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-- Posted Monday, 13 April 2009 | Digg This Article | Source: GoldSeek.com

Rick’s Picks

Monday, April 13, 2009

“Phenomenally accurate forecasts”

If you thought Geithner, Bernanke & Friends were out of touch with the basic principles of Econ 101 -- i.e., Savings=Investment -- you should listen to what some private economists are saying. Richard Koo, for instance.  He is Nomura’s chief economist and therefore about as mainstream as they come. But to hear him speak his mind on how to end the recession is to despair of the possibility that private capital will have a significant role to play in whatever economy emerges from the ruins of the one now dying.   

Koo evidently thinks the U.S. has something to learn from Japan’s death-like experience with deflation and prolonged recession. However, his advice to U.S. policymakers would ignore the fact that Japan itself has yet to escape the deflationary drag that has constrained the island nation’s economy for the last 20 years. Contriving to ignore this depressing fact, Koo emphasizes instead that Japan managed via heroic fiscal stimulus to keep the country’s GDP from falling even as deflation destroyed wealth equivalent to three years’ GDP.  Is it possible Japan’s economy did not flatline simply because insatiable U.S. consumers kept its export business humming?  If so, this is a possibility that Koo did not consider.

Spend It Now!

Here’s a link to Koo’s speech, which runs about an hour.  The topic, “America’s Balance Sheet Recession,” is supposed to conjure up something far worse than the usual inventory recession.  It surely is; but we part company with Koo on how to resolve it. He says policymakers have not acted aggressively enough to overcome the lack of private borrowing.  The solution? Get the government spending huge sums right away, says Koo.  That idea is is troubling enough, since Government is not likely to put all that money into the kind of cutting edge companies and technologies that in fact hold the key to America’s economic future. But Koo asserts that this hardly matters – that it is not what the government spends money on, but how quickly and how much of it gets spent.

To believe that wasting money in this way, the more promiscuously the better, will somehow put us on the right track beggars logic.  Koo’s prescriptions are Keynesianism on steroids, but perhaps it would be useful to give them a try, since the epic failure that is likely to result would put Keynes’ quackery to rest once and for all.

***

Rick's Picks publishes a daily trading newsletter for gold, stock, commodity, and mini-index traders 240 times per year. Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers' initials will be used unless express written permission has been granted to the contrary. All Contents © 2009, Rick Ackerman. All Rights Reserved. www.rickackerman.com 

-- Posted Monday, 13 April 2009 | Digg This Article | Source: GoldSeek.com

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