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Scott Minerd | Have we finally reached the Keynesian endpoint?





The Great Depression brought about the Keynesian Revolution, complete with new analytical tools and economic programs that have been relied upon for decades. The efficacy of these tools and programs has slowly been eroded over the years as the accumulation of policy actions has reduced the flexibility to deal with crises as we reach budget constraints and stretch the Fed’s balance sheet beyond anything previously imagined. Nations have exceeded their ability to finance themselves without relying on their central banks as lenders of last resort and increasingly large doses of monetary policy are required just to keep the economy expanding at a subpar pace. Some have referred to this as reaching the Keynesian endpoint.

Keynes would barely recognize where we now find ourselves. In this ultra loose policy environment we are limited by our Keynesian toolkit. Today, the world is waiting for someone to come forward and explain how we are going to get out of our current circumstances without suffering the unintended consequences created by so-called Keynesian policies.

Early in his life, Abraham Lincoln wrote that he regretted not having been present during the founding of the nation because that was when all the positions in the pantheon of great American leaders were filled. By resolving America’s Imperial Crisis through the Civil War and the abolishment of slavery, Lincoln would go on to join those lofty ranks himself. Much like that crisis needed Lincoln, the current crisis needs someone who can identify new tools to resolve the present economic crisis. Until then we are condemned to a path which leads to further currency debasement and the erosion of purchasing power, with the result being a massive transfer of wealth from creditor to debtor. Without a new economic paradigm, the deleterious consequences of the current misguided policies are a foregone conclusion.

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