The Bear Trio Gets A New Addition: Richard Koo... And He Is Pissed

Tyler Durden's picture

The pragmatic Nomura Keynesian addresses the recent change of Japan's Prime Minister, in what is possibly the best analysis on policy implications of the second coming of Naoto Kan. Yet where Koo shines through is his condemnation of the recent prudent approach defined during this weekend's G20 meeting, in which Europe has "just said no" to pursuing record deficits. Apparently the lack of a European desire to hit the Nitrokeynesian button and go all in on a bet Keynes is right (or, gasp, wrong) has made Koo so furious, he proclaims: "Premature fiscal consolidation is a threat to democracy." In essence, Koo, a devout Keynesian, is taking the false religion's argument one step further to its logical conclusion: that any change, be it today, tomorrow or whenever, will ultimately result in the collapse of the developed world's social fabric, once societies realize they have been fooled for ages by a ruling oligarchy of kleptrocrats. That, we agree with wholeheartedly. As Koo says: "Pushing ahead with these misguided policies risks a collapse of social and economic foundations and could even threaten the survival of democratic structures." Too bad Europe doesn't have our jolly Direct Bidder/Primary Dealer backstops to make sure no bond auction ever fails in perpetuity. Koo is 100% correct that the unwind is beginning as more and more people realize they would rather deal with the pain now, than a version thereof which is 1,000 times worse in a few years.

From Richard Koo's latest:

Premature fiscal consolidation is a threat to democracy

Pushing ahead with these misguided policies risks a collapse of social and economic foundations and could even threaten the survival of democratic structures. A good example is prewar Germany’s Brüning cabinet, which insisted on fiscal retrenchment and allowed the emergence of Hitler in the 1930s. The risk is especially high in Central and Southern European countries, which have a relatively short history of democracy.

Ultimately, I think the reason so many academics and pundits do not trust current low yields on government debt and expect them to rise suddenly is that they do not trust the market economy. When a price level set by the market persists for many years, we need to realize that there is an underlying economic structure supporting those prices.

What governments—including Japan’s new administration—should be thinking about is how to find promising public works projects and implement them in order to offset the deflationary pressures from private-sector deleveraging and provide the private sector with a sense of direction.

When private loan demand is nonexistent, the government must do whatever is necessary to find and carry out promising public works projects (including education and environment-related projects) without worrying about tax hikes.

And Cliff notes for the time challenged:

  • Naoto Kan, the new Japanese PM,  is not tied to a single economic theory or principles, and therefore has room to manoeuvre pragmatically as the situation dictates.
  • Kan is likely to support a weaker yen, which was opposed by his predecessors on the basis that as a trade-surplus nation, pushing the advantage could provoke deficit nations, possibly setting off a wave of protectionism and a currency death spiral.
  • On the other hand, Koo credits Kan for saving the Japanese economy in 1998 by compromising to allow a capital injection for the Japanese banking system to end a credit crunch—which “effectively delayed the birth of a DPJ government by a decade.”
  • Kan’s economic advisor is an Osaka University professor named Yoshiasu Ono, who shares many of Koo’s views about the need for governments to spend in order to boost demand during recessions
  • Koo thinks Japan’s private sector has finished repairing its balance sheet, and there is no risk of serious deflation
  • In order to stay competitive, Japanese stimulus needs to focus on hi-tech and science
  • Japan should not raise taxes but should continue to borrow—the private sector’s loan demand is minimal, and the government (in spite of its relatively high debt/gdp ratio) can still borrow for 10 years at only 1.3%.  Taxes would weigh on recovery
  • He thinks that the persistent low yields on government debt are a function of the high level of private savings that finance the debt, as the government is essentially the only borrower. 
  • Koo thinks the movement toward fiscal consolidation at this stage is a mistake that could lead to economic collapse and threaten the foundations of democracy, especially in Central and Southern Europe...

“What governments—including Japan’s new administration—should be thinking about is how to find promising public works projects and implement them in order to offset the deflationary pressures from private-sector deleveraging and provide the private sector with a sense of direction.

