Is Keynesianism To Blame For The Global Crisis?

The source of the current financial crisis is the creation of a credit bubble caused by asset-based consumption and surplus savings from developing countries that did not have adequate channels to store their savings.

Keynesianism is basically a tool to prop up demand by spending public money when the private sector is depressed by a lack of animal spirits.

John Maynard Keynes himself admitted his policies were very short run: "In the long run, we are all dead." Thus, the inflationary policies that are currently pursued by Bernanke and other central banks will ensure that fiat currencies will eventually (in the long run of the next three years) be devalued against gold and other non-renewable energy resources.

On a related note, there is a revival of Keynesian policies with views that Obama will follow the footsteps of Roosevelt's New Deal to bring the country out of a potential depression (probability of 20%). However, the question of whether massive government spending triggered the recovery or whether expansionary monetary policy was the key success factor remains contentious.

Economics professor Tyler Cowen believes the monetarists were right in this article.