The Escape from Balance Sheet Recession and the QE Trap

Compare global experiences during the balance sheet recession and find out what is needed for a full recovery

The Escape from Balance Sheet Recession and the QE Trap details the many hidden dangers remaining as the world slowly recovers from the balance sheet recession of 2008. Author and leading economist Richard Koo explains the unique political and economic pitfalls that stand in the way of recovery from this rare type of recession that was largely overlooked by economists. Koo anticipated the current predicament in the West long before others and issued warnings in his previous books: Balance Sheet Recession and The Holy Grail of Macroeconomics. This new book illustrates how history is repeating itself in Europe while the United States, which learnt from the Japanese experience, is doing better by avoiding the fiscal cliff. However, because of the liberal dosage of quantitative easing already implemented, the United States, the United Kingdom, and Japan may face a treacherous path to normalcy in what Koo calls the QE Trap. He argues that it is necessary to understand balance sheet recession in order to resolve the Eurozone crisis, particularly the competitiveness problems. Koo issues warnings against those who are too ready to argue for structural reforms when the problems are actually with balance sheets. He re-examines Japan's two decades of experiences with this rare recession and offers an insider view on the Abenomics. On China, readers will gain a very different historical perspective as Koo argues that western commentators have forgotten their own history when they talk about the re-balancing of the Chinese economy.

• Learn from Japan which experienced the same predicament afflicting the West fifteen years earlier
• Discover how unwinding of quantitative easing will affect the United States, the United Kingdom, Japan, as well as the emerging world
• Examine solutions to the Eurozone problems caused by two balance sheet recessions eight years apart
• Gain insight into China's problems from the West's own experiences with urbanisation

Koo, who developed the concept of balance sheet recession based on Japan's experience, took the revolution in macroeconomics started by John Maynard Keynes in 1936 to a new height. The Escape from Balance Sheet Recession and the QE Trap offers the world cure for balance sheet recession.

“Praise for The Escape from Balance Sheet Recession and the QE Trap "Richard Koo has been a pioneer in recasting macroeconomics for the current era of financial crisis and potential deflation. This book presents his latest thinking in a clear and powerful way. Agree or disagree his work deserves close study if the next decade in the industrial world is going to be better than the last." - Lawrence Summers , President Emeritus and Charles W. Eliot University Professor, Harvard University; former U.S. Secretary of the Treasury "This is an important, stimulating, exciting and timely book. Guided by the ideas in this book, growing numbers of experts are appreciating the parallels between the current world-wide crisis and the crisis Japan experienced 15 years ago. The basic insight - that in the presence of persistent liabilities, the private sector minimizes debt - is one that needs to be fully appreciated in order for appropriate policies to be devised. This is a must-read for all those seeking to respond to the current economic malaise." - Dennis J. Snower , President, Kiel Institute for the World Economy; Professor of Economics, Christian-Alberchts University, Kiel "Koo's The Escape from Balance Sheet Recession and the QE Trap provides the most insightful guide to current macroeconomic policy available today. Koo's concept of 'balance sheet recession' adds depth and detail to observations of the 'liquidity trap' and 'zero lower bound' of interest rates. He explains what needs to be done now and how long it could take. Everyone concerned with macroeconomic policy needs to read this analysis to learn how the world economy can be revived." - Peter Temin , Elisha Gray II Professor Emeritus of Economics, Massachusetts Institute of Technology "I have always liked the Richard Koo style - succinct theories, razor-sharp points, self-sustaining logic, and, more importantly, a set of workable solutions. It's definitely a worthy read." - Gao Xiqing , Professor, School of Law, Tsinghua University; former Vice Chairman and President, China Investment Corporation. "In the wake of the financial crisis of 2008, governments and financial institutions have instituted a wide range of changes in such areas as risk management, regulation, market organization, and fiscal and monetary policy. Unfortunately, however, these measures have suffered from a lack of a unified recognition of the fundamental problem. In a clear, engaging and penetrating way, Richard Koo has diagnosed the core nature of the challenge and the appropriate response. The Escape from Balance Sheet Recession and the QE Trap is an essential guide for anyone interested in the future of the global economy." - Jeffrey E. Garten , Juan Trippe professor of international trade and finance and former Dean, Yale School of Management; former Undersecretary of Commerce "When the history of this depression is written, policymakers who ignore Koo's finding will be judged harshly for imposing unnecessary suffering on their societies." - Richard Duncan , Author, The Dollar Crisis”

