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?