Martin Wolf: Rethinking the Lessons of Japan’s Debt Unwind

Ah, today the Financial Times reminds me of the way it was back in early 2007, when it was clearly heads and shoulders above any US paper. Wonder why I have fewer days like that, It isn’t improved reporting by the US media (although they are further down the curve). I suspect that the FT has dumbed down its product for the US market. Shame, that.

Regardless, Martin Wolf is in particularly fine form today, and offers a reassessment of Japan’s lost decade. On the whole, the implications are not good.

Wolf starts by focusing on an issue ignored by most economists. Downturns are not created equal. What Richard Koo calls balance sheet recessions, that is, ones which feature excessive leverage, are much nastier beasts. This would seem to be an obvious point, yet is overlooked in many analyses.

From the Financial Times:

…,those who argue that the Japanese government’s fiscal expansion failed are, again, mistaken. When the private sector tries to repay debt over many years, a country has three options: let the government do the borrowing; expand net exports; or let the economy collapse in a downward spiral of mass bankruptcy.

Despite a loss in wealth of three times GDP and a shift of 20 per cent of GDP in the financial balance of the corporate sector, from deficits into surpluses, Japan did not suffer a depression. This was a triumph. The explanation was the big fiscal deficits. When, in 1997, the Hashimoto government tried to reduce the fiscal deficits, the economy collapsed and actual fiscal deficits rose.

Yves here. This line of thinking would have been dismissed as heretical or deranged a year ago. The party line among economists was that Japan had been too cautious, and had not administered monetary or fiscal stimulus in big enough doses soon enough. Back to Wolf:

….recognising losses and recapitalising the financial system are vital, even if, as Mr Koo argues, the unwillingness to borrow was even more important. The Japanese lived with zombie banks for nearly a decade. The explanation was a political stand-off: public hostility to bankers rendered it impossible to inject government money on a large scale, and the power of bankers made it impossible to nationalise insolvent institutions.

Yves again. Doesn’t this sound familiar? Yet the US lectured Japan, and analysts smugly assumed that Japan’s crony capitalism had stood in the way of taking painful but necessary steps. Anglo-Saxon democracies would do better. Well, now they have been revealed to be every bit as much the hostage of politics. Back to the article:

For years, people pretended that the problem was downward overshooting of asset price. In the end, a financial implosion forced the Japanese government’s hand. The same was true in the US last autumn, but the opportunity for a full restructuring and recapitalisation of the system was lost….

Yves here. I don’t think there was an opportunity then. Too close to a presidential election, too much shell shock and exhaustion among the key actors, who really did not see this one coming and did not have a grip on the problem or on policy options. Back to Wolf:

How far, then, is Japan’s overall experience relevant to today?

The good news is that the asset price bubbles themselves were far smaller in the US than in Japan (see charts below). Furthermore, the US central bank has been swifter in recognising reality, cutting interest rates quickly to close to zero and moving towards “unconventional” monetary policy.

The bad news is that the debate over fiscal policy in the US seems even more neanderthal than in Japan: it cannot be stressed too strongly that in a balance-sheet deflation, with zero official interest rates, fiscal policy is all we have. The big danger is that an attempt will be made to close the fiscal deficit prematurely, with dire results. Again, the US administration’s proposals for a public/private partnership , to purchase toxic assets, look hopeless. Even if it can be made to work operationally, the prices are likely to be too low to encourage banks to sell or to represent a big taxpayer subsidy to buyers, sellers, or both. Far more important, it is unlikely that modestly raising prices of a range of bad assets will recapitalise damaged institutions. In the end, reality will come out. But that may follow a lengthy pretence.