Praise for The Escape from Balance Sheet Recession and the QE Trap

"Richard Koo has been a pioneer in recasting macroeconomics for the current era of financial crisis and potential deflation. This book presents his latest thinking in a clear and powerful way. Agree or disagree his work deserves close study if the next decade in the industrial world is going to be better than the last."
—Lawrence Summers, President Emeritus and Charles W. Eliot University Professor, Harvard University; former U.S. Secretary of the Treasury

"This is an important, stimulating, exciting and timely book. Guided by the ideas in this book, growing numbers of experts are appreciating the parallels between the current world-wide crisis and the crisis Japan experienced 15 years ago. The basic insight – that in the presence of persistent liabilities, the private sector minimizes debt – is one that needs to be fully appreciated in order for appropriate policies to be devised. This is a must-read for all those seeking to respond to the current economic malaise."
—Dennis J. Snower, President, Kiel Institute for the World Economy; Professor of Economics, Christian-Alberchts University, Kiel

"Koo's The Escape from Balance Sheet Recession and the QE Trap provides the most insightful guide to current macroeconomic policy available today. Koo's concept of 'balance sheet recession' adds depth and detail to observations of the 'liquidity trap' and 'zero lower bound' of interest rates. He explains what needs to be done now and how long it could take. Everyone concerned with macroeconomic policy needs to read this analysis to learn how the world economy can be revived."
—Peter Temin, Elisha Gray II Professor Emeritus of Economics, Massachusetts Institute of Technology

"I have always liked the Richard Koo style – succinct theories, razor-sharp points, self-sustaining logic, and, more importantly, a set of workable solutions. It’s definitely a worthy read."
—Gao Xiqing, Professor, School of Law, Tsinghua University; former Vice Chairman and President, China Investment Corporation

"In the wake of the financial crisis of 2008, governments and financial institutions have instituted a wide range of changes in such areas as risk management, regulation, market organization, and fiscal and monetary policy. Unfortunately, however, these measures have suffered from a lack of a unified recognition of the fundamental problem. In a clear, engaging and penetrating way, Richard Koo has diagnosed the core nature of the challenge and the appropriate response. The Escape from Balance Sheet Recession and the QE Trap is an essential guide for anyone interested in the future of the global economy."
—Jeffrey E. Garten, Juan Trippe professor of international trade and finance and former Dean, Yale School of Management; former Undersecretary of Commerce

"When the history of this depression is written, policymakers who ignore Koo's finding will be judged harshly for imposing unnecessary suffering on their societies."
—Richard Duncan, Author, The Dollar Crisis

RICHARD C. KOO is the Chief Economist of Nomura Research Institute, a research arm of Nomura Securities, the leading securities house in Japan. Best known for developing the concept of balance sheet recession, which is now used widely around the world, he has also advised successive prime ministers on how best to deal with Japan's economic and banking problems.

Consistently voted as one of the most reliable economists by Japanese market participants for over a decade, he was a Doctoral Fellow of the Board of Governors of the Federal Reserve System and an economist with the Federal Reserve Bank of New York prior to joining Nomura.

When noted economist Richard Koo's The Holy Grail of Macro-economics was published in 2008, it served as a wake-up call to Americans and Europeans about the impending balance sheet recessions. In his next-step resource, The Escape from Balance Sheet Recession and the QE Trap: A Hazardous Road for the World Economy , Koo issues a warning about the unique political and economic pitfalls that stand in the way of recovery from this rare type of recession. The Escape examines the similarities between Japan in the past and the West today and presents the basic mechanics of balance sheet recessions. In this book, the author highlights the recent developments in the global economy and contends that the U.S. policy makers who understood the dangers of balance sheet recession steered the country away from the fiscal cliff, which is why it is doing better than Europe. However, the U.S., together with the U.K. and Japan could still face a major challenge in unwinding the quantitative easing (QE), the problematic policy byproduct of a balance sheet recession, in what Koo calls the "QE trap." This book also examines the influence of "Abenomics" (the economic policy of the Abe administration in Japan). It offers a detailed explanation of why this policy has great potential, and if properly leveraged Japan should be able to put the long balance sheet recession and its after-effects behind it for good. The Escape also contends that the European policy makers remain unaware of the balance sheet recession concept and its dire implications. As a result, they are repeating every mistake Japan made during the last two decades including conflating balance sheet problems with structural problems. To remedy this ominous situation, Koo outlines a practical solution to the Euro problem. On China, readers will gain a different historical perspective as Koo argues that western commentators have forgotten their own history when they talk about rebalancing of the Chinese economy. Richard Koo's warnings about the balance sheet recession were prescient in forecasting the 2008 economic collapse and the slow recovery thereafter. Now, The Escape offers Western nations an opportunity to develop a clear understanding of the economic problems they face today and details a solution for overcoming their predicament in order to return to economic normalcy.

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