Pimco's "Keynesian endpoint" - the need for a new orthodoxy

"Time devaluations and debt restructuring might be the only way out for many nations", so stated in a recent Pimco report called "Keynesian endpoint". Debt financing has now "being seen as a magic elixir that has morphed into poison."

This new view has been an amazing swing form the strong embrace of Keynesian at the end of 2008.There was a significant resurgence in discussions of Keynes. He was supposed to have the right answers and we lost our way by not following his views. Now, less than two years later, countries are trying to look for a new orthodoxy given the risk of government default.

Surprisingly, the Keynesian prescription did not address the issue of default directly. There is the implicit view that money could be used to push up demand and the potential for inflation. This would lead to a devaluation from the gold standard, but I do not remember a discussion on the limits of government to finance expenditures.

It is not clear what will be the new orthodoxy in macroeconomics. There are no new ideas coming to the forefront. There is almost an acceptance that consumers will have to take the medicine of deep retrenchment.