Yves here, It’s great to see his dismiss the private-public partnership tripe so succinctly, but is anyone in the US paying attention? I see too may people who should know better endorsing the idea. Back to the piece:

Yet what is happening inside the US is far from the worst news. That is the global reach of the crisis…we confront a balance-sheet deflation that, albeit far shallower than that in Japan in the 1990s, has a far wider reach. It is, for this reason, fanciful to imagine a swift and strong return to global growth. Where is the demand to come from? From over-indebted western consumers? Hardly. From emerging country consumers? Unlikely. From fiscal expansion? Up to a point. But this still looks too weak and too unbalanced, with much coming from the US. China is helping, but the eurozone and Japan seem paralysed, while most emerging economies cannot now risk aggressive action.

Last year marked the end of a hopeful era. Today, it is impossible to rule out a lost decade for the world economy. This has to be prevented. Posterity will not forgive leaders who fail to rise to this great challenge.

Print Friendly, PDF & Email


  1. bg

    “Well, now they [US polititians]have been revealed to be every bit as much the hostage of politics [as the Japanese]. “

    No. The US is talking nationalization in year 2 of the crisis, and we have a better history of throwing sociopathic CEOs in jail. Japan is in year 15. I think your statement is too strong.

  2. Swedish Lex

    The last quote by Wolf, in which he asks where demand is going to come from, is central.

    This crisis is global. Previous crises have been regional/national. As I think I have commented on these pages before; Sweden’s baiout worked bcs 1. smart bank bailout 2. massive devaluation and 3. global debt-driven demand (think; Ericsson in the 90s).

    The global currencies cannot devaule together and we now have global debt deflation. Fiscal stimulus will be a good aspirin, but not moore.

    I have been struggling with this issue for a couple of months now and will let you know when I have found an answer……….

  3. ndk

    That is the global reach of the crisis. Japan was able to rely on exports to a buoyant world economy.

    I think Martin makes more of a key point here than he realizes. Japan never really recovered from its burst bubble, but only relied on exporting its excess savings and production to the rest of the world.

    That is not a collective option. I happen to think we already suffer from global overcapacity in capital and labor relative to the demand and income of the consumers of the world. Excess savings may come next.

    I believe monetary policy is the cause of this overcapacity, having repeatedly thwarted recessions in favor of reduced savings and greater investment. It’s an extremely controversial stance for which I’ve taken a fair bit of flack, but I remain convinced.

    Calling this a “balance sheet recession” strikes me as extremely simplistic, because I’m not persuaded that excess debt is our primary problem. It certainly is a problem, and its disposition a matter of fairness.

    But our economy has proven itself extremely unwilling to invest further even when virtually limitless liquidity is supplied. That should be a flashing red warning indicator to policy-makers.

    It’s been noticed, at least: all our policy efforts are concentrated on increasing private sector consumption and forcibly mapping savings into investment. This is understandable, because investment is the most cyclical portion of aggregate demand, and investment is not likely in absence of consumption.

    But investment, particularly non-residential fixed investment, is very difficult to forcibly make profitable at the zero bound. Something intrinsic to the real economy has to change before lending and private sector economic growth resume. Until then, we’re all whistling Life is Just a Bowl of Cherries.

  4. Anonymous


    No, some bloggers and economists are talking nationalization. You might remember that the public at large, bloggers, and a ton of economists (remember, something like 200 signed a letter) were against the TARP.

    Until Timmy and Larry are on board or fired, ain’t happening. Which means this may wait until 2012. And if we have a conservative Republican backlash, ain’t happening then either.

  5. Anonymous

    So where does the world economy go when the consumption bubble is burst?

    I think we are about to find out.

    Capitalism without rule of law and consequences like bankruptcy is the oxymoron of our reality.


  6. Stefan

    Thanks for this post and your blog.

    With regard to the hesitancy to move towards the path of nationalization, to what degree do you think Sovereign equity holders of the major banks are successfully lobbying against nationalization?

    I don’t think I’ve seen this discussed in media or blogs, but wonder if this could be a significant consideration.

  7. dearieme

    “to what degree do you think Sovereign equity holders of the major banks are successfully lobbying against nationalization?” What a good question – it might explain the reluctance of the British government to grasp the nettle. (There’s no need to explain the American government’s reluctance, is there? Bleedin’ obvious.)

  8. wunsacon


    I’m not sure whether I’m reading the “US Domestic Borrowings” chart, because I don’t know how to reconcile it with what I’ve read elsewhere. Specifically, elsewhere, I read the US total-debt/GDP ratio was around 350%.

    Should this chart be read not as “US Domestic Borrowings” but as “US Domestic New Borrowing Per Year”?

  9. mmckinl

    The current financing for the stimulus just creates more debt, albeit public not private debt.

    To circumvent the burden on the tax payer nationalize the Fed, place it under the treasury department and print money underwritten by higher taxes on the well to do.

  10. mmckinl


    Specifically, elsewhere, I read the US total-debt/GDP ratio was around 350%.

    350% is total aggregate debt, including public debt.

    The 290% figure is just private debt and doesn’t include fed, statee and local govt. debt.

  11. Anonymous

    There’s a problem with the last two charts. When you choose to show changes by normalizing values at 100 at a particular point in time, the date you choose is key. Why does the US chart start in 1994? What would it look like if it started further back, say 1982, like the Japan chart? Might we see that this is in fact a much larger bubble, that simply took longer to burst, due to the dollar’s reserve status and the actions of the Fed, etc.?

  12. IF

    Anon @4:22

    My first impression also was to question the scales. But both graphs start about 6 or 7 years before peak. An I know from other comparison that Japan’s bubble was steeper than the US bubble. But Japan is a smaller economy and even they were not able to devalue much against the world. How is the larger US going to devalue the dollar? It seems it has to happen through an internal process.

  13. Anonymous

    “Until Timmy and Larry are on board or fired, ain’t happening. Which means this may wait until 2012. And if we have a conservative Republican backlash, ain’t happening then either.”

    If Summers, Geithner, and Bernanke place the interests of the big banks’ management, shareholders, and bondholders ahead of the taxpayer, they need to go to jail for criminal conspiracy to defraud the government. That is RICO stuff. Their duty is to the public. And if they don’t understand that they need to resign or be put in jail.

  14. patrick neid

    Further evidence that no Plan is the best Plan.

    Here we have right in front of us the Japanese experience, not some bubble from generations past. A bubble that happened right in front of our eyes in real time. We have more PhD’s and Nobel winners probing and poking the carcass and to date, twenty years and still going, we can’t figure out what happened, what is happening and what to do.

    I have a suggestion that I mentioned five months ago. When bubbles go splat there is absolutely nothing you can to put the suds back in the bottle. What you can do is make sure you don’t make it worse with pathetic attempts to reinflate.

    Every plan to date is doing exactly that. We keep digging a deeper hole. Trillions and trillions being wasted, valuable resources being thrown at a losing trade.

    No worries, we will have our silly plans. Lots of them in fact. Each worse than the other until the sums are so large they will have no meaning. Sometimes I think that is the Plan.

  15. Anonymous

    “Until Timmy and Larry are on board or fired, ain’t happening. Which means this may wait until 2012. And if we have a conservative Republican backlash, ain’t happening then either.”

    Hard core republicans want the banks to go bankrupt. If nationalization means bankruptcy for insolvent banks, then they are in support it. Corporate bankruptcy is an essential part of the free market, by reallocating capital from the incompetent to the competent. Bush was not a hard core republican, him, Cheney, and Paulson were into corporate cronyism, helping their buddies. And preventing the free market from cleaning up the mess caused by corrupt dems and republicans into corporate cronyism.

  16. Anonymous

    What if the biggest surprise of this crisis will be the death of marcoeconomics? What if notions like aggregate demand and gdp turn out to be just superstitions?

  17. Anonymous

    February 18, 2009 5:32 AM by anonymous

    "That is RICO stuff."

    The obvious is stated in a comment not an article. This is the first mention I have seen by ANYBODY that RICO should be applied. Not only RICO but any and all criminal statutes, federal and state. PROSECUTE these Criminals, which I calculate are in at a minimum in the tens of thousands! And, at the same time, recover the assets as proceeds of Crime.

    If these tens of thousands of criminals are not prosecuted, these Criminals just take their proceeds and start up new criminal enterprises elsewhere, like in the TARP or other govt programs offered as "solutions". Go back to S&L and all the criminal looting that occurred there and the lack of prosecutions then. That is why we are here now, lack of prosecutions, expansion of the Crime Wave financed by their proceeds.

    And why has there been no comment by any legal scholar of note about this massive Crime Wave and lack of prosecutions? Intimidation? (What happened to crimebuster, Eliot Spitzer?) In any case, deafening silence from the Law.

    Sure tells you where all this is going. Organized Crime is us.

  18. Gloomy

    If you want to see the size of the US bubble you need to go back to 1970. You will get much bigger bubbles, similar to Japan (see Steve Keen).

  19. WMH

    I recently finished reading Richard Koo’s book “The Holy Grail of Macroeconomics” and it should be required reading for everyone working in the US Treasury department. At the end Koo lays out a 4×4 matrix showing the appropriate policy responses given the nature of the recession (“Yin” or “Yang”) and banking crisis (systemic or isolated). In today’s environment — systemic banking crisis and balance sheet recession (“Yin”), the response calls for slow NPL disposal and capital injection to solve the banking crisis. Government expenditure must also offset the decline in private expenditure to avoid a deflationary collapse.

    Lawrence Summers provides the back-cover review of the book … let’s hope he actually read it!

  20. Anonymous

    “Posterity will not forgive leaders who fail to rise to this great challenge.’

    With any luck postarity will track down the old wrinkled bastards that caused this and feed them to the dogs.

  21. Stephen

    Swedish Lex,

    You are correct, all currencies cannot devalue together. So it raises questions of what happens over time.

    Who is supplying the capital? At some point, not saying we are there yet, all this debt is unsupportable. Unlike Britain, the US has significant room to raise taxes.

    At some point capital suppliers are going to get burned. I have raised the airline industry a number of times. Despite repeated bankruptcies the industry keeps attracting capital. So do not underestimate that there seem to be a large supply of suckers. The same seems to be true for government debt.

    The realization seems to be that the US, and likely the UK, need to write off the bad debt as fast as possible. The swedish model is the way to patch up the player and get them back out into the field relatively quickly letting the entity with the bigger balance sheet (government) take the advantage of time to let asset prices work their way to an appropriate level.

    I am less convinced about the fiscal stimulus. But I am not opposed either.

    I think Yves theme has been fix the banking system (ie purge it of bad assets) or the stimulus makes no sense. I totally concur with that message. Now that Obama has delivered his goodies, one hopes he has the political cover or capital to do the really necessary step.

    BG….putting sociopathic CEO’s in jail has happened. Whethe rpeople like Fuld and others associated with this mess will be prosecuted…..paying this penalty is important, not just for today but as a lesson for the future.

    Machiavelli said one of the first things a prince should do when taking over a new town is hang someone from the church tower….I also agree with that assessment in this case.

  22. Anonymous

    I am always surprised that most analyses tend to leave out the inter-generational impacts of fiscal stimulus. While Japan avoided a depression, its youth were denied the opportunity to participate in cyclical (and asset price) upside that follows a depression. The bubble generation preserved far more wealth than they should have given their irresponsible behavior via a direct subsidy from younger generations.

    Will American youth wake up and realize that fiscal stimulus is nothing more than a transfer of wealth from the young (who can least afford it) to the old (who have lived through the most prosperous decades in history)?

  23. Anonymous

    Swedish Lex poses an interesting argument about where demand will come from. Not only should we look at Japans response to a debt unwind but why Sweden’s bank rescue worked. It worked not just because of bank nationalisation but due to currency devaluation and by drumming up demand elsewhere in the world for their products. This may be one of the reasons why the US is more snookered than anyone else because it will struggle to devalue.

