Richard Koo: De lange termijnrichting van het economisch herstel

8/7/2019 Richard Koo: De lange termijnrichting van het economisch herstel

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1

Exhibit 1. US Housing Prices Are Moving along the Japanese Experience

40

60

80

100

120

140

160

180

200

220

240

260

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

US: 10 Cities Composite Home Price Index

(US: Jan. 2000=100, Japan: Dec. 1985=100)

Note: per m2, 5-month moving averageSources: Bloomberg, Real Estate Econom ic Institute, Japan, S&P, S&P/Case-Shi ller Home Price Indices, as of Feb. 1, 2011

CompositeIndex Futures

Japan: Tokyo Area Condo Price1

77 78 79 80 81 82 83 84 85 86 87 88 89 90 91

Japan: Osaka Area Condo Price1

Futures

US

Japan


3/29

Exhibit 2. Drastic Rate Cuts Have Done Little to Revive Employment

or House Prices

2

0

1

2

3

4

5

6

7

8

2003 2004 2005 2006 2007 2008 2009 2010 2011

(%)

Sources: BOJ, FRB, ECB, BOE and RMB Australia. As of Feb. 1, 2011.

Australia

EU

US

UK

Japan


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3

Exhibit 3. US Economy Is still a Long Way from Previous Peak

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.083

85

87

89

91

93

95

97

99

101

103

98 99 00 01 02 03 04 05 06 07 08 09 10

(%, Seasonally adjusted, inverted)

Unemployment Rate(right scale)

Sources: US Department of Labor, FRB

(2007=100, Seasonally adjusted)

Last seenin 2005

Unemployment rate:Last seen in 1983

Industrial Production:Last seen in 1998

Industrial Production(left scale)


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4

Exhibit 4. Euro-Zone Economy Is still a Long Way from Previous Peak

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.585

90

95

100

105

110

115

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Sources: Eurostat

(%, Seasonally adjusted, inverted)(Seasonally adjusted, 2005=100)

Industrial Production(left scale)

Unemployment Rate(right scale)

Last seen in 1998

Last seen

in 2005


6/29

Exhibit 5. Except in Germany, Industrial Production in Europe

Is still Weak

5

70

75

80

85

90

95

100

105

110

115

120

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Spain

France

Italy

Germany

(2005 = 100, Seasonally Adjusted)

Source: Eurostat

Level LastSeen in

2006: Germany

1997: France

1994: Italy

1997: Spain


7/29

Exhibit 6. Japans Economy Is still a Long Way from Previous Peak

6

65

70

75

80

85

90

95

100

105

110

115

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Note: Forecasts are calculated f rom METI's survey on planned production.Sources: Ministry of Economy, Trade and Industry (METI), and Ministry of Health, Labour and Welfare

Job offers to applicants ratio(left scale)

(Seasonally adjusted, 2005=100)(Seasonally adjusted)

Industrial production (right scale) forecast

Last seen in 2003

Lowest on record

Last seen in 1983

Last seen in 2002


8/29

Exhibit 7. US Demand for Funds Has Finally Stopped Falling

7

-50

-40

-30

-20

-10

0

10

20

30

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

(D.I.)

small firms

housingbubble

collapse

IT bubblecollapse

Source: Nomura Research Institute, based on FRB, Senior Loan Officer Opinion Survey on Bank Lending Practices.Note: D.I. are calculated f rom the answers to the question, "Apart from normal seasonal variation, how has demand for C&I loanschanged over the past three months?"

D.I. = ("Substantially stronger" + "Moderately stronger" 0.5) - ("Moderately weaker" 0.5 + "Substantially weaker")

businesses increasing demand for fundscompared to 3 months ago

businesses decreasing demand for funds

compared to 3 months ago

0

large and middle-market firms


9/29

Exhibit 8. Euro Zone Demand for Funds Has Finally Stopped Falling

8

-25

-20

-15

-10

-5

0

5

10

15

2003 2004 2005 2006 2007 2008 2009 2010 2011

(D.I.)

small and mediumsized firms

Source: Nomura Research Institute, based on ECB, The Euro Area Bank Lending Survey.Note: D.I. are calculated f rom the answers to the question, "Over the past three months, how has the demand fo r loans or creditlines to enterprises changed at your bank, apart from normal seasonal fluctuations?"

