Practical analysis for investment professionals
03 July 2014

Nomura’s Richard Koo on Balance Sheet Recessions and the QE Trap (Video)

The world’s leading central banks have added massive amounts of liquidity to the financial system, yet global economies are still stumbling their way through a weak recovery. Banks are holding reserves far in excess of their required levels — twenty times the required level of reserves in the United States, fourteen times the required level in Japan, and ten times in the UK.

According to Richard Koo, chief economist of Nomura Research Institute, these monetary reserves have not led to an increase in private sector spending because the big economies are struggling through balance sheet recessions, and are at risk of getting stuck in a QE trap.

Koo is the author of The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession, and his work focuses on the effects of government spending in times of recession. At the recent CFA Institute Japan Investment Conference, he examined the different ways that balance sheet recessions have played out in Japan, the United States, and the eurozone since the 2008 global financial crisis.

The full video is below:

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Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

About the Author(s)
Peter M.J. Gross

Peter M.J. Gross was an online content specialist for CFA Institute, where he managed blogs for the CFA Institute Annual Conference, European Investment Conference, and Middle East Investment Conference. Previously, he worked at Hampton Roads Publishing Company and at MFS Investment Management. Mr. Gross' articles have been published by Enterprising Investor, City A.M., Seeking Alpha, and The Hook, and his work has been highlighted by Real Clear Markets. He holds a BA degree from Connecticut College.

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