The Keynesian Revolution Has Failed: Now What?

Tyler Durden's picture

Authored by Scott Minerd of Guggenheim Securities,

A Premonition From a Halcyon Era

In 1968, America was literally over the moon. Apollo 7 had just made the first manned lunar orbit and the nation would soon witness Neil Armstrong’s moonwalk. The United States was winning the war in Southeast Asia and the Great Society was on the verge of eliminating poverty. I remember my father taking me to the Buick dealership that summer in Connellsville, Pennsylvania, where he bought a 1969 Electra. As we drove home I asked him why we had bought the 1969 model when we had the 1968 one, which seemed equally good.

“That’s just what you do now,” my father said, “Every year you go and get a new car.” “Wouldn’t it be better,” I asked as a precocious nine year-old, “if we saved our money in case a depression happened?” I will never forget my father’s reply: “Son, the next depression will be completely different from the one that I knew as a boy. In that depression, virtually nobody had any money so if you had even a little, you could buy nearly anything. In the next depression, everyone will have plenty of money but it won’t buy much of anything.” Little did I realize, then, how prescient my father would prove to be.

Five years have passed since the beginning of the Great Recession. Growth is slow, joblessness is elevated, and the knock-on effects continue to drag down the global economy. The panic in financial markets in 2008 that caused a systemic crisis and a sharp fall in asset values still weighs on markets around the world. The primary difference between today and the 1930s, when the U.S. experienced its last systemic crisis, has been the response by policymakers. Having the benefit of hindsight, policymakers acted swiftly to avoid the mistakes of the Great Depression by applying Keynesian solutions. Today, I believe we are in the midst of the Keynesian Depression that my father predicted. Like the last depression, we are likely to live with the unintended consequences of the policy response for years to come.

This Depression is Brought to You By...

John Maynard Keynes (1883—1946) was a British economist and the chief architect of contemporary macroeconomic theory. In the 1930s, he overturned classical economics with his monumental General Theory of Employment, Interest and Money, a book that, among other things, sought to explain the Great Depression and made prescriptions on how to escape it and avoid future economic catastrophes. Lord Keynes, a Cambridge educated statistician by training, held various cabinet positions in the British government, was the U.K.’s representative at the 1944 Bretton Woods conference and, along with Milton Friedman, is recognized as the most influential economic thinker of the 20th century.

Keynes believed that classical economic theory, which focused on the long-run was a misleading guide for policymakers. He famously quipped that, “in the long run we’re all dead.” His view was that aggregate demand, not the classical theory of supply and demand, determines economic output. He also believed that governments could positively intervene in markets and use deficit spending to smooth out business cycles, thereby lessening the pain of economic contractions. Keynes called this “priming the pump.”

On Your Mark, Get Set, Spend

Since the Second World War, policymakers concerned with both fiscal and monetary policy have opportunistically followed certain Keynesian principles, particularly using government spending as a stabilizer during periods of economic contraction. In 1968, steady economic growth and low inflation had led optimists to declare that the business cycle was dead. When President Nixon ended gold convertibility of the dollar in 1971 he justified it by declaring that he was a Keynesian. Even Milton Friedman, founder of the monetary school of economics, told Time magazine that from a methodological standpoint, “We’re all Keynesians now.”

In dampening each successive downturn, authorities accumulated increasingly larger deficits and brought about a debt supercycle that lasted in excess of half a century. The complementary aspect of Keynes’ guidance on deficit spending – raising taxes during upswings – was rarely followed because of its political unpopularity. As a result of the constant fiscal support without the tax increases, businesses and households became comfortable operating with continuously higher leverage ratios. The conventional wisdom was that this government backstop could never be exhausted.


The calamity in the financial system in 2007 and 2008 signaled the beginning of the unraveling of the global debt supercycle. The Keynesian model dictated that the best way to fix the problem was to run large deficits and increase the money supply. Keynes had based his prescriptions for this type of action on the early mismanagement of the Great Depression which he felt had prolonged the losses and hardship during that time. As is the case with most groundbreaking philosophies, Keynes’ disciples carried his views much further than could have been imagined during the period in which the master lived.

