1). The actions taken by Fed in 2008 can be tied to the mistakes made in 1920s-1930s. During 1920s-1930s great contraction took place in which the real output, prices and the money supply decreased to a larger extent because of the failure of the policy at the Federal Reserve. Fed introduced a tight monetary policy in order to kill the speculation of the stock market that paved the way to the recession. This policy was, however, based on the actual bills consideration that the speculation of the stock market would cause inflation, and deflation afterwards. Moreover, in the 1930s, the banking policy was not merely confined to the actions of Fed, examples were also set for the Treasury Sectary in order to form the stakes of government ownership in banks in the year 2008. In the 1930s, the Fed was increasingly passive. In the 1930s, Fed had excess reserves, and these reserves constitute about 50% of the total reserves.
Moreover, Fed officials had considered the increase in the excess reserves as a danger for future inflation and speculation. They also considered the presence of considerable excess reserve as averting them from tightening in the future. However, same concerns regarding increase in the excess reserves of the bank have been raised in the year 2008-2009. Considering the Burgess Riefler Doctrine, the method by which Federal Reserve could control the interest rates was by compelling the other banks to borrow from it. Once the open market portfolio was greater than the excess reserves, the sales in the open market could, however, pressurize the banks to borrow (Meltze, 2003). The banks would decrease their indebtedness by reducing their lending. The era of the 1930s was, however, typified by low interest rates with the short term rates near to zero for most of the decades, and the long term rates were near to 2%. According to the traditional Keynesian view, the the monetary policy was ineffective because the economy of the United States was in the liquidity trap. In 2008, the Federal Funds rate was close to zero, just like it was in the 1930s, which again raised the concern and issue of the policy ineffectiveness (Baumol & . Blinder, 2011).
2). The policy actions of Fed from 2008 to present have not succeeded. This is due to the fact that it is difficult for the Fed to exit from its previously designed strategy. The major statutory goals of Fed are to maximize the employment and ensure price stability. If Fed exits from the previous strategy and starts tightening then the unemployment keeps on increasing, and Fed can face the political pressure for abandoning its efforts and tumble down under the pressure. As a result of this inflationary pressure can arise because public and the market become doubtful about the determination of Fed. However, Fed remained unsuccessful in maximizing the employment and ensuring the stability of the prices from 2008 to present. The inflation rate increasing since 2008, except for the year 2010, stability in the prices of products is not observed in the economy.
Fed has taken necessary measures in order to control the unemployment rates, and the unemployment was also reduced from 2008 to present, but still in terms of the population of the country the desired unemployment rate is not achieved. Majority of people are still surviving on the unemployment benefits, and other assistance provided by the government as they are unable to find a job. It is estimated that about 10 million U.S. people are living on the government assistance (Edwards, 2011).
References
Baumol, W., & Blinder, A. (2011). Macroeconomics: Principles and Policy. Nelson Education
Inc, Canada
Edwards, David M. (2011). How Does The Current Economic Recession Compare To The Great Depression? Forbes. Retrieved from:
http://www.forbes.com/sites/quora/2011/11/08/how-does-the-current-economic-recession-compare-to-the-great-depression/
Meltzer, Allan H. (2003). A History of the Federal Reserve, Volume 1: 1913-1951. University of
Chicago Press, Chicago
