Richard Woo's "Run bigger fiscal deficits" theory

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benwm

Interesting talk given by Economist Richard Woo:-

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An good presentation, with lots of nice charts etc. even if I'm not convinced by the thrust of his argument. But then I'm not really a Keynesian...

Woo argues that US UK and EZ should run bigger fiscal deficits because of private sector develeraging (paying down the debt), citing the Japan "success" in never letting nominal GDP drop below pre bubble levels.

My own thought - Would it better for the government to directly lend to the private sector instead of spending the money themselves? Large sections of the private sector would like to borrow at near zero rates, but the banks are not willing lenders because they are trying to repair balance sheets. It is not a case of small businesses not wanting to borrow, more that banks massivley tightened up lending standards. Maybe this is crazy, but worse than bigger deficits?

What are your thoughts on the ideas in the presentation?
 

My own thought - Would it better for the government to directly lend to the private sector instead of spending the money themselves? Large sections of the private sector would like to borrow at near zero rates, but the banks are not willing lenders because they are trying to repair balance sheets. It is not a case of small businesses not wanting to borrow, more that banks massivley tightened up lending standards. Maybe this is crazy, but worse than bigger deficits?
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Thanks for the link - only wish the audio and charts were clearer.
Lend to private sector - they're most likely to take money and invest overseas where there is growth. We need the government to direct funds (from increased revenue) to infrastucture, reserach and education - will never happen tho.
 
Thanks for the link - only wish the audio and charts were clearer.
Lend to private sector - they're most likely to take money and invest overseas where there is growth. We need the government to direct funds (from increased revenue) to infrastucture, reserach and education - will never happen tho. [/B]
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Yes, I suppose it does make some sense that corporations might invest abroad, especially the larger ones...that's a risk...

But for the small company (5-10 workers) both getting access to funding and the ability to establish overseas branches etc is hard. These are the folks I think should get more help, and the money we're talking about is probably not a major drag of Treasury finances.

I'm not also averse to some infrastructure spending in the UK and US, especially when you've experienced high speed trains in Asia and realize how far behind we are.
 
Quote from RobtF:


My own thought - Would it better for the government to directly lend to the private sector instead of spending the money themselves? Large sections of the private sector would like to borrow at near zero rates, but the banks are not willing lenders because they are trying to repair balance sheets. It is not a case of small businesses not wanting to borrow, more that banks massivley tightened up lending standards. Maybe this is crazy, but worse than bigger deficits?
More...


Thanks for the link - only wish the audio and charts were clearer.
Lend to private sector - they're most likely to take money and invest overseas where there is growth. We need the government to direct funds (from increased revenue) to infrastucture, reserach and education - will never happen tho. [/QUOTE]

You can select a higher resolution with youtube, then the charts are aprtetty clear. The audio is very out of sync with the vid tho, but that is only obvious at the end.
 
Quote from benwm:
Thanks for the contribution, Martingfool
:)
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Haha, my pleasure, sir...

I actually like Koo. He makes some very interesting points. While I don't agree with everything that his "balance sheet recession" concept encompasses, there's a lot of really good insight there.
 
I'm not sure how Koo's theory really help out the PIIGs given the cost of funding...

It's ok running big fiscal deficits so long as the bond yield doesn't rise too high. Japan has had no problems on this front, but is the US 10yr bond yield really guaranteed to stay sub 4% for the next few years??

Debatable, to say the least.
 
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