The Depression My Father Knew

Keynes viewed governments’ attempts at belt-tightening during the Great Depression as ill-timed. Although President Roosevelt invested in massive public works projects under the New Deal starting in 1933, almost four years into the crisis, the U.S. government maintained a policy of attempting to balance the budget as the depression raged on. Keynes’s response was: “The boom, not the slump, is the right time for austerity at the Treasury.” The other problem, according to Keynes, was that the Federal Reserve’s attempts to lower real interest rates and inject cash into the system were too modest and too late to avoid what he referred to as a liquidity trap, leading people to hoard cash instead of consuming.

To illustrate the dynamics of the liquidity trap Keynes cleverly invoked the analogy of “pushing on a string.” He said that at some point, attempting to stimulate demand by easing credit conditions is like trying to push a string that is tied to an object you want to move. Whereas you can easily pull something toward you by the string to which an object is tied (raising interest rates to slow growth), attempting to carry out the opposite by reversed means (lowering interest rates to try to induce lending to otherwise unwilling borrowers) is not always successful. This is especially true when the rate of inflation becomes so low that it becomes impossible to set interest rates below it.

This Time It’s Different

What sets the current downturn apart from any other since the Great Depression is that, for the first time since the 1930s, we have had severe asset deflation (declining real prices) in the face of relative price stability. Periods of asset deflation occurred between the 1960s and 1990s, but nominal prices were supported by rising inflation levels. Against the backdrop of a rising price level, nominal asset prices remained stable or continued to increase as real asset prices declined. This protected asset-based lenders from severe losses resulting from declining nominal prices.

During the 2008 crisis, inflation levels were close to zero and unable to offset falling real asset values to stabilize nominal prices. This caused a debt deflation spiral to take hold as nominal prices fell. In contrast to the Great Depression, policymakers took extreme measures in 2008 to prevent a total collapse of the financial system and head off a deflationary spiral like that experienced in the 1930s. These policies included sharply increasing the money supply and engaging in an unprecedented amount of deficit spending.

In many ways the swift policy action proved highly effective. Instead of the 25 percent unemployment seen in the 1930s, joblessness reached only 10 percent. While unemployment now stands at roughly eight percent, if one uses the labor force participation rate from 2008, the level is still higher than 11 percent. Although there was a 3.5 percent decline in the price level between July and December of 2008, policymakers immediately tackled and reversed the deflationary spiral. This compares with the Great Depression, when between 1929 and 1933 the general price level declined by 25 percent.


The Aftermath

Though some may be cheered by the relative policy successes this time around, at the current trajectory it will still take almost as long for total employment to fully recover as it did in the 1930s. While job loss was not as severe this time, the recovery in job creation has been much slower. Although nominal and real gross domestic production have returned to new highs on a per capita basis, we are still below 2007 levels. In the same way the Great Depression and the depressions before it lasted eight to 10 years, we will likely continue to see constrained economic growth until 2015-2016 (roughly nine years after U.S. home prices began to slide). Only then will the excess inventory in the real estate market be absorbed, allowing the plumbing of the financial system to function, and supporting an increase in the economic growth rate.


At what cost did we attain this “success”? Like any strong medicine, the policies pursued since 2008 have had, and are continuing to have, unintended side effects. The most glaring feature of today’s global landscape is that governments around the world have exhausted their capacity to borrow money and have turned to their central banks to provide unlimited credit. In the United States, it has taken an average annual deficit of $1.2 trillion and multiple rounds of quantitative easing just to keep the economy growing at a subpar rate since 2009.

In their 2009 book, This Time It’s Different: Eight Centuries of Financial Folly, the economists Carmen Reinhart and Kenneth Rogoff catalogue more than 250 financial crises and conclude that the U.S. cannot reasonably expect to circumvent the outcome that has befallen all overleveraged nations. In the authors’ words:

…Highly leveraged economies, particularly those in which continual rollover of short-term debt is sustained only by confidence in relatively illiquid underlying assets, seldom survive forever, particularly if leverage continues to grow unchecked.

Sovereign powers saddled with debt loads as large as those of the U.S., Europe, and Japan today are jeopardizing their long-term economic wellbeing.


