Richard Koo, Chief Economist at the Nomura Research Institute, was one of the headliners at a significant conference organized this past weekend by the Institute for New Economic Thinking.
I attended the meeting and am still trying to process all of the great material, debates and issues that emerged in the venue that served as the 1944 site for the establishment of what became known as the “Bretton Woods System.”
But this talk by Koo is hugely significant and goes into great detail about the common policy mistakes made by nations suffering from balance sheet recessions, as the United States is. During this talk he states that he has been meeting with Fed Governor Ben Bernanke and Council of Economic Advisors Chair Austan Goolsbee to warn them about the danger of slashing budgets and withdrawing stimulus from an economy while the private sector is still actively deleveraging itself.
I asked Richard Koo what he thought about President Obama’s agreement to slash nearly $40 billion in spending as a way to not shut down the government. Koo was not that depressed about the budget deal — and said that it could have been much worse.
Koo did agree with me, however, that setting railroad track now to broadly defined cuts which essentially were withdrawing stimulus from the economy at a fragile time could trigger what happened in 1937 America — a savage resuscitation of an economic downturn.
— Steve Clemons
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