Written by John Lounsbury
Richard C. Koo, Chief Economist, Nomura Research Institute, made the presentation below at the ACATIS Value Konferenz 2016 in Frankfurt am Main 20 February 2016.
This is a very modern explanation of debt deflation studied by Irving Fisher in the 1930s. Here is Dr. Koo’s summary:
Our economics is based on the assumption of profit maximization. However, what happens, when this assumption is no longer valid, when companies pay down debt at zero interest rates? This is when the economy has entered a balance sheet recession. In such a situation, monetary policy becomes a largely useless weapon. After years of monetary policy with limited effectiveness, Richard C. Koo is asking: How can we escape from the QE-Trap?
For related articles see Helicopter Money 101 and Money and Banking, Part 17: History of Monetary Systems (links at the end for Parts 1-16).
Source: YouTube
