The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.


All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Banking

Bond Outlook March 17 2010

Occasionally an analysis brings you up short and makes you rethink what you thought was obvious. Such is the case in the light of Koo's (Nomura) "balance sheet recession".

Bond Outlook [by bridport & cie, March 17th 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. Lack of borrowing means less spending or investment, and leads to a decline in GDP (and potentially a vicious circle of further declines).

 

The solution, says Koo, echoing Keynes, is for the government to spend more to make up for the reduction in private expenditure. Too bad if that means bridges to nowhere; at least GDP is prevented from falling off a cliff. Private sector deleveraging takes a long time (it took at least ten years in Japan), so welcome to the L-shaped recession!

 

All this makes sense to us, as we attached the label “L-shaped” to the recession from its very beginning.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree