I recalled in one of Ray Dalio’s interviews he opined that in the bipolar world, where there is a sharp divide between developed debtor countries (those who can and cannot print money; the latter the example of the U.S., and the former the examples of Portugal, Ireland, Greece and Spain) and creditor countries like China and Brazil. Debtor countries who don’t have independent monetary policy and can’t print money will need to restructure their debt and those who can will devalue their currencies. Creditor countries will need to revalue their currencies in order to have independent monetary policies.
Therefore the next seismic shift will probably see unfettered linked monetary policies and linked exchange rates as tension is teased.
Separately, former Fed economist Richard Koo viewed the austerity measures taken to reduce the budget deficits as the same mistakes that Japan made in the late 1980s.
The full interview can be assessed here where he talks about the repeated mistakes and opined that Japanese equities are poised for an upswing. More on Japanese equities later.
(Excepts below copied in verbatim)
Global governments are making the same mistake that Japan made in 1997 that sent its economy into a tailspin, a former Federal Reserve economist told CNBC on Monday. That mistake led to five consecutive quarters of negative growth in Japan and a 68 percent increase in its fiscal deficit in just 2 years, said Richard Koo, who worked as an economist at the New York Federal Reserve between 1981 and 1984.
“All these: lowering of interest rates, monetary easing, capital injections, fiscal stimulus, problem with ratings agencies — we in Japan went through,” said Koo, who is now chief economist at the Nomura Research Institute in Japan.
The big mistake that Japan made then, said Koo, was that its government was trying to reduce its budget deficit, while the private sector was still deleveraging — the same policies currently being pursued in the U.S., U.K., Spain and Portugal.
Given what is happening in the Western world, Koo said he's bearish on global growth in the second half of 2011, but he's more bullish on the Japanese economy, which reported a smaller-than-expected contraction in the second quarter of 2011.
Therefore the next seismic shift will probably see unfettered linked monetary policies and linked exchange rates as tension is teased.
Separately, former Fed economist Richard Koo viewed the austerity measures taken to reduce the budget deficits as the same mistakes that Japan made in the late 1980s.
The full interview can be assessed here where he talks about the repeated mistakes and opined that Japanese equities are poised for an upswing. More on Japanese equities later.
(Excepts below copied in verbatim)
Global governments are making the same mistake that Japan made in 1997 that sent its economy into a tailspin, a former Federal Reserve economist told CNBC on Monday. That mistake led to five consecutive quarters of negative growth in Japan and a 68 percent increase in its fiscal deficit in just 2 years, said Richard Koo, who worked as an economist at the New York Federal Reserve between 1981 and 1984.
“All these: lowering of interest rates, monetary easing, capital injections, fiscal stimulus, problem with ratings agencies — we in Japan went through,” said Koo, who is now chief economist at the Nomura Research Institute in Japan.
The big mistake that Japan made then, said Koo, was that its government was trying to reduce its budget deficit, while the private sector was still deleveraging — the same policies currently being pursued in the U.S., U.K., Spain and Portugal.
Given what is happening in the Western world, Koo said he's bearish on global growth in the second half of 2011, but he's more bullish on the Japanese economy, which reported a smaller-than-expected contraction in the second quarter of 2011.
