Balance Sheet Recession
A slump where companies and households focus on paying down debt after a bubble bursts, so cheap money fails to get them borrowing again.
The phrase, popularised by economist Richard Koo, describes what happens after an asset bubble pops and leaves everyone owing more than their stuff is worth. Instead of maximising profit, they rush to repair their balance sheets by paying off debt.
In a balance sheet recession, even near-zero interest rates do not spark borrowing, because nobody wants new loans. Koo used Japan in the 1990s as the main example, and argued that government spending has to fill the gap. It helps explain why liquidity traps can last so long.
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