Bond Outlook March 17 2010

Our starting point this week is the original analysis and thinking of Richard Koo of Nomura. He has coined the expression “balance sheet recession” to describe what is happening now in Western economies, and what Japan went through in the 1990s. In such a recession, the private sector is totally committed to deleveraging, i.e. both households and corporations reduce debt. There is not just an absence of lending to the private sector, but an absence of either the need, or wish, to borrow.