In an October 2012 whitepaper, Reinhart and Rogoff re-emphasized their findings that the U.S. cannot expect to quickly emerge from what occurred in 2008. They point out that 2008 was the first systemic crisis in the U.S. since the 1930s so the consequences have been much more significant than fall-outs from normal recessions.

What Comes Next?

The most important question for investors concerns how public sector debt levels, which have risen exponentially over the past half-decade, will ultimately be discharged. As Reinhart and Rogoff discuss, there are three options to reducing debt levels. The first is restructuring, also known as default. For obvious reasons this is painful and typically avoided except under the most dire circumstances. Governments can also pursue structural reform, which in today’s case would mean greater austerity. Implementation of this would stand in stark opposition to Keynes’s recommendation that the fiscal and monetary spigots be kept open during hard times. Although tightening is arguably the best long-term path, it appears unlikely that it will be the primary policy of choice in the near future. The third method, toward which I see global central bankers drifting, is to keep interest rates artificially low and permit increasing levels of inflation in the economy.

Pushing down the cost of borrowing and allowing the price level to rise is known as financial repression. The real value of debtors’ obligations is reduced by financially repressive policies. Keynes warned of the dangers of inflation in his early work, The Economic Consequences of the Peace, which presciently criticized the harshness of the Treaty of Versailles:

...By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens … As inflation proceeds and the real value of the currency fluctuates wildly, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless.

Keynes re-iterated his views in the mid-1940s when he visited the United States and saw programs that were touted as Keynesian although he viewed them as primarily inflationary.

Financial repression is nothing new. Between the 1940s and the early 1980s, the United States reduced its national debt from 140 percent of GDP to just 30 percent while continuing to run sizable deficits. The difference between then and now is the magnitude of the debt mountain on the Federal Reserve’s balance sheet that will need to be eroded. A subtle shift has begun in which policymakers are starting to think of inflation as a policy tool rather than the byproduct of their actions. Despite Keynes’ warnings, it appears that higher inflation will continue to be the monetary tool of choice for central bankers tasked with cleaning up sovereign balance sheets.

Investment Implications

The long-term downside of mounting inflationary pressure will ultimately accrue to bondholders and income-oriented investors. The case can be made that we are marching headlong into a generational bear-market for bonds. During the next decade, holders of Treasury and agency securities will likely realize negative real returns. Despite this, these assets continue to trade at extremely rich valuations. Exactly when the market will awaken to this anomaly in securities pricing remains to be determined. The analogy I would use for the current interest rate environment is that of a balloon being held underwater. When the Fed withdraws from the market and allows interest rates to find their economic level, the balloon will inevitably ascend.


If investors need to stay in fixed-income assets, they should transition into shorter duration credit and floating-rate products like bank loans and asset-backed securities. If duration targeting is a concern for liability-matching purposes, adjustable-rate assets can be barbelled with long-duration securities like corporate bonds or long duration agency mortgage securities. Equities and risk assets are likely to rise as the money supply grows.

Gold, as I discussed in my October 2012 Market Perspectives, “Return to Bretton Woods,” has significant upside and should be included in any portfolio designed to preserve or grow wealth over the long-term. Depending on the scale of the current round of quantitative easing and the decline in confidence in fiat currencies, the price of an ounce of gold could easily exceed $2,500 within a relatively short time frame and could ultimately trade much higher.


The World is Waiting

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. It would seem my Dad could hardly have been more correct when he described the next depression from behind the wheel of his 1969 Buick.

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insanelysane's picture

We're just not spending enough!!! </sarc>

CH1's picture

the current crisis needs someone who can identify new tools to resolve the present economic crisis

In other words, "to return to good times without ever paying for our sins."

They are waiting for the Santa Claus Messiah.

flacon's picture

Now what? Now we get to kill people. Isn't that what comes next?

Hugh_Jorgan's picture

Now what? We pay the bill for the last 40 years of ignorance and stupidity, that's what.

Better learn how to shoot and how to grow food...

venturen's picture

I thought bankers were already doing that?

nope-1004's picture

When the Fed withdraws from the market and allows interest rates to find their economic level, the balloon will inevitably ascend.

The Fed won't allow this to happen.  We will hit some type of crisis point before they allow any "free market" forces back in this ponzi.