When private loan demand is nonexistent, the government must do whatever is necessary to find and carry out promising public works projects (including education and environment-related projects) without worrying about tax hikes.”

Full note:


h/t Jake

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BlackBeard's picture

Correction Mr. Koo: Hijacked Democratic structures.

Innocent Bystander's picture


Given the key issue at hand, as discussed by BMO - Shortage of $$ and Europe trying to get hold of as many $$ as possible, it follows that many hedgies on both sides of the Atlantic are feeling the pain, especially those who put their hope in ECB and its monetary discipline (so much for that).

I have a question for this esteemed group, please all and any thoughts on this is are appreciated.

First the scenario, based on a few numbers I’m seeing,  big players, banks, funds and hedgies are all looking for liquidity at some level, a price they are paying for their hubris and underestimating the rot within the system.  So when one looks for liquidity, one tends to sell the best performer (contrary to logic), and given the deflation expectations among many, GOLD - is an ideal candidate.  So the big pools are liquidating, while retail is panicking (in terms of debasement of currencies and therefore buying GOLD) both in Europe and Asia and not so much yet in US.  IMF will be looking for $$ shortly and my bet is there will be more supply of Gold in the market sooner than later.  There are few more factors, but without getting into them, I’m sure this audience gets what I’m trying to say, Gold prices should be seeing a lot of downward pressure at this point and not regaining it highs.  (Let me clarify, I am partial to gold and expect it to hit $34xx in the next 4 years), however, this recent price action, along with global trends, suggests somethings afoot. 

One possible explanation might be the, big houses (without naming names) are looking to raise cash as noted above and hence forced to sell some physical, and if I have the ability to set(manipulate) the Gold market price I would try to set it as high enough as possible without raising any flags.  So that brings us to the question who is buying all this physical from these big houses, my take is a sovereign in Asia who’s reserve portfolio is appreciating with appreciating $$ and not to mention its currency.  Yes I think China is aggressively accumulating Gold now that it has built up its copper and iron reserves.  China is also taking advantage of a strong $$ while it lasts. 

The strong prices in Gold, the last couple of days may have lot of reasons - technical, retail  panic, etc.  but I strongly suspect there is more to it that meets the eye and am trying to come up with the most logical explanation, and I don’t think is simply panic buying by retail, but something new and big has presented itself as a suitable challenger to the esteemed houses.

Again any thoughts are appreciated. IB

Alexandre Stavisky's picture

Annuit Coeptis.  Novus Ordo Seclorum.

Gold is the go-to.  Our problem is our leadership is like our currency.  Made by fiat.  Without backing.  Without the intrinsic and durable qualities that bestow true value.  Princes of gold we have not.  Paper paupers aplenty.

Likewise I see another parallel.

I see another inherent problem in the "syndicate's" organization.  This has a predictive power and forecasting ability makes it a sure thing.  Herein lies our future.

Whenever a "cultured" four-lettered scion of the old-world power and money pyramid ascends near unto the pinnacle--the pyramid inverts becomes more a funnel to again loot the base, precipitating all to the capstone. BLUM or RAHM. All high are brought low, the common ashlars making up the bulk of the structure are tumbled, and a new cycle begins...usually in great turmoil.   Build the pyramid up, assume the pinnacle, invert and tumble.  Transposed those images could make a fine banner, and an emblem an ambitious mercenary tribe can get behind.

France in 1936...and what happened to them (the largest land army in the world at the time) in 1940?,9171,848594-1,00.html

USA in 2008, and what of its fate in 2012?

Curiouser, and curiouser.

Incidentally another powerful flag, one that rose up and devoured the infected Fleur-de-Lys was symbolic of what?

As I recall Nurnberg was a hub to all the European and far east overland trade routes used since Rome, the center to a multitude of spokes.  What was its significance to a maniacal, poorly mustachioed Hun corporal and his Flying Circus Richthofen cohort accomplice?  A cupped whirling mill centered there, reaching out to collect, harvest, and grind to pieces what commodity?

Were the colours, black, white, crimson chosen because of historical association with the state? or in mockery of this? Negredo, Albedo, Rubedo.

