Money-isms: Keynesianism | The Amateur Financier is an excellent blog post on how to invest for deflation I just found….

@Chris: That’s just great; funny, informative, and creative. I’ll have to share that in my next round up.

@BibleDebt: To grossly simplify things, my understanding is that governments can, in theory, spend indefinitely, although the more money they put into the system, the greater inflation becomes as a result. (It makes sense; if the supply of dollars doubles, stores will require twice as many dollars to purchase the same items, for example.) The problem of too much inflation (perhaps even approaching hyperinflation) could result from trying to spend our way out of a downturn, but remember that another tenant of Keynesism is the multiplier; the hope is that the amount of money needed to boost the economy is much lower than the amount that causes all sorts of inflation related havoc.

@LeanLifeCoach: Glad you like the idea for this series; I thought it would be interesting. The multiplier effect did sort of run into trouble this past bailout; with so many bankers using the money to shore up their accounts rather than spreading the money out, the multiplier would be fairly low (less than one, most likely), making it rather ineffective. As for the long term consequences of the paradox of thrift, one of Keynes’ points was the focus on the short term; as he was found of noting, ‘In the long term, we’re all dead.’ You do have a point, of course; saving more as a society would be a good thing, although a bit rough at first if done all at once.

@Simple in France: I’m glad you’re looking forward to this series. Here’s hoping that the rest of the series meets your approval. Good luck studying further!

@Financial Samurai: You’re quite welcome. Keynesism does provide a good defense for expanded government spending during downturns, although as of late, I’d say that both parties have been indulging their spending muscles quite a bit. Whether the Republicans’ seeming change of heart on the issue still holds when (if) they find themselves back in power and cutting their spending becomes a policy issue rather than election rhetoric, we’ll have to wait and see.

As for the recent interventionist ideas of the US government, don’t forget that not only did the federal government try to stimulate the economy with a huge budget deficit along Keynes, but the Fed also played an enormous role blowing up its balance sheet by trillions of dollars. As a matter of fact, the Fed has been playing a tremendous role for decades now starting with the stock market crash of 1987.
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I’m looking forward to the series.
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I could see the multiplier argument working back when everything was done my hand. Money would be spread around. These days too much of gov’t stimulus is staying in too few pockets. His other concept of paradox of thrift must have merit, short term. But long-term wouldn’t the increased wealth and financial stability equate to a more stable economy?
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Now a question, what happens when the government debt gets to big and can no longer pump money into the economy? I think we are getting close to seeing that happen.

On a side note, I am new to the Yakenzie Challenge as of Sunday. It will be good getting to know and support your blog.