reading this rn, rly interesting so far. it discusses what the author calls a “balance sheet recession” which happened in japan for ~15 years in the ‘90s-early ‘00s. the main point the author argues is that traditional economics assumes firms always maximize profits & so after an
asset bubble pops, central banks need to utilize monetary policy to restart the economy - the author argues this doesn’t explain what happened in japan because most corporations focused on debt repayment vs profit maximization & the lack of borrowing made it necessary for the gov
to step in & fill the deflationary gap created by the lack of corporate borrowing, w fiscal stimulus equivalent to the amount of household savings that’s just sitting at banks because the corporations are unwilling to borrow even at 0% interest rates because their main goal is to
pay down debt in order to restore their balance sheet (hence the term “balance sheet recession”). the author compares the events in japan w the events of the great depression & discusses how debt repayment in lieu of profit maximization combined w no firms borrowing from banks
reduces aggregate demand & creates a deflationary spiral that cannot be solved by monetary policy & hence requires fiscal stimulus to avoid prolonged economic deterioration. i’m ~ 3/4 of the way thru the book & it’s been great so far. would appreciate any recs along similar lines
i have “the price of time” on order to read next i’ve heard it’s good & then lot of people have recommended “chip war” so i’ll probably do that after. also need to finish essays of warren buffett & the prize (i’m like 1/2 thru each, planning on finishing them when i get a chance)
another thing ive found rly interesting is the dynamic of cross border carry trades - when japan had the lowest interest rates in the world, ppl would borrow in yen & then exchange it for their local currency. this ended up having the opposite effect of what central banks desired
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