What Would Keynes Do Now?

What now?

As G20 nations around the world retreat from policies of continued coordinated fiscal stimulus, the question begs, what does the future hold for a world awash in crushing levels of overwhelming debt? Is the United States the only nation willing to stick to the script of classic Keynesian economics?

If only we could go back in time and ask John Maynard Keynes, the economic giant amongst economic giants, what he would propose now? Would Keynes stick to his classic Keynesian economics script at this juncture? Could Keynes ever have envisioned a world awash in so much debt?

As I highlighted yesterday, (G20 and US: Going Separate Ways Highlights Prisoner’s Dilemma), a bevy of central bankers outside of the U.S. are discarding Keynes like yesterday’s news. Today we see more of the same from the money management community as Bloomberg highlights, Pimco’s Crescenzi Sees ‘Endpoint’ in Devaluations:

Nations have reached a “Keynesian endpoint” as exhausted balance sheets leave policy makers with few options to bolster economic growth, according to Anthony Crescenzi, an investor at Pacific Investment Management Co., the world’s largest bond-fund manager.

“Time, devaluations, and debt restructurings might be the only way out for many nations,” Crescenzi wrote in an e-mailed note. Debt-fueled spending programs aimed at combating the global financial crisis of 2008 are among policy tools now “being seen as a magic elixir that has morphed into poison.”

That’s it? You mean for all the weight and impact Keynes has brought to bear on the world of economics over the years, this go round is relegated to a year’s worth of bubbly and it’s over? Clearly, Keynes must have a few more goodies in his bag or tricks up his sleeve?

Are we to believe that at a certain level of global indebtedness, Keynesian economics no longer works? Keynes never broached those points? Did the giant amongst giants not know when the debt/GDP levels reach such unprecedented levels that the benefits of incremental government spending are actually offset by the costs of the borrowing?

Has the intoxicating and illusory effects of the Keynesian elixir truly changed from potion to poison?

What would Keynes do now?

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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1 Comment on What Would Keynes Do Now?

  1. Very different word now than when Keynes lived. His doctrine was to flood the market with dollars and stimulate public spending. However, we did this already and the markets are not getting out of the funk. In addition, the amount of public debt is staggering. I think Keynes would have stocked to his guns and then he would have been ridiculed for being a fool like Bernanke and his predecessor.

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