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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huggy_in_london's picture

yeah, saw that ... it'll do it every time

Leo Kolivakis's picture

Bears are going kookoo:

huggy_in_london's picture

dude - don't you normally post some soft porn that you whack off to?  I guess this is it today!

Leo Kolivakis's picture

dude - when you bend over, does it hurt? Some double-penetration will get you standing up correctly again! LOL!

Leo Kolivakis's picture

And you're part of the Mensa club? LOL!

aaronvelasquez's picture

LOL?  Come on.  That's so, like, Generation Next.

Crisismode's picture

Nah.

He's Generation Left Behind.

 

 

akak's picture

OK Leo, you convinced me to start junking you again.

Why the rest of the ZH management still tolerates your shallow, juvenile and antagonistic crap simply eludes me.

Leo Kolivakis's picture

What's your point? Looks bullish to me.

Eally Ucked's picture

Is there anything looking bearish for you?

M.B. Drapier's picture

[oh well, if we can't appreciate a joke]

Cognitive Dissonance's picture

Leo, my point is that it is a 5 day perspective. Period.

It actually does look like a rebound in taking place, but I placed the chart up because the longer perspective was warranted. Period. A one day chart can prove any point you wish to prove. You are being overly sensitive Leo.

Leo Kolivakis's picture

I agree, if there is meaningful follow-through, a rebound is taking place.

RockyRacoon's picture

If my wife would meaningfully get her ass of the couch we'd have a clean house.

Oh yeah, there's that follow-through part as well.

Miles Kendig's picture

Come on Leo.  That is exactly the sentiment from January 2008 and things look worse now.  Much worse now that Koo & Krugman have had their way with the world since then and most certainly for those that will be called upon to pay their bill. I cannot but be convinced that the bills the K&K brothers have cooked up cannot ever be repaid in full. Perhaps this is the reason K&K believe that all of this is good. Must keep up appearances at all costs. Even when it makes 'em look like the kids at the supermarket checkout that are being refused their candy and are reacting as everyone else in the store has come to deplore.

EscapeKey's picture

I think you need to cut down on your Prozac prescription.

hack3434's picture

Leo being a coked out "trader" lives by the minute. Anything over a day is irrelevant lol  

akak's picture

Wow, the Dow is up for the day ---- I guess we can all just go home now.

All problems solved, guys --- Leo has declared it.  Nothing to see here.  Move along, move along ....

fiddler_on_the_roof's picture

you may be right and I also think S&P is going up till Dec 2010 after US midterm elections.

After which both S&P and Dollar can go down. Leading ECRI indicators are falling.

I could be wrong though. Also the capital gains tax is going up 5% from 2011 onwards

three chord sloth's picture

Wow. So he thinks it would be best if Japan continues their borrowing binge for another decade? That'll somehow get them onto firmer footing? For that to work I think his multiplier would need a multiplier of its own.

Anarchist's picture

Japan is primarily in debt to itself. All the Japanese pensioners and banks will have to take a haircut. Japan can export it's way out of some of it's problems. They will be forced to bring in more low skill foreign workers to take care of all the old. Same problem in most western European countries.  Japan will be forced to cut deals with the Chinese to get access to resources. They will need to transfer more technology to the Chinese.

RockyRacoon's picture

Is that chick holding an AK?

Anarchist's picture

Who doesn't like hot babes with guns?

pak's picture

"in order to offset the deflationary pressures from private-sector deleveraging and provide the private sector with a sense of direction"

Keynesian fallacy #2: government spending can stimulate private economic development.

Intuitively appealing, but no empirical proof.

NOTaREALmerican's picture

Well, yeah butt,  we're talking economics here, there's "no empirical proof" of anything.  These guys are still arguing about GD1.  We'll be on GD27 and they'll still be arguing about GD1.  

pak's picture

Arguing is fine. But wasting money?

tony bonn's picture

i hereby award richard koo the paul krugman award for advanced fucktardedness given each day to someone with special abilities to walk around the busy streets of tokyo with his head caught between his spinchter muscles.

pak's picture

Sir, can I be chosen to host the award ceremony?

Miles Kendig's picture

No doubt those two need to POP the heads out of their fourth point of contact.

Misthos's picture

Euroland is not clueless.  The Euro nations have the most gold combined - more so than any other currency in the world.  You think as the SHTF, that their gold will just sit there gathering dust?

This will be the ultimate challenge to US $ hegemnony, and the US, having the most gold of all single countries, will respond in kind.

Don't sell your gold.  When the big boys get desperate, they will make your investment truly worthwhile.  By design, or by default, it's inevitable. 

 

Crisismode's picture

and the US, having the most gold of all single countries

 

or not, since Ft. Knox has not been audited in more that 60 years,

 

. . . it could all be gold-plated tungsten.

 

 

Just sayin'

TexDenim's picture

Fantastic stuff!

NOTaREALmerican's picture

Re: more and more people realize they would rather deal with the pain now

 

Be careful what you wish for.  The peasants are not going to deal with pain very well, which is why the dear-leaders always provided enough crumbs.   Don't forget, bread and circus.   You gotta have both.

ThreeTrees's picture

Why do Keynesians find it so hard to understand capital and production structures? Economies will align themselves to supply the government's demand when it's literally driving the market eand that structure does not necessarily align with demand after government support is withdrawn.

There is no such thing as premature fiscal retrenchment mr. Koo, nor is there such thing as ideally timed fiscal retrenchment. Contraction is inevitable WHENEVER a major source of demand is withdrawn.

