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Mikhail Liebenstein

Newsnight - Double Dip Recession

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Programme started

Richard Koo

"Richard Koo says we have seen all of this before in Japan. People are deleveraging. Most policy is based on the idea that the private sector maximises profit, but actually now they are minimising debt. This is a balance sheet recession. The Government can't tell the private sector to not repair its balance sheets - so it has to do the opposite and keep on spending"

Edited by mikelivingstone

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Sadly I've fallen for the Question Time trap again

Nobody can be arsed starting a thread about it anymore. lol

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Nobody can be arsed starting a thread about it anymore. lol

Yes you know its bad, when "Trisha" is a guest

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What's with this double dip nonsense? It's L shaped.

or at least a doubleyoo, where the second yoo drops down deeper than a bassett hounds ball bag.

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It's Will (i'm full of ******ing horseshit) Hutton!

Hoooray!

Edited by MOP

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How can Koo say even with zero rates private sector wouldn't borrow? They were funding half the rest of the world's spending sprees.

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How can Koo say even with zero rates private sector wouldn't borrow? They were funding half the rest of the world's spending sprees.

That's the point. The Japanese were obsessively saving and repaying private debt, hence they would not borrow to create new credit. Instead savings went overseas.

Edited by mikelivingstone

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Blimey, that takes me back. Mmmmmmmmmmmmmmm :rolleyes: Preferred the cherry myself.

I preferred Dib Dabs TBH but they're not, as yet, a recognised type of recession. :lol:

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I have to say that was an interesting discussion. One big issue I have with the public spending is can the government sell the debt. I never really considered that there would be excess lending to government because no one else is borrowing the savings made by companies. This makes perfect sense to what happened in Japan.

Theoretically, that could be applied here, however what is the difference between the UK and Japan? Japan is a net exporter, so draws in funds in return for goods, leaving the trade deficit in the black which is additional funds that enter the banking system. But in the UK, we are a net importer so could this apply? We have to constantly attract foreign funds to fund our deficit, and it appears the majority of QE is going out of the country anyway.

I would like this later issue to be put to Mr Koo...

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Chris Bryant:

"In my constituency, in the summer, when the nights are sunny" (not a verbatim quote, but close enough)

FFS, how long has Wales been anywhere near the North or South poles

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I recommend you find it on iPlayer. They had a really good piece on Government borrowing, with particularly good input from some Japanese feller.

He said during a balance sheet recession, the Government MUST do all the borrowing because the public doesn't want to take on debt, and are paying down debt instead. This means that those who are saving will provide all the demand neccessary to buy Government bonds, even in countries with low savings such as US/UK. The only way to prevent GDP from collpasing in this case is for the governemnt to go mad and spend spend spend. Didn't really say why the Japanese have used QE though, which was a hole in his arguments.

Anyway, worth a watch.

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Agreed. Good analysis of the double-dip scenario which people are seeing as increasingly likely.

Best case: 2010-2012 we are bumping along the bottom of a "U" shaped depression rather than an outright "W".

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Programme started

Richard Koo

"Richard Koo says we have seen all of this before in Japan. People are deleveraging. Most policy is based on the idea that the private sector maximises profit, but actually now they are minimising debt. This is a balance sheet recession. The Government can't tell the private sector to not repair its balance sheets - so it has to do the opposite and keep on spending"

I've read Koo's book on the subject to judge whether the Japan experience is likely to happen here.

There were a few points that concerned me.

- The UK public debt is already extreme so there will be a limit as to how much of the slack it can take up

- Will the UK consumers and businesses really go into a "debt is bad, must pay down" mode. (MEW is now negative so it's a start)

- The private debt is so large, on the order of the entire UK housing stock at pre-bubble prices. This will also affect the abilty of the government to effectively transfer this debt to itself.

The Japanese government was able to take up the slack but we can't IMO. They subsequently milked the Japanese savers for decades with low savings rates but high borrowing costs (bust banks needed margins), hence the enormous carry trade in search of yield. As an STR, I don't fancy this scenario.

I think the most likelely scenario is that the UK crash will be faster and more severe than the Japanese one.

VMR.

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