But since Wolf’s piece came out, I’ve been invitedto give presentations to numerous governmentsaround the world, trying to explain what actually happened to Japan and why something similar canhappen in other parts of the world, as well.
The Dutch government was the most anxious tosee me. They said, “Just come over. We’ll pay for everything.” So I made that trip. Spent twofull days with a few ministers and many top-ranking bureaucrats, talking about balancesheet recessions. I have also been invited to theBank of England’s policy round table. I wasinvited by the Central Bank of Kazakhstan, by Poland. I’ve done a presentation for the EnglishFinance Ministry; one to Australia’s Treasury.
The U.S. is conspicu-ous in its absencefrom that list.
Well, the U.S. govern-ment hasn’t invited meto do anything directly —yet. However, I go to Washington once a year because I used to havea very generous doc-toral fellowship fromthe Board of Governorsof the Fed in the early ’80s, and it is my way of paying back that debt.Every year, I give a pre-sentation to the Fed. I must say that for a long time, ever since I started talking about this con-cept of a balance sheet recession, I was bashedand bashed and bashed, every time I’d give a seminar at the Fed. Only in the last three yearsor so have they begun saying, maybe you areright that this kind of thing can actually hap-pen. But many Fed staffers now are aware of my argument and what has to be done to deal with balance sheet recessions. Meanwhile, the CSIS,the
Center for Strategic International Studies
, which is really more of a national security,rather than an economic, think tank, has alsoinvited me to present at two big events it hassponsored in Washington. The most recent, last year, exposed a lot of Congressional staffers tomy ideas. So, at least some people in the capitalare aware of what I have been saying. What’smore, I’ve recently seen a major change in tonefrom
, the director of the WhiteHouse National Economic Council. Eventhough he endorsed my book which argues that once you have a balance sheet recession youhave to have fiscal stimulus centered on govern-ment spending for the
duration of theperiod in which the private sector is minimizing debt, Larry actually was promoting, until not too long ago, the idea of the “three T’s.” Saying that fiscal stimulus had to be “targeted, timely and
.” That last part of his argument,“temporary,” is extremely dangerous in thistype of recession.
Why do you say that?
Because until the private sector is finishedrepairing its balance sheets, if the government tries to cut its spending, we’re going to fall intothe same trap President
fell intoin 1937, and that Prime Minister
fell into in 1997, exactly 70 years later.The economy will collapse again and the secondcollapse is usually far worse than the first col-lapse. And the reason is that, after the first col-lapse, people tend to blame themselves. They say,“I shouldn’t have played the bubble. I shouldn’t have borrowed money to invest —to speculate —in these things. But a second collapse affectseveryone, not just the bubble speculators, and it also suggests to the public that all the efforts tofight the downturn up to that point —all themonetary easing, the low interest rates, quanti-tative easing —they all failed and even fiscal pol-icy failed. Once that kind of mind set sets in, it becomes 10 times more difficult to get the econ-omy going again. So the fact that Larry wastalking about “temporary” fiscal stimulus hadme very, very worried. That whole Larry Summers idea that one big injection of fiscalstimulus will get the U.S. out of the recessionand everything will be fine thereafter probably led to
saying he’s going to cut his budget deficit in half in four years.
Reprinted with permission ofwelling
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Kathryn M. Welling
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