Benocide could give a shit about the average American, or human, for that matter.


Nostradamus's picture

I have to agree. What many of these authors don't seem to understand is that the entire financial system, as it exists in its present form, is now permanently conditioned upon QE and ZIRP. These are the policies that are delaying the collapse. Remove them, and the system collapses sooner. The FED, therefore, will withdraw from the market only after the currency begins to show undeniable signs of failure, meaning noticeable and problematic increases in prices of consumer staples.

NotApplicable's picture

As always, these authors are part and parcel of the Kool-Aid Corps.

I can only hope these people are young enough not know better, or too old to let go of a lie.

Otherwise, for their age, they're either stupid squared, believing what ever headline LIESman tells them, or dangerously disingenuous (a distiller of said Kool-Aid).

fockewulf190's picture

I have a feeling, that sometime in the future, gold repatriation part deux will be announced and the gold price will be fixed within the US. The majority of the MSM media machine will, of course, back the President´s decree, and probably demonize those who resist as "anti-social hoarders" who stand in the way of just monitary policy.  Gerald Celente said a while back, that he had diversified his stack, and was starting to buy silver as a hedge against just such an which he predicted as an event likely to happen.   

I believe China is preparing for this financial black swan.  When repatriation happens, China will make it´s move.  It will reject any unilateral fixing of a worldwide commodity such as gold, declare the dollar as too weak to continue as the world´s reserve currency, finally declare it´s true gold reserves (which will probably shock the world), and offer the now gold backed renminbi to the world as the new reserve currency of trade.  The coup will then be complete, and the dollar will implode.

masterinchancery's picture

Yes,the last crisis was 15% inflation in 1979, this time it will be foreign repudiation of the dollar, followed by Weimar style inflation.

Paper CRUSHer's picture

Ol' Benny Boy continues to apply pressure, his foot is firmly planted on that monetary accelerator pedal, when we reach crisis point he will have no alternative other than to stick an umberalla between the drivers seat and the gas pedal then to clear his dumbass(will not be stay for on for next term as Fed Chairman in 2014) by jumping clear at the last moment and send the U.S. economoney  hurtling towards its final destination .

Silver Bug's picture

Time to move on and base our economy on Austrian economics. Not this hocus pocus fake money saturated economy where everyone is on food stamps.


"Five most common gold and silver investing mistakes. Free eBook."

MillionDollarBoner_'s picture

There you go again...trying to make sense of it all, based on fundamentals...

Its all about the FED, stoopid!!!

Clueless Economist's picture

I agree Mr Insanelyinsane.  We need to print and spend trillions more and invest them is shovel-ready infrastructure jobs.

The only way to get out of this mess is more debt.

Why are some folks so thick that they can not grasp the obvious? 

masterinchancery's picture

We should invest the money in wheelbarrows.

Biggvs's picture

So the Zero Hedge catch-phrase is "On a long enough timeline the survival rate for everyone drops to zero." Which is from Fight Club of course... but was Palahniuk just paraphrasing Keynes? (“in the long run we’re all dead.”)

Which means the ZH slogan derives from Keynes?!?? (Head explodes.)

forwardho's picture

B, My sentiments exactly. At the least a strong sense of deja-vu

TruthInSunshine's picture

 "Now what?"

Really, Scott Minerd of Guggenheim Securities? Really?

We print more thusly.

"Deficits don't matter."

-- Co-signed by Dick Cheney & Paul Krugman


Oh regional Indian's picture

Why, the answer is obvious.

Take a nce old aluminium baseball bat to the edifice of Milton Freidman and the Chicago school.

Chicago style.

That is what has done the US in. They are who has done the US in.

Deep Fried in Freidmanism.


MillionDollarBoner_'s picture

Friedman ain't even got started yet.

The goons squads are still being formed. The repressive laws are only just being enacted.

Read "The Shock Doctrine" by Naomi Klein. Coming to a detention centre near you, soon.

TruthInSunshine's picture

Some of what Naomi Klein has to write is very interesting, but she is an enigma, or more accurately, a paradox, to me, in terms of how to assess her world view generally.

Incubus's picture

Keynes was more nihilistic than the Joker.

