Nip / Tuck

Nice guys, those plastic surgeons.With every one trying to pay down debt, we’re trapped in a vicious cycle.  If we’re all getting liposuction, eventually there’s no need for plastic surgeons.  So, it’s great that we’re on a diet and everything – suddenly concerned about our past excesses.  And it’s okay that we want to look good.  But how do we maintain that healthy weight?  How do we stop our anorexic spiral?  And what about those poor surgeons?

I know – weird analogy, but it’s what came to me.  Richard Koo, the Chief Economist at the Nomura Research Institute (part of one of Japan’s major conglomerates that includes Japan’s best known, eponymous securities firm), did a presentation last month that has been floating around the economic dens of iniquity.  There has been much talk for a while about the “balance sheet recession” that Koo describes.

With all of the talk about Japan’s lost decade, and how the current crisis has so many similarities, Koo lays out a comparison very nicely.  He even tosses in some Asian vaqueros by the names of Yin and Yang (one wears a white hat, the other a black one).

Here are Koo’s slides:

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Krugman has some interesting thinking about the concept as well, although he says he has to noodle on it a bit longer.  Here’s his preliminary analysis.  Money quote:

“It [Koo’s argument] also suggests a positive role for fiscal expansion — and an answer to the line that debt got us into this, so how can it get us out? What this style of modeling suggests is that over the course of the whole cycle, the problem isn’t so much excessive debt as the fact that everyone tries to increase or reduce debt at the same time. What deficit spending can do is stabilize things: you have one big player in the economy that is increasing debt when the economy is stuck in a paradox-of-thrift world, then pays that debt down when the private sector is happy to borrow.”

Anyway, Koo explains things very much as the Cowboy sees them.  You are in a vicious cycle.  You have a couple of options: fiscal and monetary.  Monetary is tapped out, so you have to do fiscal even if you don’t like it.  And on the fiscal front, spending works better than taxes.

In terms of other economic chatter, here are the Cowboy’s views:

  • Green shoots“:  Well okay, maybe, but it’s like winter in New England – we still have a long way to go before heading to the Vineyard.
  • The Sachs Loophole:  Yes indeed, but preventing this kind of thing has to be part of the details.  Let’s keep focusing on ironing out the details before tossing out the whole plan.  Here are the Cowboy’s past thoughts on the plan.
  • G20:  Lots of negativity out there, but the Cowboy likes being positive.  Are everyone’s expectations running just a bit too high?  At least The Economist bundles theire negativity with some interesting discussion of the IMF.

Hmmm…   Maybe the Cowboy should get some work done?  The horse has been giving him disapproving looks lately.  Now what’s the name of that nice plastic surgeon on the teevee?

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Published in: on April 10, 2009 at 15:30  Comments Off on Nip / Tuck  
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