    Shigemitsu Sugisaki of the IMF had this to say about Japan’s lost years during 2002.

    I believe that Japan’s decade-long economic slump owes much to the delays in implementing structural reforms—particularly bank and corporate restructuring. I would argue that one also needs to look at the composition of public spending and the extent to which better-targeted expenditures could have been more effective in cushioning the downturn. Growth differentials among the major economies as occurred in the 1990s are unlikely to be sustainable for more than short periods.

    That view is in direct contrast to the widely held view that it was a delay in policy or the stimulus was not big enough. While Japans lost decade of virtually no growth seems bad it could have been a lot worse if it had not been able to ramp up exports and make a nice earning from the carry trade. Reading across to the US you could argue they will not fair as well as Japan because it is a global downturn this time. The Austrian economist Benjamin Powell is keen to point out that even Paul krugman noted that the practice of rolling over the debts of companies that will never regain profitability kept capital employed producing what nobody wants.

    Austrian view of the Japanese Recession

    Martin Wolf seems to argue that because the bubble in the US was not as big as that in Japan that the US will be in for and easier time. I don’t agree namely because Japan had a better buffer and had a rescue route through the carry trade and exports. Lets not forget Japan spent over a trillion dollars in stimulus and it had virtually no effect, except to cause unrest as politicians showed bias in what aid was dished out and the imprudent were rewarded.

  24. lineup32

    Unlike Japan America has two wars and military bases in over 130 different countries all supported by deficit spending. Like Japan our real estate has lost its collateral value for financial transactions and requires government underwriting to maintain even the large losses currently occurring in value which only points to further downside in the future.
    Both Japan and the U.S. share the end of large scale growth in consumer consumption particularly in auto and housing which has fueled both economies domestically and abroad. The future for both will be a lower lower standard of living and for the United States a significant reduction in its military funding and adventures.

  25. Anonymous

    I agree with Anon re: the intergenerational implications of current fiscal policies. The over-spending and over-promising of the last 15 years has created a generation (at least one) that has never known anything but plenty. From 12 year olds carrying Coach bags to teenagers standing in line every 6 months for the latest, greatest $600 I-gadget, denial IS just a river in Egypt.

    With a full one quarter of the population grinding inexorably toward “retirement” with little more than the clothes on their backs, what makes anyone so convinced that “our children and grandchildren” will willingly live like laborers so that they can pay back the debts we have left for them? Perhaps they will finally learn to “just say no” to endless artificial joints, expensive long term care facilities and Viagra for those who gave them both their privileged lives and a mountain of crushing debt.

  26. Anonymous

    Join the Washington National Debt Revolt – Washington created it and gave it away to Wall Street, the banking elites and now Democrat Party special interests.
    Honest working Americans and our children and grandchildren will find themselves impoverished by the national debt created by Congress to help their friends
    and supporters.

    Why should we have our real estate and investment values destroyed by the Washington/Wall Street elites while they get a bailout and we
    have to pay for their mistakes and greed. If you’ve had enough, join the Campaign to Cancel the Washington National Debt By Constitutional Amendment.
    See the following URL for more information:

  27. Anonymous

    Pay Attention to your emotions about this. The stages of grief are Denial, Anger, Bargaining, Depression and Acceptance. I dont see Denial here in these comments too much, but Anger and Bargaining definately. We have a way to go to reach Acceptance.

  28. E.L. Beck

    As I mentioned in my 2/11 post, so many sources overshoot the root cause of the continuing collapse of our financial system, namely the continued growth of foreclosures. Why do all of these plans assume that, somehow, the toxic assets can be isolated when, with every passing day, these assets grow? As soon as any plan that attempts to corral these assets “succeeds” in doing so, more toxic assets will crop up elsewhere. It’s a money pit without bottom.

