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Introduction: Reaching the Keynesian Endpoint

Introduction: Reaching the Keynesian Endpoint

After the fall of Lehman Brothers in September 2008, the scope of the financial crisis became so great that the fiscal and monetary authorities of the developed world possessed the only balance sheets large enough to resolve the crisis and thereby restore stability to the world’s financial markets and the global economy. In essence, the ills of the private sector were set to shift to the public sector. The sense at the time was that it would work; after all, the borrowing abilities of the United States and the rest of the developed world were proven, and the ability of central banks to print money was and remains indisputable. Moreover, Keynesian economics had “succeeded” at restoring stability to ailing economies before through the elixir of government borrowing and spending ever since John Maynard Keynes pioneered the concept during the Great Depression. Nevertheless, there was a sense of discomfort in the supposed solution.

After Lehman fell, I posed a question, calling it the question of our age: If the Unites States is backing its financial system, who is backing the United States? The basic premise rested on the idea that efforts to stabilize economies and markets were likely to work if investors tolerated the additional debt the efforts required. If not, there would be financial Armageddon. The direst outcome was of course avoided, but dark days have smitten many nations, including Portugal, Ireland, and Greece, and the gloom is threatening to spread to the world at large, where sovereign debt threatens financial calamity for nations whose actions over many decades have left them teetering on the edge of a cliff, clinging by their nails, pulling ever-downward toward an unforgiving and impervious landing below. The grim fate of the indebted, once viewed as unfathomable, is increasingly seen as possible because the magic elixir of Keynesian economics has morphed into poison.


  

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