The "Strange World" of a Balance Sheet Recession

Richard Koo discusses the concept of balance sheet recession, drawing parallels between Japan's economic struggles from 1990 to 2005 and current concerns in the US and Europe. He critiques the effectiveness of quantitative easing, particularly QE2, in stimulating the economy when private sectors are deleveraging. Koo explains the fallacy of composition, where individual actions to pay down debt can lead to economic shrinkage. He warns of the dangers of such a scenario, referencing the Great Depression and Japan's economic history.

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