    A 2/13 Bloomberg News story agrees: “Mortgage Rescues Fail as Price Drops Spur Defaults,” reports, “A third of owners will walk away when the value of their homes drops 20 percent or more below what they owe, even if they can afford the payments, a situation known as ‘rational default,’ said Norm Miller, director of real estate programs at the University of San Diego School of Business Administration.”

  29. artichoke

    Anonymous @ 12:49pm : maybe we don’t just have to accept it. Maybe we can do something.

    Anonymous @ 12:34pm : that would be a big change to the Constitution. The main original purpose of the 1789 Constitution was to bind us to our debt to England, which it looked like the States were repudiating under the Articles of Confederation.

    ndk: As I understand your theory, you agree the debts have to be reduced somehow — you propose default rather than inflation. Then you propose to let confidence grow naturally over time rather than to stimulate it by spending.

    That makes sense where production overcapacity exists already, as you suppose. But in the US, production overcapacity does not exist. We have too many realtors and mortgage brokers and bankers, and construction workers who build wood frame houses, and too few engineers and scientists, and people who can build and repair railroads, for example. We are likely to benefit from spending to enable people to learn the latter skills, and maybe some of those former groups will take advantage of the opportunity rather than starve.

    I think your theory makes sense generally, but in this case we must rebuild domestic productive capacity.

  30. artichoke

    I think residential real estate may be hitting bottom. We have tours from China to buy up houses because they have always liked this country. People in England are looking to buy here to escape the hopeless collapse in their economy. As long as we can keep the dollar from getting too strong, we may be able to form a bottom here because in this global economy, it’s not exactly true that “all real estate is local”.

    But we have to keep the dollar under control. Japan is crashing and the dollar is strengthening against the JPY. We have to keep the dollar from strengthening further.

  31. Anonymous

    Bernanke allegiance is to the banks.

    Japan went on a buying spree (RE) as Communist China is now contemplating probably at false bottom levels.

    I see the underlying theme is a long long recession or depression to work off the debt per Japan. Having the reserve currency only complicates the matter.

    Gold is only acting as a non-fiat currency as so it should.

  32. Anonymous

    Japan’s bubble was isolated; the current bubble is worldwide, with some countries even more indebted than the US, and with worse economies.The analysis is therefore wrong.

  33. Blissex

    «Despite a loss in wealth of three times GDP»

    This is a truly colossal mistake or misrepresentation, and completely undermines any argument. As the 1982-2008 graph above for Japan shows, the sotry is more like a quintupling of the paper value of equities and a large rise in the paper value of land, follow by a reversion to the mean.

    So a paper bubble followed by a paper loss, and that is where the real problem is.

    A rise in the paper prices of some assets creates a large redistribution of wealth between those who own those assets and those who don’t, and so does a drop in the paper prices of those assets, *except* that the two are not symmetrical because the large rise is often monetized via borrowing against the increased paper prices.

    Since this has happened to tune of several trillions in both Japan and then the USA, the really big problem is that an asset price bubble creates two groups of people who end up fighting over the distribution of gains and losses, a fight worth several trillions.

    The fight might be inter-generational as suggested by other commenters, and this makes it all the more politically ferocious.

    The problem is not the collapse in asset prices, but that it was first a bubble and then a collapse that creates a particularly vicious fight.

    If the owners of paper capital gains manage to trigger high inflation or at least forestall deflation, older rentiers manage to materialize their paper gains and young workers lose big time, and vicerversa.

  34. luther b.


    "Maybe we can do something."

    maybe. even if it the only thing is to guide each other through the rabbit hole instead of clamoring to climb back up.

    for if there is one of mr. wolf's sentences (in his otherwise brilliant analysis) that i would to call to question it would be:

    "Last year marked the end of a hopeful era."

    as it seems that for many of us on this planet, it was more often not, much less than hopeful & even less happy, so for many of us, it's perhaps best to move on.

