Archive | August, 2011

Koo’s solution for the Spanish/Italian balance sheet

23 Aug

Nomura’s Richard Koo has a note out today which contains a novel idea for how the larger European peripherals might be able to assuage their two headed problem of both needing more stimulus and having borrowing rates that make it implausible.

Solution: allow only residents to buy government bonds

As I have previously proposed, one way to solve this eurozone-specific problem is to prohibit member nations from selling government bonds to investors from other countries. Allowing only residents to hold a nation’s government debt will prevent the investment of Spanish savings, for example, in German government debt. Most of the Spanish savings that have been used to buy other countries’ government debt will therefore return to Spain.

During a balance sheet recession, Spanish government bond yields will then fall just like those of the US, the UK, and Japan, providing support for the necessary fiscal stimulus.

Fiscal stimulus at a time when the private sector is not saving is reckless and irresponsible; fiscal consolidation is necessary at such times. But when private savings are increasing sharply and economic conditions are severe, allowing private savings to flow overseas prevents the government from implementing needed fiscal stimulus. This state of affairs in the eurozone is a tragedy that must be addressed.”


Site Housekeeping: If You’re Reading This, Keep Reading

16 Aug

We’ve recently switched from to a hosted solution.  If you subscribe to our posts via RSS feed, email, etc, there is a non-zero chance you’ve missed this (or thought we just gave up on posting altogether).  If you go to you’ll be able to see all of our recent posts (for now).  If you subscribe to the RSS feed there, you’ll likely have to do so again as we have one more website transition which should happen in the next week or two.

We apologize for the confusion.  If you have any questions, feel free to shoot me an email.