War upon the pyramid builders and malchemists, just to substitute another despotic hierarchy.,9171,932213-1,00.html

Ascend or descend the pyramid, grapple for the baton of dominion, play the cycles of man.

The faces and names and means of intrigue change.  The tyranny of such serpents, not so much.

WaterWings's picture

Fascinating post. Junked already. My kind of guy (gal?). All I know is there are some nuclear-tipped powers over thar yonder that would love to see the neighborhood bully go down. And never get up.

fiddler_on_the_roof's picture

The first "times" article about France is fascinating - showing the power of currency issuing private Bank of France over the Govt. Thanks

Woosirsir's picture

how come you flag as junk for 3 times?

tip e. canoe's picture

because he's getting warmer

WaterWings's picture

Four years? Might as well be four decades. Be prepared for the storm and own physical now. When an investment firm tells clients to move into cash NOW it means Au and Ag for those aware of the crack-up boom on the way.

Speculate at your own risk.

Disclaimer: all tangibles (PMs, storable food, tools for self-defense, tampons)


DoChenRollingBearing's picture

I certainly don't know what will happen in the short term re the price of gold.

What I would suggest to anyone who does not own gold is that they should go out and buy some now!

Don't have to buy a lot, but I would get started right away.

If Gordon_Gekko is right (about not much time left to buy actual physical gold), and my gut tells me he is, then anyone without at least a little gold will be sorry.

Spitzer's picture

So JPM and co. has been manipulating the metals down for 30 years but they, all of a sudden started manipulating them up so that they could sell gold that they don't have even when the cash from them sales would go on the same infanite pile that Bernanke rolled off the press the day before ?????

Are you a half breen Austro-keynesian ?

RockyRacoon's picture

I think you just lent credence to the old axiom:  Gold is money -- as you have just defined it.

Cognitive Dissonance's picture

Isn't it interesting that the cheerleaders are beginning to feel betrayed? They had a contract, right? They cheer lead and the powers that be lie, cheat and manipulate to prove the cheerleaders right, thus assuring the cheerleaders great emotional and fiscal profit along with acceptance by the (professional) hive.

It's always ugly when the school bus goes off the side of the road and we find out it was overcapacity and hadn't been inspected for 10 years. No brakes, not seat belts, drivers drinking on the job and so on.

BUT....But....but........but I thought you said........

chumbawamba's picture



I am Chumbawamba.

Eally Ucked's picture

you thought......efficiency is much better!

Assetman's picture

Yeah.  It's funny becuase I like Richard Koo because of his insight.

At the same time, he's a Keynesian to a fault.  And his latest missive is almost comical, if only the real economic effects aren't considered.

The Europeans have decided to swallow the bitter pill, and will likely export deflation to the rest of the world-- it's a bummer for those who dont want to play along.  And I'd gather that doesn't sit too well in Japan, where adding more debt was "just fine".  Ironically, just as Japan was getting ready to cross that finish line to Keynesian nirvana (not), the US stands to suck in as much global capital as it can in a quality trade.  Yikes!

It really doesn't get much better than this...

greg merrill's picture


I'm amazed someone who lived at ground zero (Japan) to a multi year train wreck keeps prescribing the same medicine. . . . 

Double down's picture

We need new theories!!  I mean we have two fucking guys: Hyaek and Keynes.  I know there are others but they are heavily discounted, but what science or art has had only two meaningful contributors?

Economics is a poor art.  

TuffsNotEnuff's picture

Koo's book is "The Holy Grail of Macroeconomics."

He makes the point with very good accounting figures that the long Balance Sheet Recession moved with failures to replace private investment with government activity.

Hayek/Chicago/monetarist and Keynes/fiscal policies each have their times and places. Monetarism for fine-tuning normal growing economies. Fiscal stimulus to avoid the downward spirals that can drive a Great Depression, the Japanese slide, or the worst of what we might face now.

This is a great book. "Salt water" and "fresh water" economic theories get their just dues. And I can't imagine any business school grad with the basic accounting series having trouble understanding what Dr. Koo has discovered.

