What Is a Keynesian Put?
A Keynesian put is an optimistic investment strategy based on the expectation that specific investments and the broader financial markets will soon benefit from fiscal stimulus measures.
For example, consider an investor eyeing a federal proposal for massive government spent on reducing greenhouse gas emissions. This investor might employ a Keynesian put strategy targeting stocks of companies like electric bus manufacturers or solar panel firms. Fiscal stimulus can include increased government spending, reduced taxes, or monetary policy easing.
- A Keynesian put is a strategy banking on anticipated government policies that will boost the economy and particular investments.
- The term was coined by analysts at Bank of America Merrill Lynch in 2016.
- A Keynesian put signifies confidence that government actions will maintain economic growth and inflation.
Gaining Insight into the Keynesian Put
First coined by Bank of America Merrill Lynch analysts in 2016, the Keynesian put references British economist John Maynard Keynes, known for advocating government spending to invigorate the economy. It also nods to the concept of the “Greenspan Put,” which describes the accommodating monetary policies of former Federal Reserve Chair Alan Greenspan.
A Keynesian put is grounded in the belief that governments will spend liberally to sustain economic growth. Post the 2007-2008 economic crisis, there’s a strong expectation for robust government economic intervention, often supporting stock prices.
Real-Life Example: The Keynesian Put
The 2021 American Rescue Act poured $1.2 trillion into the U.S. economy, counteracting the adverse effects of the COVID-19 pandemic:
- Direct Payments: About $242 billion went directly to Americans, bolstering consumer spending.
- Local Government Support: Around $350 billion was allocated to local governments to offset lost tax revenues and bolster public services and infrastructure.
These measures drove consumer spending and large-scale government purchasing, exemplified as the S&P 500 Index increased from 3,870 in early March 2021 to 4,468 by mid-August 2021 despite pandemic disruptions.
The Impact of the Keynesian Put
The effects of the Keynesian put, though variable, are notable. In the short term, infrastructure spending can boost corporate profits, create new jobs, and increase GDP. However, it can also raise deficits, possibly leading to higher taxes and inflation in the long run—a concerning factor for bondholders.
Related Terms: Greenspan Put, Fiscal Stimulus, John Maynard Keynes.
References
- U.S. Department of the Treasury. “Fact Sheet: The American Rescue Plan Will Deliver Immediate Economic Relief to Families”.
