What is a 'Keynesian Put'?

A Keynesian Put is the expectation that markets and the economy will be supported by fiscal policy stimulus measures. Fiscal policy stimulus, including reductions in taxes and increased government spending, are typically designed to boost the real economy, although financial markets also benefit from strengthening economic growth.

BREAKING DOWN 'Keynesian Put'

The term Keynesian Put was coined by analysts at Bank of America Merrill Lynch in 2016. It is both a reference to the economic theory of 20th century British economist John Maynard Keynes who was a proponent of government spending when demand was slack, and a play on the term Greenspan Put, which was first used in 1998 to describe the extremely accommodative monetary policies of the then Federal Reserve Chairman, Alan Greenspan to avoid recession.

Keynesian Put represents a promise that the government and fiscal authorities will spend to maintain growth and inflation in the global economy. While accommodative monetary policy in the form of lower interest rates is meant to act as a stimulus to the real economy, since the 2007 to 2008 global financial crisis, global central banks have adopted extreme accommodative policies that have helped push up the price of risk assets but with limited results for the real economy.

In this context, renewed support for Keynesian-style fiscal stimulus measures has led to expectations that governments around the world will use their spending power to boost the economy and, in turn, help support asset prices.

Evidence of Keynesian Put

As of 2016, there had been no specific measures to stimulate demand by any nation although the U.S. investment bank was recommending that investors be prepared and consider rebalancing portfolios to favor companies that might benefit from economic stimulation. These include retail, for example, defense, infrastructure and real assets.

In addition to the suggestion of increased fiscal spending by U.S. presidents, the Bank of England has followed suit since Brexit, Germany is its austerity measured in the European Union and Japan is also considering stimulus.

The Effect of Keynesian Put

Although the effect of Keynesian Put is largely speculation, in the short term, infrastructure spending to improve roads, bridges, airports, hospitals, high-speed internet and to boost defense can improve an economy because initiatives raise corporate profits, create jobs and increase the GDP. However, increased government spending will raise the deficit even higher increasing taxes and inflation. The main drawback to Keynesian Put is that increased spending and the resulting rise in inflation is detrimental to bondholders.

RELATED TERMS
  1. New Keynesian Economics

    New Keynesian Economics is a modern twist on the macroeconomic ...
  2. John Maynard Keynes

    Keynes is regarded as one of the founding fathers of modern day ...
  3. Stimulus Package

    A stimulus package is a package of economic measures put together ...
  4. Deficit Spending

    Deficit spending occurs whenever a government's expenditures ...
  5. Government Purchases

    Government purchases are expenditures and gross investment by ...
  6. Stabilization Policy

    A stabilization policy is a strategy designed to keep economic ...
Related Articles
  1. Investing

    Deflation and Debt: Is the United States the New Japan?

    Discover how mainstream macroeconomics has failed Japan and why the United States should take care to avoid Japan's borrow, spend and print model.
  2. Trading

    Giants Of Finance: John Maynard Keynes

    This rock star of economics advocated government intervention at a time of free-market thinking.
  3. Insights

    Can Infrastructure Spending Really Stimulate the Economy?

    Public infrastructure spending rarely stimulates long-term positive growth for the economy, even in times of recession...
  4. Insights

    Monetarism: Printing Money To Curb Inflation

    Learn how Milton Friedman's monetarist views shaped economic policy after World War II.
  5. Insights

    Free Market Maven: Milton Friedman

    As proponent of free market capitalism, this economist changed the way the world's economies operate.
  6. Insights

    What Causes Bubbles?

    A look at how asset bubbles are formed according to different schools of thought.
  7. Financial Advisor

    Have Stocks Seen the Bottom Yet?

    The market has been turbulent as of late. But have stocks hit bottom?
  8. Insights

    Alan Greenspan: 19 Years In The Federal Reserve

    Follow the economic glories and bumbles in the career of the previous Fed chair.
  9. Trading

    What Does QE3 Mean For The Market?

    What does the Fed's recent announcement mean for the U.S. economy? Read on to learn more.
  10. Insights

    9 Common Effects of Inflation

    Is inflation ever good? If you like your job it is.
RELATED FAQS
  1. What is the difference between Keynesian and monetarist economics?

    Discover how the debate in macroeconomics between Keynesian economics and monetarist economics, the control of money vs government ... Read Answer >>
  2. How do I negotiate a lower annual percentage rate (APR) with my credit card company?

    Discover the main factors of economic policy that, according to Keynesian economic theory, drive the marginal propensity ... Read Answer >>
  3. What is the role of deficit spending in fiscal policy?

    Read about the role deficit spending can play in a government's fiscal policy, and learn why economists are torn about the ... Read Answer >>
  4. What's the difference between monetary policy and fiscal policy?

    Discover the distinctions between these two tools designed to influence national economies. Read Answer >>
  5. What are some examples of expansionary fiscal policy?

    Learn about expansionary fiscal policy – tax cuts and government spending – that are used by governments to boost spending ... Read Answer >>
  6. How Do Fiscal and Monetary Policies Affect Aggregate Demand?

    Learn about the impact fiscal and monetary policy have on aggregate demand, and discover how the government influences economic ... Read Answer >>
Trading Center