BTW: the Tyler Durden write-up above is foolish. Clearly lacking the information that he would have gained reading the book. He can't throw off this sort of jack prose and expect to be taken as a serious person.

Ripped Chunk's picture


Sorry folks, we can't deliver as promised.

Ragnarok's picture

Even as reality take the screws to Keynesians they still can't see the error of their ways.

The Merchant of Venice's picture

Well, they don't think their way is an error, but I doubt they see it as perfect.  More likely they see it as the least bad solution.

Too bad the least bad solution is only relevant to them.

potatomafia's picture

HA!!  They will never see the error of their ways...  They will always be able to scream, "WE DIDN'T BORROW AND SPEND ENOUGH!"


Pretty freakin sad, really...

legerde's picture

Not only that... They will blame gold hoarders for ruining their ponzi.

callistenes's picture

Uh I don't need or want anyone let alone government to "provide the private sector with a sense of direction." 

Yeah the private would me. Koo can kookookafuckoff!

economicmorphine's picture

Mr. Koo fails to grasp this simple is excessive debt that threatens the foundations of democracy, not a lack of stimulus.  JMK believed that governments should save surpluses to be spent in times like these.  There are no surpluses because the Richard Koo's of the world know only one thing and that's spend, spend, spend.  Tis a shame, but the die was cast a long fucking time ago.  Debt, not lack of surplus, is the problem.  Sing it from the mountaintops.  It's the debt, Dickie.

etrader's picture

 G.F. Knapp  (chartalist school of monetary theory,) seems to be a new role model for JMK followers.

VK's picture

More like Charlatan school of monetary theory.

Chemba's picture

thank you.  It is one thing for a government to run a cyclical deficit, funded by counter-cyclical surpluses, in order to bridge a cyclical economy across a private sector deleveraging.  It is quite another for a government(s) to run secular deficits in order to bridge a ponzi-scheme.

Captain Willard's picture

+100! Keynes clearly referred to temporary deficits, not structural ones.

It's amazing to me that this buffoon talks about the "fallacy of composition" while advocating deficit spending for negative-return public works projects.

What a fool I was to believe that wealth is created through positive-return projects. I suppose compounding debt service will be paid by all these shitty projects and transfer payments.

These neo-Keynesians really can convince themselves of almost any rubbish.

Ragnarok's picture

What's your definition of a "neo-Keynesian" and how do they differ from the original?  Thanks.

Captain Willard's picture

This site has a pretty good summary of 75 years of economic debates...

It's hardly obvious what Keynes would have recommended in this situation any more than Mohammed or Jesus would recognize modern Islam or Christianity.

akak's picture

Whatever he might have recommended today, you can be sure it would have been fundamentally statist, pro-authoritarian and anti-free market.  That evil man deserves to be ranked right up there with Stalin, Mao, Hitler, and Pol Pot as a diabolical enemy of mankind.

Assetman's picture

You are absolutely correct, morhphine... and the thought process of spending well beyond one's capacity wasn't something Keynes have the "two thumbs up" signal for. 

Talk about a mis-interpretation!

RockyRacoon's picture

The economies of Japan and the U.S. are quite similar in one important way. And that is that they both enjoy considerable international demand for their respective currencies. In the case of Japan, this demand emanates from the nation’s active export sector. For the U.S., the demand comes from the dollar’s status as the world’s primary reserve asset and the general perception that it is a safer harbor than many of the alternatives. Or, to paraphrase the words of our own Marin Katusa, while all of the world’s many fiat currencies are little more than toilet paper, the U.S. dollar is of the 3-ply variety. For a time, this support can help prop a currency up, even in the face of the sort of aggressive sovereign debt issuance that has been ongoing of late.

Unfortunately, once a certain point is passed, maintaining currency confidence in the face of crushing debt becomes highly problematic.....

Check out the link for more, and some relevant graphs:

Assetman's picture

Thanks for the reference, Rocky... that pretty much nails it.

