How de-leveraging "worked" in Japan

And the lessons for USA.

Richard Koo: We Can't Reduce Fiscal Stimulus Now, We're Still Deleveraging

Gregory White | Jun. 15, 2010, 4:16 PM | 7,433 | 10

German blog ACEMAXX (via Paul Kedrosky) has posted an excellent interview with Nomura economist Richard Koo, profiling the what makes this recession different, namely, the balance sheet:

Q: Your book respectively your “Balance Sheet Recession” concept has been the talk of the town in 2009, as the global economy was in the middle of a severe contraction. Stimulus packages around the world however prevented the global economy to slip into a depression. Some economist and politicians are now asking to scale down the stimulus, as if a recovery may have started. Do you agree?

A: Not until private sector deleveraging is over. At present, private sectors in the US, UK, Spain, Portugal, and Italy are still deleveraging. This means these countries should not try to reduce fiscal stimulus. Any attempt to cut deficit in these countries is likely to result in a weaker economy and a larger deficit as seen in Japan in 1997. more

Source: Presentation to the Institute for New Economic Thinking

Source: Presentation to the Institute for New Economic Thinking

Source: Presentation to the Institute for New Economic Thinking

Source: Presentation to the Institute for New Economic Thinking

Source: Presentation to the Institute for New Economic Thinking

Source: Presentation to the Institute for New Economic Thinking

Source: Presentation to the Institute for New Economic Thinking