The Escape from Balance Sheet Recession and the QE Trap -- Contents -- Foreword -- Notes on the Data Used in This Book -- About the Author -- 1 Balance Sheet Recession Theory-Basic Concepts -- GDP and Inflation Fueled by Growth in Money Supply, Not Monetary Base -- Japan Fell into Balance Sheet Recession in 1990s -- Plunging Asset Prices Create Balance Sheet Problems for Businesses -- Japanese Firms Rushed to Repair Balance Sheets by Paying Down Debt -- "Correct" Private Sector Behavior Tipped Japan into Contractionary Equilibrium -- Collapse of Japans Bubble Destroyed ¥1,500 Trillion in Wealth -- Why Japanese GDP Did Not Fall after Bubble Burst -- Fiscal Stimulus Saved Japans Economy -- "Good" Fiscal Deficits Were Not Perceived as Such -- Balance Sheet Recessions and the Limitations of Econometric Models -- Fiscal Stimulus Works in Two Stages -- FDR Made Same Mistake in 1937 -- Reactive Fiscal Stimulus Is Far Less Efficient -- Fiscal Deficits Are Easily Financed during Balance Sheet Recessions -- Self-Corrective Mechanism for Economies in Balance Sheet Recessions -- Two Types of Fiscal Deficits Require Different Responses -- Fiscal Deficits Must Be Viewed Relative to Private Savings -- Consequences of Leaving Things Up to the Market in a Balance Sheet Recession -- GFC Triggered by Insistence on Market Principles -- Volcker Understood Systemic Crises -- Little to Be Gained from Bashing Those Who Have Already Come to Their Senses -- Recovery from Balance Sheet Recession Takes Time -- Forward Guidance Important for Fiscal as Well as Monetary Policy -- Fiscal Consolidation: Better Too Late Than Too Early -- Three Points to Consider Regarding Costs for Future Generations -- Japan Had a Shot at Full Recovery in 1996… -- Conflation of Balance Sheet and Structural Problems Extends Recession.

Distinguishing Balance Sheet Recessions from Structural Problems and Financial Crises -- Democracies Are Ill-Equipped for Dealing with Balance Sheet Recessions -- Keynes Also Overlooked Private-Sector Debt Minimization -- Those Who Prevent Crises Never Become Heroes -- Democracy Plus Balance Sheet Recession Equals "Secular Stagnation" -- Appendix to Chapter 1: Summary of Yin and Yang Phases of Economy -- 2 Monetary Policy and the Quantitative Easing Trap -- Monetary Policy Impotent without Demand for Funds -- Mechanisms for Money Supply Growth -- Government Borrowing Drove Money Supply Growth in Japan -- Economics Dogged by Incorrect Analysis of Great Depression -- Japanese Monetary Policy Has Relied on Fiscal Policy for Past 20 Years -- Balance Sheet Recessions Triggered by Borrower-Side Problems, Financial Crises Triggered by Lender-Side Problems -- Bernanke Himself Says QE2 Unlikely to Have Major Macroeconomic Benefits -- Real Aim of QE2: Portfolio Rebalancing Effect -- Can Higher Share Prices under QE2 Be Justified on DCF Basis? -- QE2 a Big Gamble for Bernanke -- QE Undermined U.S. Leadership in G20 -- QE with No Income Effect Harms Other Countries -- Dollar-Buying Intervention by U.S. Authorities Would Have Produced Different Outcome -- Inward Capital Controls Help Keep Bubbles Fueled by Hot Money in Check -- QE Represents Government Intervention in Asset Markets -- Operation Twist Lowered Long-Term Rates, but to No Effect -- Operation Twist Provided Only Limited Economic Boost -- Bernanke Admits the United States Faces Same Problems as Japan -- Fed Overestimates Impact of Quantitative Easing -- "Lower Long-Term Rates = Higher GDP" Formula Does Not Hold during Balance Sheet Recession -- Fed Has Also Underestimated Costs of QE -- Unorthodox Monetary Policy Distorts Signals from Bond Market -- Needless QE Acts as Drag on Financial Institutions.

Why Fed Embarked on QE3 Two Months before Presidential Election -- Post-Bubble Wage Growth Nearly Identical in the United States and Japan -- The "Inconvenient Truth" of the Real Cost of Quantitative Easing -- BOJ's First Round of QE Was Easy to Wind Down Because It Was Conducted in Money Market -- Redemption of Central Bank Bond Holdings Will Not Reduce Commercial Banks' Current Accounts -- Government Issue of Refunding Bonds to Private Sector Would Absorb Excess Reserves -- Redeeming Fed Bond Holdings Has Same Effect as Issuing Deficit Bonds -- Strength of Private Loan Demand Different at Start and End of QE -- Paying Interest on Excess Reserves Would Enable Rate Hikes . . . -- But Cost Could Be Prohibitive -- Cost of Winding Down QE Has Yet to Be Properly Analyzed -- Debate over Winding Down QE Sparks "Bad" Rise in Rates -- "QE Trap" Appears Increasingly Likely -- Continued QE Trap More Likely Than Hyperinflation -- BOJ Found Itself in Same Position in 2006 -- Fed Admits That Supply and Demand Matters, Too -- Fed Changes Course Despite a 1.1 Percent Inflation Rate -- Traditional Phillips Curve Relationship No Longer Holds -- Upcoming Chapters in QE Saga -- Capital Injection Could Also Be Threatened If Blame Shifts to Fed -- Sales Should Start with Bonds Maturing Soon -- Final Cost of QE Can Be Calculated Only at End of Fourth Chapter -- Theoretical Debate on QE Has Focused Entirely on Benefits and Ignored Costs -- Central Banks Should Establish a New Reaction Function to Drain Reserves -- Emerging Markets Need Inward Capital Controls to Protect against QE -- Japan Should Learn from Pioneers in QE Using Long-Term Bonds -- Financial and Capital Markets during Balance Sheet Recessions -- Balance Sheet Recession Brings Special Kind of Liquidity-Driven Market -- Is Inflation of 1-2 Percent Too Low? -- Does Inflation Improve People's Standard of Living?.

