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Table of Contents

A Look Into the Monetary Policies During the Great Recession and the Great Depression - Part 17


9 Conclusion

The Great Depression and the Great Recession are the two major economic downturns that have impacted the US economy and the entire society in a profound way. There were many similarities that were seen in both the events, like the banking crisis, the prolonged nature of the downturn, and the economic hardships that came with it. Another significant similarity was the role of the federal government. In both the events, the government involved itself extensively to correct the economy, which led to many debates about whether such intervention was correct or needed at all. The role of the Fed during both the economic downturns also came under the scanner, and even today, researchers and economists are debating whether these measures were a success or a failure.

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During the Great Depression, the Fed implemented certain monetary policies that were misguided, so it did not help the economy to recover. On the other hand, during the Great Recession, the Fed was swift, very aggressive, and helped to mitigate the effects of the economic downturn. In this sense, it can be said that the Fed learned from the mistakes it made during the Great Depression to take better steps towards stability during the Great Recession. Though there are some programs that continue to raise questions, there is a reasonable consensus that the Fed and the US government took vast measures to halt the recession, and to bring the economy back to growth. Moreover, the duration of the recession was less severe and shorter when compared to the Great Depression, and the Fed's programs can be the reason for the same. Furthermore, the Fed and the US government, with its programs ensured that the economy did not go into a deflationary situation during the recession by providing the right liquidity measures needed for the banking industry to rebound after its collapse.

These differences in the way the Fed handled both the events could give future lawmakers and Fed Presidents a better idea of how to handle such economic downturns, to prevent a repeat of either situations. While the Fed did make certain mistakes in the Great Recession too, the way it handled it was way better than its programs during the Great Depression. The future could change in many ways too due to the rapid advancements that are being made in technology and globalization that is changing the way businesses operate. Both these factors have spread the financial risk across countries, and this trend is likely to continue into the future. It is hard at this time to predict how businesses will change due to technology and globalization over the next few decades, but what remains is that the Fed should thoroughly understand the causes of a downturn before formulating the right policy to counter it because what worked during the Great Recession may not work for the next economic downturn. In this sense, the learning is to adapt to the situation and create sensible programs that will take into account the long-term consequences of its actions on the economy. It is hoped that these experiences and suggestions provide the basis for a better exit policy in the future.

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