Apparently, it’s dismal science week on the site this week. Richard Koo, chief economist at the Nomura Research Institute in Tokyo, seems to think there’s some similarities with Japan’s collapse of the 1990’s.
Like Japan in the 1990s, the U.S. is suffering what Koo calls a “balance sheet recession.” When asset prices collapse, the people who bought those assets with borrowed money are left with balance sheets underwater, and all they want to do is pay down debt.
“People are no longer maximizing profits the way it’s assumed in economics. They’re minimizing debt. The invisible hand of [economist and philosopher] Adam Smith works in the opposite direction,” he says.