[발췌] Richard Koo: Balance Sheet Recessions

출처: https://snbchf.com/economic-theory/richardkoo/balance-sheet-recession/

이하 발췌:

( ... ... ) He distinguishes between "Yang" phase of the economy and the "Yin" phase (the so-called "balance sheet recession").

In Yang times, companies want to increase profit and people consume a big part of their pay rises. The mainstream economic principles are fully valid ..

In the very rare "Yin" periods, however, economic actors give a higher importance to debt reduction than to profit maximization.

Richard Koo's book

Koo's theory is related to economists like Walter Bagehot, Hyman Minsky, Charles Kindleberger, who similiarly to Austrian economists introduced a "Boom and Bust Cycle" or "Financial Instability Theory" caused by excesses of the financial sector.

The boom phase is often visible in excessive appreciation of assets price and high debt. The sharp distinction to Austrians, however, is that Koo's recipe against a balance sheet recession is public spending.

In the "balance sheet recession / Yin" phase, economic actors want to reduce costs and debt. Many economic principles are only partially or not valid at all. Their underlying assumptions, that firms want to maximize profit and that the propensity to consume is considerably higher than zero, are not valid.

The way economies get into the balance-sheet recession is the following:

 - The private sector builds up massive debt levels to buy property and speculative assets.

 - Asset prices edge up as demand rises but then eventually the bubble bursts and the private sector is left with declining wealth but huge debt. Often richer, informed investors are able to sell the property early, but the ordinary people are often left with asset "under-water".

Symptoms of a balance sheet recession:

- The private sector then starts restructuring balance sheets--and stop borrowing--no matter how low interest rates go.

 - All effort is devoted to paying back debt (de-leveraging). Households increase their saving and reduced [reduce?] spending because they become pessimistic about the future.

- For borrowers who are under-water, a credit crunch might emerge--even if there are enough funds, banks cannot find credit-worthy borrowers to lend to.

 - Attempts at pumping liquidity into the banks will fail because they are not reserve-constrained [??]. They are not lending because no-one worthy wants to borrow.

Koo's way-out from a balance sheet recession:

- According to Koo, the only way out of the "balance sheet recession" is via sustained public sector spending.

 - The faltering spending causes the economy to grow very slowly. Especially when public spending helps, a recession and Irving Fisher's deflationary spiral and the above credit crunch can be avoided. Still it leads to disinflation taking place over years and potentially to deflation; but not to a suden.

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