And he's fooled all of western civilization, too.


Jokes on you, bitches. 

jojomama's picture

If Keynesian Revolution has failed, then the Fiscal Cliff doesn't matter either.  It is all hype and will have no effect on the economy.

BLOTTO's picture

Dont worry, all is fine...The Royals are in the news again...every day - since last May...


Kate Middleton is going to have twins - one boy one girl - right out of the Arthurian legend. Sounds like a familiar movie, right Anakin?


Where can i make a bet with a bookie?

spanish inquisition's picture

Gonna lay mine on a C section so they can yank out the boy first.

eaglerock's picture

This never was Keynesian.  The concept is to save money during good times, and spend during bad.  We deficit spend during both good times and bad. 

Oh regional Indian's picture

This is the Chicagoans big victory. Deflecting their Deficit in any season model to a largely mis-understod Keynes (well, mis-interpreted anyways).

There is no mis-interpreting Milton.


NidStyles's picture

Milton was a Keynesian. The only difference between Milton and Keynes was Irving Fisher.

Madcow's picture

without new - volutary - private borrowing, the money supply can't grow 

if new cash can't be created - then there's no way to feed all the previously existing debts, rents, etc - 

they system doesn't slow down or contract - it seizes up and dies. 

google "sudden stop."  

start getting used to the idea of a future with no "desk jobs" or "grocery stores."



Dangertime's picture

Well, the long-run is now here. 


And while Keynes is in the envious position of being dead, the rest of us are not.  And thus we have to deal with the fruits of his idiocy.

Super Broccoli's picture

The fact is this crisis is due to Keynesianism.

The solution can never be the problem ...

I remember when i was a kid in the economy class, we use to make fun of those african countries spending like crazy on useless infrastructure hoping to create some kind of economical boom. Well we're not smarter after all !

AT's picture

We elected an african. What do you expect?

shovelhead's picture

When I think of Mr. Keynes pump priming exercise, a vision of an old fashioned hand pump from a well appears.

Neo-Keynesians (if such a term could be considered accurate) have replaced that quaint pump with a nuclear powered behemoth that has no off switch.

Keynes may have been misguided towards monetary policy but he wasn't insane.

That appellation must be reserved for his hyperactive descendants who misuse his name.

Debugas's picture

the solution is to write-off most of the debts

but the creditors will not let it to happen

mayhem_korner's picture

The Federal Reserve, empowered by a compliant Congress and White House, averted the complete ruination of the financial sector that could have occurred in 2008...


If "averted" means "deferred, exacerbated, protracted, and compounded", I'm with ya...

Aurora Ex Machina's picture

The aide said that guys like me were "in what we call the reality-based community," which he defined as people who "believe that solutions emerge from your judicious study of discernible reality." ... "That's not the way the world really works anymore," he continued. "We're an empire now, and when we act, we create our own reality. And while you're studying that reality—judiciously, as you will—we'll act again, creating other new realities, which you can study too, and that's how things will sort out. We're history's actors…and you, all of you, will be left to just study what we do.

seek's picture

And in case anyone suspects those are the rantings of a madman... that quote is from Karl Rove, so you're right.

steve from virginia's picture




Ho hum, another inflation prediction. HEY! Where's the BEEF?


"Five years have passed since the beginning of the Great Recession ...  virtually nobody had any money ..."


Just like now, virtually nobody has any money, those with money (plutocrats) spend to no effect as there are too few of them. (There are also too many of them but that is another story.)


It IS different this time! We have run out of cheap capital to waste. All of our efforts @ stimulus, easing and kick-to-the-groin austerity are efforts to retrieve long-gone capital.


Just like you can't fill your car gas tank by pushing the car backwards for 200 miles, there is no way to retrieve capital that has been wasted by wasting even more! Yet, this is what the incredible economic brain trust hopes to do. It isn't just the Keynesians ... it's all of them. The Austrians make the same hollow promise: "eliminate the cost factor of government ... " they claim, "capital is magically regained."


Get rid of the government and oil will reappear in depleted oil wells. Right!


The only thing that works and is proven to do so is conservation. Not that girly 5% but a manly 90% conservation of capital. Pay good money to those who conserve capital rather than to those who waste it.