NOTaREALmerican's picture

Everything is male psychology.   The Keynesians hope for a society run by benevolent intellectuals having very intellectual discussions (with good wine, of course) and well reasoned arguments winning the day.   

The exact opposite fantasy of, basically, the male libertarians fighting it out in capitalist survival mode for the females with the biggest teeth, hair, and boobs.   

Let's face it, anything obsessed-over  - by so many males - as economics, has to be bat-poop crazy.

Gully Foyle's picture

http://www.eutimes.net/2010/03/china-finally-learns-the-truth-about-the-jews/

 

Who’s to blame for the current global financialcrisis? According to a bestselling book in China, which is leading the sales charts in the country, the answer is clear: The Jews.

In the eyes of most Chinese, Jewish people are considered “smart,” “rich” and “good at makingmoney.” Bookstores in China offer a variety of self-help books titled, “How to make money like Jews,” and “The secret of Jews’ global success.”

Until recently, the notion that Jews and money were inseparable carried no anti-Semitic undertone in the country, but a relatively new book called “Currency Wars” threatens to change all that.

The book’s author, Song Hongbing, claims that behind world-changing events like the battle of Waterloo, Adolf Hitler’s rise to power, President Kennedy’s assassination, and the deep recession in Asia during the 1990s stood an intricate conspiracy aimed at increasing Jews’ wealth and influence.

Song, a Chinese computer engineer and history buff who resides in the United States, writes that almost every defining historical moment has been instigated by Jewish bankers, and mainly the Rothschild family, which Song says dominates the global banking system, including the US Federal Reserve System.

‘important publication’ or ‘nonsense’?
Song’s book was published in China about a year and-a-half ago, and initially sold an insignificant number of copies. But in recent months the global crisis has turned the book into a hit. Estimates put sales of “Currency War” well over a million, not including hundreds of thousands of illegal copies that can also be downloaded off the net.

Responses among readers vary; online discussions about the book reveal that many are convinced this is the most important publication ever written, as it “exposes the truth behind global economy.” However, others claim that this is “nonsense” and say that Song, who has never studied economics, simply pieced together a theory made up of several delusional conspiracy theories published on the internet.

Song’s publishers, a subsidiary of a state-owned publishing house, boast the fact that the book has been read by all leading financial executives in the country, as well as state leaders.

Song himself has become a local celebrity in China, and is often invited to lecture at financial conventions and is interviewed on TV as a famous financial analyst.

 

fluorideintapwaterisbadforyou's picture

Song Hongbing has some  good  points

Marla And Me's picture

Gully, what the heck does this add to the dialogue?  I get if you want to post your protocols of zion-ish non-sequitur comments on the flotilla articles, but here?  You can come over for shabbat dinner any time.  Trust me, jews aren't as omnipotent as some would like you to believe...

Paul Bogdanich's picture

"Mr. Koo fails to grasp this simple fact....it is excessive debt that threatens the foundations of democracy, not a lack of stimulus."

 

That's an unfair criticism.  He grasps that it's just that he also believes that the ruling class has to remain so through any transition and accomplishing that is best done by bankrupting everyone further on down the chain at once.  If you leave even a smattering of a middle class intact they might intermingle with the slaves and rebel against the owners to preserve what little they have left.  What you do historically is bankrupt everyone and then re-propety  the dispossed against the forces of anarchy by making grants of property and what not.  That's the historical pattern and whay they are trying to accomplish.  The template is centuries old.  Return to Normalcy and Order are the modern political phrases attached. 

epsilonphase's picture

what the j-govt should start to consider is public works projects to dismantle the past 50years of public works construction and re-beautify the country. Regional Govts have shown themselves totally incapable of weaning themselves off stimulus.

 

The demographics at play over-rule anything the govt can throw into the economy, so they should just do the environment a favour and take apart the bridges and expressways and return the country to nature.

Govt spending in action in Hokkaido :

http://spikejapan.wordpress.com/spike-hokkaido-2/lake-toya-the-billion-dollar-tower-of-bubble/

 

 

three chord sloth's picture

Thanks for that. It was interesting reading, providing a perspective on Japan that most outsiders never see.

rawsienna's picture

Koo needs to realize Koo is wrong.  

LeBalance's picture

And for the republic for which it stands,

One nation under God indivisible,

With Liberty and Justice for All.

Federalist Republic vs. Democracy.

State's Right to Self Determination vs. The US State Mob

What the Constitution Framed vs. What We Are Told We Are Now.

Remember SC saying to the Congress: Gee we don't like your tariff structure, it seems mighty unfair to us Southern States and overly in favor of your Northern economy, which (for the record) is using just as many slaves as we do.  I know we have this agreement to stay together, but it is predicated on everyone agreeing to everything, otherwise we are free to go our separate ways.

So SC tried to go.  And might made right and we lost State rights by force of arms.

The Union of Separate States became the corporate body "United States."  Soon to fund Lenin, Mao, Hitler, etc.

Or that is one version of what happened. There are many.  They all offer an interesting perspective.

NOTaREALmerican's picture

I bet all the separate states woulda been able to take on Hitler too  (you know, the worlds greatest generation - [grabs crotch, throws out chest]).    Takes a big big unified nation to take on the really bad guys of the world.

 

(Sorry about you losing the war about "those people" tho, time to get over that one).  

No More Bubbles's picture

They will indeed push ahead with these policies, knowing full well it will cause total collapse.  The previous bubbles were the "set up", now it's time to let it collapse. It's become my belief this has been their goal all along and it's about damn time it happen.....


Pushing ahead with these misguided policies risks a collapse of social and economic foundations and could even threaten the survival of democratic structures.