Richard Koo at Nomura Concerned Keynesian Class Contracting

I agree with a commentator named “assetman’ in the comment section that both Krugman and Koo “conveniently overlook the convincing evidence that fiscal stimulus only has a temporary effect (at best) if it isn't used for productive purposes.”

From Zero Hedge:

The fear of 'turning-Greek', which is now apparently worse than 'turning-Japanese', is the anchoring bias that seems to be driving more and more countries to dramatically adjust their fiscal affairs. However, Nomura's Richard Koo (whose blood pressure was already elevated last week at the ignorance of many nations to his balance sheet recession diagnosis and treatment protocol) points out in a note this week that Greece's problems stem from fiscal profligacy, a lack of domestic savings, and dishonest reporting by the government (it does kind of ring a bell). His point being that the rest of the eurozone - not to mention Japan, US, and the UK - are suffering balance sheet recessions (unlike Greece), which occur when the collapse of an asset price bubble drives sharp increases in private savings. His problem is that traditional economists are not taught of a situation in which private sector deleveraging (which we discussed last week also) leaves fiscal stimulus as the only way to stabilize an economy and in the currrent environment of deficits being watched and denigrated by any and all politician, market participant, and talking head, Koo's borrow-and-spend 'all deficits are good deficits' medicine is hard to swallow. Koo believes that the post-Lehman world was saved by fiscal stimulus, that Greece is different, and that the anti-Koo austerity actions have 'thrown a large wrench into the works of many world economies' and while the UK is coming around to the notion that austerity is not working, he worries on recent actions in the US and Japan at a time of excess private saving. It seems to us that his argument boils down to - given the system's fragility - an Austrian solution to the broken Keynesian problem is unworkable (without depression), and he hopes that the growing doubts (recessions popping up left, right, and center) about an overriding focus on fiscal consolidation will bring people back to Keynesian (Kooian) fold. He concludes with a worrying reflection on his countrymen in the MoF that seem to have learnt none of his lessons as they look to raise the consumption tax and Japan's rising sun sets.

http://www.zerohedge.com/news/koo-concerned-keynesian-class-contracting