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Richard Koo: China’s “Balance Sheet Recession” Has Already Started | (Jack’s Final Episode)
Forward Guidance
Balance Sheet Dynamics: Leverage and Fiscal Responsibility
The United States is potentially entering a balance sheet expansion phase as fiscal stimulus during the COVID-19 pandemic has supported lending despite a weak private borrowing landscape. If the private sector begins to borrow more actively, it may signal a reduction in the necessity for continued fiscal stimulus, prompting a reassessment of government spending and taxation strategies to address the rising fiscal deficit. In contrast, Japan and Europe continue to experience minimal private sector borrowing relative to interest rates, necessitating government deficits to maintain financial equilibrium. The evolving financial landscape requires careful monitoring to determine the readiness of the private sector for increased borrowing, which could lead to changes in fiscal policy.
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