D.I. = ("Increased considerably" + "Increased somewhat" 0.5) - ("Decreased somewhat" 0.5 + "D ecreased considerably")

business increasing demand for fundscompared to 3 months ago

business decreasing demand for fundscompared to 3 months ago

0

large sized firms


10/29

Exhibit 9. Japans De-leveraging with Zero Interest Rates

Lasted for 10 Years

9

-6

-4

-2

0

2

4

6

8

10

-15

-10

-5

0

5

10

15

20

25

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Borrowings from Financial Institutions (lef t scale)

Funds raised in Securities Markets (left scale)

CD 3M rate(right scale)

(% Nominal GDP, 4Q Moving Average) (%)

Sources: Bank of Japan, Cabinet Of fice, Japan

Debt-financed

bubble(4 years)

Balance sheet

recession(16 years)

Funds Raised by Non-Financial Corporate Sector


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12/29

Exhibit 11. Japanese Government Borrowed and Spent the Excess

Savings of the Private Sector to Sustain GDP

11

overalldeficit460

trillion

20

30

40

50

60

70

80

90

100

110

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Source: Ministry of Finance, JapanNote: FY 2010 includes supplementary budget. FY2011 are initial budget.

Government spending

Tax revenueBubble Collapse

(Tril. yen)

cumulativecyclicaldeficit90-05

315 trillion


13/29

Exhibit 12. Premature Fiscal Reforms in 1997 and 2001 Weakened

Economy, Reduced Tax Revenue and IncreasedDeficit

12

0

10

20

30

40

50

60

70

0

10

20

30

40

50

60

70

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Tax Revenue

Budget Deficit

Hashimoto

fiscal

reform

Koizumi

fiscal

reform

(Yen tril.) (Yen tril.)

(FY)

Global

Financial

Crisis

*

Obuchi-Mori

fiscal

stimulus

Source: Ministry of Finance, Japan*: estimated by MOF

unnecessaryincrease in

deficit:103.3 tril.


14/29

Exhibit 13. Spanish Private Sector Financial Surpluses

Increased more than Government Deficit

13

-12

-8

-4

0

4

8

12

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Financial Surplus or Deficit by Sector

(Financial Surplus)

(Financial Deficit)

General Government

Corporate Sector(Non-Financial Sector +

Financial Sector)

Rest of the World

Households

(as a ratio to nominal GDP, %)

Shift from 2007in private sector:16.93% of GDPCorporate: 11.45%Households: 5.48%

Shift from 2007in public sector:

11.32% of GDP

Sources: Banco de Espaa and National Statistics Institute (INE),Spain, and EurostatNote: For 2010' figures, 4 quarter averages ending with 3Q/10' are used.


15/29

Exhibit 14. Irish Private Sector Financial Surpluses


14

-15

-10

-5

0

5

10

15

2002 2003 2004 2005 2006 2007 2008 2009

Sources: Eurostat, Central Statistics Office, Ireland



Corporate Sector(Non-Financial Sector + Financial Sector)

(Financial Surplus)

Rest of the World

Households

GeneralGovernment

(Financial Deficit)

Shift from 2006in private sector:21.55% of GDP

Corporate: 7.29%Households: 14.26%

Shift from 2006in public sector:16.78% of GDP


16/29

Exhibit 15. Portuguese Private Sector Financial Surpluses


15

-12

-9

-6

-3

0

3

6

9

12

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Sources: Banco de Portugal, Instituto Nacional de Es tatstica, Portugal, and EurostatNote: For 2010' figures, 4 quarter averages ending with 3Q/10' are used.

(Financial Surplus)

(Financial Deficit)




Financial Sector)

Rest of the World

General Government

Households

Shift from 2008in private sector:

8.60% of GDPCorporate: 6.45%

Households: 2.15%


6.38% of GDP


17/29

Exhibit 16. UK Private Sector Financial Surpluses


16

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10



(Financial Deficit)


Financial Sector)

(Financial Surplus)

General Government

Rest of the World

Households

Source: Of fice f or National Statistics, UKNote: For 2010' f igures, 4 quarter averages ending with 3Q/10' are used.

Shift from 2006in private sector:10.55% of GDPCorporate: 5.11%

Households: 5.44%


7.84% of GDP


18/29

Exhibit 17. In Italy, Increase in Private Savings Is Not Enough to

Cover Deterioration in Government Deficit

17

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Sources: Banca d 'Italia, EurostatNote: For 2010' f igures, 4 quarter averages ending with 3Q/10' are used.

(Financial Surplus)

(Financial Deficit)


Financial Sector)General

Government

Rest of the World



Households



Households: -3.48%


1.68% of GDP


19/29

Exhibit 18. In Greece, Increase in Private Savings Is Not Enough to

Cover Deterioration in Government Deficit

18

-16

-12

-8

-4

0

4

8

12

16

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Sources: Bank of Greece, Eurostat

Note: For 2010' figures, 4 quarter averages ending with 2Q/10' are used.


(Financial Surplus)

(Financial Deficit)


Financial Sector)

GeneralGovernment

Households

Rest of theWorld



2.34% of GDP

Corporate: -2.94%Households: 5.28%


4.82% of GDP


20/29

Exhibit 19. US Flow of Funds Data after 2008 Are Useless

19

-12

-10

-8

-6

-4

-2

0

2

4

6

8

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Households

General Government

Rest of the World


Sources: FRB, US Department o f CommerceNote: 2010's f igures are for from the 1st to 3rd quarters only.