While the Europeans have to scramble to maintain an ounce of faith in the Euro via austerity measures, the US will scramble to issue low coupon sovereign debt.  There appears to be an implicit blessing to cross the debt rubicon while the capital is flowing.

We will see whether this becomes a mistake that leads to the next currency crisis (USD)-- or not.  My guess is it won't be the raising of the debt that will be a currect trigger-- it will be the monetizing of debt that causes a potential panic.

economicmorphine's picture

Should read...debt, not lack of stimulus.....

Cognitive Dissonance's picture

You can edit your own posts until they are responded to. Try hitting the "reply" under the post above.

John Connor's picture

I found "When Money Dies: The Nightmare of the Weimar Collapse" to be all the motivation I need to prepare for the worst.

etrader's picture

No doubt the end game will feature some form of global reserve Renten-currency introduction.


Hansel's picture

Threat to democracy?  Democracy still exists?

JR's picture

Speaking of threats to "democracy," apparently for the banker rulers the chief threat this week comes from an 89-year-old woman…

Is the Helen Thomas story an economic story?  If not, why is this headline on economic websites such as the Wall Street Journal’s MarketWatch: Journalist Helen Thomas Quits Amid Israel Furor: Sad end for an 89-year-old Washington insider…?

The Journal’s MarketWatch byline story by Jon Friedman laments the mistake that Helen Thomas made in criticizing the occupation of Gaza by Israel.

Writes Friedman on MarketWatch’s Commentary under Final Question:

“This is what can happen when you go too far.  Your career will end, swiftly and unceremoniously.”

When the President of the United States joins in the criticism you have to wonder about the Constitutional protections of free speech.  How long before anti-Israel comments qualify for jail terms?

Democracy? This was a milestone in media. It is a dividing line. It divides the people who are interested in freedom from the people who only are interested in Israel.  There are two sides to this: freedom and Israel.

This was something a woman said and they-- the columnists, the President of the United States, editorial writers, talk show hosts, politicians, movie ‘stars’, Wall Street elitists and journalists--are standing in line at the microphone to tell us they choose Israel over freedom.  The good news is, we are able to see who’s at the microphone and who isn’t—and there will be plenty of people who don’t walk to that microphone.

And it’s not enough just to be critical of anti-Israel remarks.  To get the Israeli lobby’s (AIPAC’s) support, the degree of criticism is important as well.  To say that anti-Israel remarks are inappropriate would not be enough for an official such as Nancy Pelosi: she will be rated by AIPAC on how strong her criticisms are.  Mild is not good enough; they need to be strong or maybe AIPAC will rethink its support. 

To think that the President of the United States could get away with not "condemning" Helen Thomas is to not realize the strength of the Israel lobby, and it is to not realize the weakness of the American people.

Regarding the dangers in this weakness:

“It is the blinde Goose that commeth to the Foxes sermon.”  --John Lyly: Euphues and His England

Read more:

desgust's picture


Enjoy your rulers.

The Merchant of Venice's picture

She quit.  She could fight.  She didn't.  Her actions speak louder than her words.

merehuman's picture

she is out numbered. And a bit surprised at the vehemence of the vipers no doubt. I think she has more balls than all those sold out so called media whores.  i cant help but feel we (free people) lost a last remaing voice in the press room.

Busy-Body's picture

Roberto Duran quit.  She was fired.

Citizen of an IKEA World's picture

When the President of the United States joins in the criticism you have to wonder about the Constitutional protections of free speech. 

She's free to say whatever she wants. 

The rest of us are free to acknowledge the sickness of her sputtering, spittle-flecked Jew-hate.

Au revoir, bitch.

WaterWings's picture


She doesn't hate Jews. Simple minds like yours are easy to control. Like by Jon Stewart, who incidentally just jumped the shark. Too bad - maybe people will realize it's not news.

His laugh tracks are kind of obvious when he gets repetitively obscure anyway.

Internet Tough Guy's picture

Her statement was clear and damning.

WaterWings's picture

Wish we had more damnables like her; those willing to speak their mind in the face of genocidal mass murderers. Sign of the times when she is shuttered so quickly.

End the Israeli Apartheid.