Richard Koo, the world-renowned chief economist of Nomura Research Institute, discussed the lessons learned from Japan’s “lost decade” during a presentation at Center for Strategic and International Studies (CSIS). During his discussion, Koo suggested that government stimulus can play a key role in alleviating the problems of a balance sheet recession. Koo’s recent book, “The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession”, discusses these issues in greater detail.

Source: CSIS, October 29, 2009.

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This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.

• Jason Clenfield and Norihiko Kosaka (Bloomberg): US risks Japan-like “lost decade” on stimulus exit, Koo says, October 23, 2009. US officials contemplating an exit from record fiscal stimulus are in danger of repeating mistakes that plunged Japan into its lost decade of stagnant growth, according to Richard Koo of Nomura Research Institute. “This isn’t a cold, its more like pneumonia,” said Koo, author of “Balance Sheet Recession,” a 2003 book about the malaise that hit Japan after its stock and real-estate markets crashed in 1990. “We still need more government spending,” he said, adding it could take “three to five years to get out of this mess, even under the best of circumstances.”

• Brad DeLong (Caijing.com.cn): A moment too soon after the

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div align=”justify”emCapt. Kirk: What would you say the odds are on our getting out of here? /em/divdiv align=”justify”emMr. Spock: It is difficult to be precise, Captain. I should say approximately 7824.7 to one. /em/divbr /div align=”justify”/divdiv align=”justify”Maybe we need the Star Trek crew in the US Treasury (certainly some of the recent hires look and talk like alien life forms). I’ve never been in the deflation/depression camp, and have consistently argued that the scale of monetary and fiscal stimulus, particularly in the US and UK, allied to the windfall real income gains from falling prices, would generate an economic rebound in 2010. In particular, I considered the speculative spike in energy costs last Summer as the critical tipping point that pushed a teetering US economy firmly into recession; at the time most economists recognized neither the nature of the mania in the oil market nor its destructive economic consequences. /divdiv …

As my readers may have noticed I am pretty much letting my colleague Edward running the show at the moment in terms of detailing the fall from grace of European economies. It is funny to think about how it is under a year ago that the notion of decoupling was fiercely debated. What a difference a couple of bust economies and banks make eh? In any case, what follows will be some semi-random observations on last week’s and the coming ditto’s events. As a common theme I think it is safe to say that in the context of the European economy as well as in a more wonkish theoretical perspective on the global economy push, as it were, looks very close to becoming shove. 

 

Towards a Common European Answer?

As I mentioned last week, Q4 was an absolute horror story in terms of European data with an aggregate Eurozone contraction of

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by Edward Hugh: Barcelonabr /br /a href="http://1.bp.blogspot.com/_ngczZkrw340/SUEsR712NQI/AAAAAAAALuU/VGFiqyCyzBw/s1600-h/bond+spreads+2.png"img id="BLOGGER_PHOTO_ID_5278548924887872770" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 320px; HEIGHT: 170px; TEXT-ALIGN: center" alt="" src="http://1.bp.blogspot.com/_ngczZkrw340/SUEsR712NQI/AAAAAAAALuU/VGFiqyCyzBw/s320/bond+spreads+2.png" border="0" //abr /br /br /Spain yesterday became the third euro zone country within a week to be warned by rating agency Standard amp; Poor's that its credit rating (currently the highest - AAA) is under threat from the deterioration in public finances which is being produced by the government's attempt to support the banking system and put a brake on the dramatic decline in the domestic economy. As in the case of Ireland and Greece last Friday, Samp;P said Spain faces a painful process of rebalancing of its economy and a consequent marked deterioration in its public finances.br /br /The gap in bond yields between the benchmark German bunds and the sovereign debt of Spain, Greece, Ireland, Italy and Portugal has risen fourfold since July (see charts above ...

by Edward Hugh: Barcelonabr /br /br /strong/stronga href="http://1.bp.blogspot.com/_ngczZkrw340/SWJCBADk-EI/AAAAAAAAMBE/lRuGq1QvY5c/s1600-h/cafe+fiorino.png"img id="BLOGGER_PHOTO_ID_5287861497448691778" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 241px; CURSOR: hand; HEIGHT: 320px; TEXT-ALIGN: center" alt="" src="http://1.bp.blogspot.com/_ngczZkrw340/SWJCBADk-EI/AAAAAAAAMBE/lRuGq1QvY5c/s320/cafe+fiorino.png" border="0" //abr /br /Spain's inflation (as measured by the EU HICP methodology) was around 1.5% (year on year) in December 2008, according to the flash estimate issued by the stats office (INE) earlier this week. This number only offers us an initial glimpse of the final HICP reading, but, if confirmed, it will mean Spain's annual rate of inflation has dropped 0.9% (nearly one full percentage point) in the space 0f just one month - since in November the annual rate was 2.4%.br /br /It will also mean that Spain's inflation for 2007 dropped its the lowest rate in a decade, down sharply from the 2007 rate of 4.2 percent. This is remarkable since Spanish inflation has generally been over the EU average for more ...

strong/stronga href="http://1.bp.blogspot.com/_ngczZkrw340/SWJCBADk-EI/AAAAAAAAMBE/lRuGq1QvY5c/s1600-h/cafe+fiorino.png"img id="BLOGGER_PHOTO_ID_5287861497448691778" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 241px; CURSOR: hand; HEIGHT: 320px; TEXT-ALIGN: center" alt="" src="http://1.bp.blogspot.com/_ngczZkrw340/SWJCBADk-EI/AAAAAAAAMBE/lRuGq1QvY5c/s320/cafe+fiorino.png" border="0" //abr /br /by Edward Hugh: Barcelonabr /br /br /Spain's inflation (as measured by the EU HICP methodology) was around 1.5% (year on year) in December 2008, according to the flash estimate issued by the stats office (INE) earlier this week. This number only offers us an initial glimpse of the final HICP reading, but, if confirmed, it will mean Spain's annual rate of inflation has dropped 0.9% (nearly one full percentage point) in the space 0f just one month - since in November the annual rate was 2.4%.br /br /a href="http://3.bp.blogspot.com/_ngczZkrw340/SWHrDP6v8KI/AAAAAAAAL_M/-UWmp9lHkN8/s1600-h/spain+CPI.png"img id="BLOGGER_PHOTO_ID_5287765878554751138" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 320px; CURSOR: hand; HEIGHT: 187px; TEXT-ALIGN: center" alt="" src="http://3.bp.blogspot.com/_ngczZkrw340/SWHrDP6v8KI/AAAAAAAAL_M/-UWmp9lHkN8/s320/spain+CPI.png" border="0" //abr /br /It will also mean that Spain's inflation for 2007 dropped its the lowest rate in a decade, down sharply ...

No-one likes an economic correction, says Bill Bonner. But they are both “essential and helpful.” If left to its own devices, the market will sort out its own mess. But the Fed will never let this happen. And just like Japan in the 90’s, this will only draw out the suffering.

More from The Daily Reckoning:

Spare a moment to remember Marcus Aurelius. Obama hasn’t yet called our “Sovereign Hotline” for advice. But when he does, we’re going to recommend he read Marcus Aurelius’s meditations.

Obama has pledged to change things. That part will be easy; things are changing fast. Trouble is, they’re not changing in the way he would like.

When Marcus Aurelius was emperor, Rome was going through major changes too. There were periods of famine, war and plague. Most alarming, the barbarians were at the gates; Marcus Aurelius spent most of his career trying to keep them

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