Absence of Inflation Concerns May Have Lifted Utility of Consumption in Japan -- QE Should Not Be Pursued Any Further Given Difficulty of Winding It Down -- QE a Problematic Byproduct of Balance Sheet Recessions -- 3 The United States in Balance Sheet Recession -- Rating Agencies Need to Be More Tightly Regulated -- Why Was Lehman Allowed to Fail? -- TARP Prevented Bank Failures but Also Created Turmoil -- U.S. Authorities Changed Course with "Pretend and Extend" -- Fiscal Stimulus Shifts from "Three Ts" to "Three Ss" -- Obama Has Yet to Disclose the Name of the Disease -- Bernankes "Fiscal Cliff" Warning Saved the U.S. Economy -- Bernanke Declared Monetary Easing Could Not Offset Impact of Fiscal Cliff -- Fall from Fiscal Cliff Triggered Japans Deflation -- U.S. Households Still Repairing Balance Sheets -- Nonfinancial Corporate Sector Faced Difficult Years in the Wake of GFC -- U.S. Companies Hit Far Harder by GFC Than by Collapse of Internet Bubble -- Can U.S. Corporate Sector Become Economic Engine? -- Long-Term Rate "Conundrum" Kept Housing Bubble Alive -- Post-2007 Fed in Similar Position to BOJ in 1990s -- Flow-of-Funds Data Suffer from Poor Accuracy -- Bad Data Were Good for Policy Debate -- Estimated Correctly, Private Sector Financial Surplus Continues to Shrink -- Recovery in U.S. Private Sector Demand for Funds May Outpace Japan -- Housing Market Strength during the First Half of 2013 May Have Contained Temporary Factors -- Feds Reputation Falls to Earth -- 4 The Great Potential of Abenomics -- BOJ Already Had a Massive QE Program in Place -- Why Didn't Japan's Institutional Investors Follow Their Overseas Counterparts? -- Yen Fell and Stocks Rose Because Japans Institutional Investors Stayed in Bond Market -- Honeymoon Altered Japans Economic Landscape -- Bond Market Reaction Ended Abenomics's Honeymoon.

Private Sector Continues to Save after One Year of Abenomics -- Japans Growth over Last Year Attributable to Fiscal Policy -- Can the Abe Administration Overcome the Trauma of Balance Sheet Recession? -- The Trauma of the Balance Sheet Recession Will Be the Last Effect to Go -- Focus of Structural Reforms Must Shift from Lenders to Borrowers -- Is Japans Slump Due to Shrinking Population or Balance Sheet Problems? -- Slump in Domestic Demand Was Due to Balance Sheet Recession, Not Decline in Working-Age Population -- Personal Financial Assets Have Already Been Invested Somewhere -- Corporate Debt Pay-Downs Weighed on Consumption and Investment -- Real Bottleneck in Japans Economy: Lack of Loan Demand at Private Companies -- Balance Sheet Recession Has Taught Japanese How to Be Frugal -- Is Japan Really Closed to Immigration? -- Japanese Economy Would Cease to Function without Foreigners -- Agricultural Reforms a Major Step for LDP Government -- Structural Reforms Are Microeconomic Policies That Take Years to Work -- Scale of Structural Reform Is Also Important -- We Should Not Expect More Good Fortune -- Kuroda May Be Trying to Close Gap between Expectations and Reality . . . -- BOJ and Government Must Stress That Inflation Overshoot Will Not Be Tolerated -- BOJ Had Weapon to Prevent JGB Crash during Balance Sheet Recession -- No One Has Criticized Japan for Currency Manipulation -- Japan Supported Global Economy for Four Years after Lehman Collapse -- Real Effective Exchange Rate Does Not Fully Express Japanese Firm's Pain -- Rising Fiscal Deficits Caused by Change in Corporate Behavior -- How Should Japans Tax System Be Reformed? -- Fiscal Stimulus Introduced to Offset Consumption Tax -- Current Corporate Earnings Based on Massive Fiscal Deficits -- Working Down Public Debt Will Require Bold Policies to Lift Japans Growth Rate.

Incentives Needed to Restore Japans Economic Vitality.