Where is a good place to start the new regime? Look to the end of your driveway! That new car every year (or three) has bankrupted the world. More cars = more bankruptcy. Once the bankruptcy actually sets in ... you probably won't want to be anywhere nearby.


Drive a car or have something to eat, that's the choice that is coming to a town/suburb near you.



mayhem_korner's picture



Is "Steve from Virginia" some funky code for "recovering from schizophrenia"?  How many people and conflicting thoughts can you stuff into one post, dood?

steve from virginia's picture


Sorry Mayhem, economics is hard.



forwardho's picture

If you cannot follow his logic... Then it is your thoughts which are contained in a very small box, not his. +1 steve

TruthInSunshine's picture

I think that Steve, and Steve, please do correct if I'm wrong, as I'm about to re-phrase your words, is saying that printing fiat and essentially distributing in narrow bands to the sectors/"market" participants that are most favored (or deemed to be at highest risk of collapse, i.e. banking) by the Fed & Treasury, does little to nothing to replace true economic output that has been seriously damaged or destroyed.

Unless a wide array of economic participants, most notably a (now decimated) middle class, that actually has a need to consume and will consume if given the opportunity to do so, is able to accumulate purchasing power, there can and will be no sustainable recovery in employment, wages, or aggregate demand.

This is why Krugman is very deceptive in his prescription for an economic recovery. Krugman's fundamental plan consists of raising significant additional revenue via higher taxation, having government expend that additional amount of revenue in addition to the amounts it already is spending (on a current model of deficit spending of 44 cents per dollar of actual revenue remitted), and then, if need be, have government increase both the amount of revenue it extracts via taxation and deficit spending it engaged in, in order to boost employment, wages & aggregate demand.

Krugman fails to level with his readers by omitting the fact that his plan is not sustainable since it's based on an absolute Ponzi whereby the Federal Reserve essentially, as the buyer of last resort, monetizes most or nearly all of said deficit spending forever (literally)...(Krugman literally denies that interest yields on tnotes are where they're at due to Federal Reserve purchases of that debt, instead arguing they're priced based on organic supply/demand forces), that for each dollar of additional revenue that government extracts via taxation there is a countervailing crimping of additional aggregate demand, and that the U.S. Governmental and quasi-governmental work force is already massively bloated by any historical standard (as is itslevel of pay and benefits) which means that expanding it further (at great cost) produces marginally weak (and arguably - I'd argue it - negative) stimulation of aggregate demand (since this is, again, merely robbing the private sector of aggregate demand).

Krugman's plan essentially is a new spin on robbing Peter further to pay Paul, but it helps to understand that the Peter that Krugman wants to further steal from is actually far more productive and holds the potential for far more stimulation of employment, wages and aggregrate demand, than the Paul he wants to give the stolen money to.

steve from virginia's picture



"... his (Krugman's) plan is not sustainable since it's based on an absolute Ponzi whereby the Federal Reserve essentially, as the buyer of last resort, monetizes most or nearly all of said deficit spending forever (literally)..."


Central banks grasping at straws, putting coats of paint on a tarpaper shack. Something is due to fail somewhere and the expensive paint jobs will have been in vain. Wth central banks lending with desperation everywhere in the world ... what comes next ... when the 'perpetual' lending falls short of what is really needed?


Default/repudiation is coming. One way or the other.

mayhem_korner's picture



'splain it, then.  It's a compendium of randomized words with no coherent central thought.  Maybe he was trying to articulate something intelligble, like 'retention of surplus production (capital savings) is a sustainable economic construct which has been lost and is unrecoverable', but he didn't.  I'm sure he's real smart, but...

NidStyles's picture

Not sure which Austrians you have read, but Austrian School advocates Saving to build Capital formations. Rothbard wrote an entire book about it, and so did Mises. They both discussed how savings is the root of all Capital formations. 


You are correct on your criticism if you in reality meant to say the Chicago Boys or Friedman though while thinking they were Austrians. The very core of Austrian School is Capital Formations, and the never once have any of them stated that the lost Capital would re-appear, just that the flow of it would reappear and that it can be rebuilt even at a lesser quantity.

orangegeek's picture

Ludwig Von Mises