(Financial Surplus)

(Financial Deficit)


IT Bubble

HousingBubbleCorporate Sector

(Non-Financial Sector +Financial Sector)

Numbersdo notadd upat all


8.50% of GDP


21/29

Exhibit 20. Because of Massive Discrepancy Between Two

Definitions of Private Sector

20

8.28%of GDP

13.29%of GDP

-8

-6

-4

-2

0

2

4

6

8

10

75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10


"Private Sector" as a residual afterGovernment and Foreign Sectors

"Private Sector" as obtained by

adding Corporate, Households andFinancial Sectors

Sources: FRB, US Department of CommerceNote: 2010's f igures are f or from the 1st to 3rd quarters only.


22/29

Exhibit 21. Japanese Corporate Financial Surplus Is Growing Again

21

-18

-15

-12

-9

-6

-3

0

3

6

9

12

15

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

(Financial Deficit)

(Financial Surplus)

(FY)


Households

Rest ofthe World


Financial Sector)

General Government


Sources: Bank of Japan, Flow of Funds Accounts, and Government of Japan, Cabinet Off ice, National AccountsNote: For 2010' figures, 4 quarter averages ending with 3Q/10' are used.

Balance Sheet Recession

Global

FinancialCrisis


6.37% of GDP



Households: -0.31%


23/29

Exhibit 22. Summary of Private Savings and Government Deficits

22

0

5

10

15

20

25

Spain Ireland Portugal UK US Japan Italy Greece

Increases in Private Savings

Increases in Government Deficits

(indicated as % o f GDP)

3

Notes: 1. Measured f rom the recent trough in private sector savings: Spain (2007), Ireland (2006), Portugal (2008), Italy(2008), UK (2007), Japan (2008), US (2006), Greece (2008).2. Changes in private savings include debt repayments.

3. A range o f 13% to 8% exists f or the US private savings data because of problems with its Flow o f Funds statistics since2008. Economic and market indicato rs suggest that the 13% figure (shown) is closer to the truth than the 8% f igure.4. Greece is NOT in balance sheet recession. Included for comparison purposes only.Source: Nomura Resarch Institute, from respective countries' f low of funds data


24/29

Exhibit 23. Sustaining Fiscal Stimulus in Democracy

during Peacetime Is Difficult

23

Authoritarian Democracies

NONE "Bond market might rebel"

(if any, quickly suppressed) "Big Government is BAD Government"

"Wasteful spending"

"Monetary Policy should work better"

"Aging Population"

"Should not use grand-children's credit card"

"Structual Reform is what is needed"

"Republicans, Tea Party types

and Blue Dog Democrats (U.S.)"

"Need to beg Chinese to buy more Treasuries (U.S.)".

.

.


25/29

Exhibit 24. Recovery from Lehman Shock Is NOT Recovery from

Balance Sheet Recession

24

Source: Nomura Research Institute

?

Lehman Shock

Actual Path

Current Location

Likely GDP Pathwithout Lehman Shock

Weaker Demand

from Private SectorDe-leveraging

Stronger Demandfrom Government's

Fiscal Stimulus

(A)

(B)

Economic weaknessfrom private-sector

de-leveraging

Economic weaknessfrom policy mistake

on Lehman

BubbleBurst


26/29

Exhibit 25. The Exit Problem: Debt Rejection Syndrome

It Took U.S. 30 Years to Normalize Interest Rate after 1929

0

1

2

3

4

5

6

7

8

9

192021222324252627282930313233343536373839404142434445464748495051525354555657585960

US government bond yieldsPrime BA, 90daysUS government bond yields 1920-29 average (4.09%, June 1959)Prime BA, 90days 1920-29 average (4.13%, September 1959)

Oct '29 NY Stock

Market CrashJun '50 Korean

War

Dec '41 Pearl

Harbor A ttack

(%)

'33New Deal

Source: FRB, Banking and Monetary Statistic s 1914-1970 Vol.1, pp.450-451 and 468-471, Vol.2, pp.674-676 and 720-727

25


27/29

Exhibit 26. Even with Strong Yen, Japan Is Running ever larger

Trade Surpluses with Taiwan, Korea and China

26

Japans Trade Balances with Korea, Taiwan and China

-400

-300

-200

-100

0

100

200

300

400

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Korea

Taiwan

China (including Hong Kong)

China (excluding Hong Kong)

( bil. Seasonally adjusted, 3 months mov ing average)

Source: Nomura Research Institute, based on Ministry of Finance, Japan, Trade StatisticsNote: Seasonal adjustments by Nomura Research Institute.


28/29

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29/29

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Richard Koo: De lange termijnrichting van het economisch herstel

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Transcript of Richard Koo: De lange termijnrichting van het economisch herstel