Richard Koo was on Bloomberg this morning discussing his outlook for the U.S. economy. Koo is the most prominent believer in the “balance sheet recession” theory. He says we are looking more and more Japanese and is increasingly concerned about the potential declines in government spending:
It’s beginning to look more like Japan. The amount of house price decline. The commercial real estate decline. They are all following the Japanese pattern very precisely. And very slow GDP growth even with all this monetary easing. QE2, possibly QE3 suggests to me that the USA is going through the same process – balance sheet recession – that Japan went through 15 years ago.