This article is from a couple of years ago, but the points raised are particularly valid today. We are seeing government stimulus and spending on a grand scale, coupled with low interest rates and printing of money out of thin air (quantitative easing). Unfortunately, we must understand some economics to have some idea of how government and Federal Reserve policies impact our real estate and other investments, when crashes may occur, and what causes those crashes.
Keynesian economics is the view that in the short run, especially during recessions, economic output is strongly influenced by aggregate demand (total spending in the economy). In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy; instead, it is influenced by a host of factors and sometimes behaves erratically, affecting production, employment, and inflation.
The theories forming the basis of Keynesian economics were first presented by the British economist John Maynard Keynes in his book The General Theory of Employment, Interest and Money, published in 1936 during the Great Depression. Keynes contrasted his approach to the aggregate supply-focused “classical” economics that preceded his book. The interpretations of Keynes that followed are contentious, and several schools of economic thought claim his legacy.
Keynesian economists often argue that private sector decisions sometimes lead to inefficient macroeconomic outcomes which require active policy responses by the public sector, in particular, monetary policy actions by the central bank and fiscal policy actions by the government, in order to stabilize output over the business cycle. Keynesian economics advocates a mixed economy—predominantly private sector, but with a role for government intervention during recessions.
The author, John Mauldin (I enjoy reading all his articles) of the following article argues that:
-using borrowed money to stimulate spending today must by definition reduce consumption in the future. Debt is future consumption brought forward.
-Keynes suggested that money borrowed to alleviate recession should be repaid when growth resumes. This has not been happening.
-there comes a point at which too much leverage becomes destructive. There is no exact way to know that point. It arrives when lenders decide that borrowers might have some difficulty repaying.
-an overleveraged economy can’t afford the higher rates. Contraction may be severe, accompanied by the popping of an economic bubble, and can take a decade or longer to work itself out.
-every major “economic miracle” since the end of World War II has been a result of leverage. Every single “miracle” has ended in tears, with the exception of the current recent runaway expansion in China, which is still in its early stages.
recessions are not the result of insufficient consumption but rather insufficient income.
-fiscal and monetary policy should aim to grow incomes by making it easier for entrepreneurs and businesspeople to provide goods and services. When businesses increase production, they hire more workers and incomes go up.
-politicians and academics favor Keynesian economics because it allows governments and central banks meddle in the economy and feel justified. They become philosopher kings, wise elites.
-saver and entrepreneurs suffer.
-well connected crony capitalists benefit, not main street.
-consumption should be based on hard work and savings, not ballooning debt.
https://seekingalpha.com/article/4274739-problem-keynesian-economics