral
Updated: Views / Replies:333 / 0
Created: by Quick Summary Attachments:0

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 90,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors – all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you don’t need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Reply
 
Thread Tools Search this Thread
 

Richard Koo On Why Europe's Austerity Will Cause Deflationary Spiral

  #1 (permalink)
Quick Summary
Richard Koo On Why Europe's Austerity Will Cause Deflationary Spiral

While not new to our thoughts, Richard Koo, Nomura's Balance Sheet Recession guru, has penned a lengthy but complete treatise on why governments need to borrow and spend now or the world faces a deflationary spiral. The Real-World Economics Review posting makes it clear how his balance sheet recessionary perspective of the deleveraging and ZIRP trap we now live in means bigger and more Keynesian efforts are needed to pull ourselves out of the hole. While we agree wholeheartedly with his diagnosis of the problem, his belief in the solution...




At such times and at such times only, the government must borrow and spend the private sector’s excess savings, not only because monetary policy is impotent at such times but also because the government cannot tell the private sector not to repair its balance sheet.

...is flawed in so much as the size and scale of additional government borrowing at this time of smaller and more risk averse balance sheets leaves the governments (of currency issuers and users alike) more anxious of bond vigilantes than ever before. Furthermore, the impact of a much-bigger-than-previously-believed shadow banking system deleveraging and de-hypothecating and the historical precedents now engraved in manager's minds leaves them thinking 'fool me once...'. His discussion of the cause and cure of the deflationary abyss we now stare into is useful for completeness but his thoughts on the political difficulties of such a borrow-and-spend solution and the 'when to exit this solution phase' is noteworthy in its timing (and cyclical perspective):




There will be plenty of time to pay down the accumulated public debt because the next balance sheet recession of this magnitude is likely to be generations away, given that those who learned a bitter lesson in the present episode will not make the same mistake again. The next bubble and balance sheet recession of this magnitude will happen only after we are no longer here to remember them.

He warns that perceptions of the recovery from the Lehman shock is NOT recovery from the balance sheet recession and has an interestingly xenophobic approach to solving Europe's problems.



Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).


In case you have not heard of balance sheet recessions before:




The key difference between an ordinary recession and one that can produce a lost decade is that in the latter, a large portion of the private sector is actually minimizing debt instead of maximizing profits following the bursting of a nation-wide asset price bubble. When a debt-financed bubble bursts, asset prices collapse while liabilities remain, leaving millions of private sector balance sheets underwater. In order to regain their financial health and credit ratings, households and businesses are forced to repair their balance sheets by increasing savings or paying down debt. This act of deleveraging reduces aggregate demand and throws the economy into a very special type of recession.

which inevitably leads to:




More importantly, when the private sector deleverages in spite of zero interest rates, the economy enters a deflationary spiral because, in the absence of people borrowing and spending money, the economy continuously loses demand equal to the sum of savings and net debt repayments. This process will continue until either private sector balance sheets are repaired or the private sector has become too poor to save (i.e., the economy enters a depression).



Koo58



More on ZeroHedge...

Reply to share your thoughts on this current event.


Reply



futures io > > > > Richard Koo On Why Europe's Austerity Will Cause Deflationary Spiral

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)

Jigsaw Trading: TBA

Elite only

FuturesTrader71: TBA

Elite only

NinjaTrader: TBA

Jan 18

RandBots: TBA

Jan 23

GFF Brokers & CME Group: Futures & Bitcoin

Elite only

Adam Grimes: TBA

Elite only

Ran Aroussi: TBA

Elite only
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
Credit Crunch That Richard Koo Warned Us About Has Arrived kbit News and Current Events 0 November 14th, 2011 08:38 PM
Europe Stocks to Rebound, Italy Votes on Austerity Quick Summary News and Current Events 0 November 11th, 2011 03:10 AM
Europe Stocks Seen Mixed; Greek Austerity in Focus Quick Summary News and Current Events 0 June 22nd, 2011 03:20 AM
Richard Koo Demolishes Bernanke's QE2 "Gamble" kbit News and Current Events 1 May 18th, 2011 04:54 PM
Soros Blames Germany for Europe 'Deflation Spiral' Quick Summary News and Current Events 0 October 6th, 2010 04:30 AM


All times are GMT -4. The time now is 09:32 AM.

Copyright © 2017 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2017-12-14 in 0.06 seconds with 19 queries on phoenix via your IP 54.82.56.95