Nomura's Richard Koo explains what he believes is happening in America right now, namely dealing with a massive balance sheet problem. ie: A company may have cashflow, but its balance sheet is under water. He says that executives recognize this, so even at extremely low interest rates, they choose to save money and pay down debt.
On it's face it shouldn't matter if a few companies are doing this, but he points out that if everyone does it all at once, it changes the game. And he also claims this isn't the first time this has happened - where have we seen it before in the States? The Great Depression.
"people were no longer maximizing profits, they were minimizing debt. And even with zero interest rates, companies were paying down debt. In no business schools, or economics departments, anywhere in the world, have suggested that such a thing should take place"
He does advocate for a massive fiscal stimulus at the end of this conversation, which is where we part ways. But we do agree that this is the cycle we're currently in.