    "and too few engineers and scientists, and people who can build and repair railroads, for example."

    and far too few farmers.
    artichokes & otherwise.

    lots of gardeners though.
    that's gotta count for something, no?

  35. luther b.

    “So a paper bubble followed by a paper loss, and that is where the real problem is.”

    paper may smother golden rocks,
    but silver scissors slash paper.

    in the spring once again, flowers will bloom.

    no problem…as long as they get enough water that is.

  36. whitetower

    Well, once again, another analyst posits “two choices” — either nationalization or a dribbling away of public monies to keep insolvent banks afloat.

    They always leave out what’s behnind curtain #3: bankruptcy. It’s as if banks are somehow “special” and therefore can’t be allowed to fail.

    All of this analysis assumes that the system of cheap credit, high debt, and negligible savings should be a societal norm, and when such as system collapses it has to be revived.

    I say: let it die the ignoble death it deserves.

  37. groucho

    Yves, Though, I didn’t get much from Wolf’s piece his mention of “Balance Sheet Recession” by Koo jogged my memory.
    When I read Koo’s book a few years ago; ONE thing still stands out in my mind. And that was his description of Volkers bailout of the Lat-Am fiasco. The NY MCB’s were bankrupt, but of course it was papered over as usual. That was a key MORAL HAZARD MOMENT, that was a SEED planted for Greenspan to nourish with his blatant abuse of power with his “wall st liquidity tonic” floods.

  38. Avl Guy

    We forget economics has yet to prove itself a real science; therefore we can still use real science to guide a challenge to a key assumption in an economic postulate. Here goes:
    Wolf rightly notes that Japan’s asset bubble was bigger than the US, and he assumes less (a smaller bubble) makes a material difference.
    Not always, sometimes what only matters is whether a critical mass is reached…and how far you overshoot that mass…or do not overshoot, often has no significance.
    The cause-n-effect relationship between bubble size and ensuing economic disruption may not be linear, it may begin to curve.

  39. Anonymous

    “those who argue that the Japanese government’s fiscal expansion failed are, again, mistaken. When the private sector tries to repay debt over many years, a country has three options: let the government do the borrowing; expand net exports; or let the economy collapse in a downward spiral of mass bankruptcy.”

    I believe that there is at least one other choice. Ideas???

  40. Anonymous

    “The bad news is that the debate over fiscal policy in the US seems even more neanderthal than in Japan: it cannot be stressed too strongly that in a balance-sheet deflation, with zero official interest rates, fiscal policy is all we have.”

    It seems to me that in the U.S. the solution to TOO MUCH DEBT on the lower and middle class is NOT MORE GOV’T DEBT. It seems to me that is an attempt to socialize the losses and to get taxpayers involved who didn’t buy into any of geekspeak’s (greenspan) ramblings, the housing bubble, or any of its related securities.

    Aren’t there any other ideas???

  41. Avl Guy

    E.L. Beck, I agree.
    It appears as a big math equation, to me, where within each local real estate market we have downward-moving median wages/salaries that are pressured by recession-fueled job losses, furloughs and wage-cuts. Though these wage-pressures lower median creditworthiness and also fuel foreclosures, they primarily lower the ever-elusive equilibrium point where housing demand from creditworthy borrowers meets an affordable median-price for the supply of housing.

    Obama & the dems have no plan to stop the downward movement of wages other than the mythical multiplier-effect from stimulus spending by road construction crews…and that’s too thin and narrow a round of economic buck-shot being fired. The teeny-tiny household tax credits and cuts are still materially irrelevant.

    The ever-elusive dynamically sinking pricing bottom in each major housing market will neutralize the foreclosure plan’s $ billions. As will the wage-reducing and creditworthiness-reducing recession’s impact on prospective homebuyers’ and existing homeowners’ incomes alike.

  42. vinitsays


    I am confused about the BALANCE SHEET RECESSION.

    It can be the case when the Balance Sheets may be cooked but the actual situation may be worse or better depending on the environmet and need of the hour.

Comments are closed.