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In 2020, due to the COVID-19 pandemic, the entire world had to encounter severe economic crises, which affected every sphere of life. It was especially tough for organizations of different kinds and fields, as it was absolutely unexpected. Even the wealthiest and the most developed countries, such as the United States, incurred the negative impact of this pandemic in the context of economic growth significantly. Somer Anderson introduces the article How the Federal Reserve Fights Recessions, aimed to explain how the U. S. central bank resists the negative economic consequences of coronavirus spreading (Anderson, 2020). Therefore, the purpose of this paper is to present the summary for the article, covering its main idea and the author’s opinion, and sharing personal reflections in this regard.
Summary
In the article, Somer Anderson describes the functions of the Federal Reverse, which is the central bank in the U. S. They imply regulating unemployment and price levels, and the author focuses on fulfilling these duties during the moment of deflation. He states that this process appears to be not so damaging for the field of business, though it may involve serious difficulties for central banks. The reason for it is the fact that it may lead to debt deflation, which includes the increase in the real value of debts, and this process may present a threaten for debtors.
Somer Anderson discusses several measures, which Federal Reverse may adhere to in order to improve the situation. He describes adhering to open market operations, lowering capital requirements, discount lending, and expectation management (Anderson, 2020). All of them are expected to contribute to improving the economic situation in case of severe crises (Anderson, 2020). They are helpful for stabilizing the prices and preventing mass unemployment, which present the major and the most damaging consequences of economic shocks.
The author provides evidence for the effectiveness of these options by reminding the experience of the crises of 2008 and explaining how they are implemented in the current conditions. Somer Anderson highlights that all the methods mentioned previously have already been applied for improving the economic climate (Anderson, 2020). There is no possibility to adhere to them in the future, as they have reached their limit (Anderson, 2020). The discount rate and reserve ratio are extremely close to zero (Anderson, 2020. Therefore, he introduces the opinion that further progress depends on the ability of Federal Reverse to promote and contribute to a qualitative easing in the future, which can be predicted to some extent (Anderson, 2020). Thus, as all the options, which are usually used, have already been applied, the bank should elaborate and advance innovative monetary policy.
Personal Reflections
I can agree with Somer Anderson’s opinion on the necessity of presenting a new strategy for recovering the economics. In the context of present-day developments, this sphere is developing at a rapid pace, and the measures, which are expected to be applied in crises, should be altered in order to respond to modern needs. After reading the article and observing the current situation in world economics, it becomes evident that the measures may appear to be obsolete to some extent in the modern world. Although they were effective 12 years ago, today, economics needs fresh suggestions. For this reason, the fact the Federal Reserve should elaborate on new monetary policy is undeniable.
Reference
Anderson, S. (2020). How the Federal Reserve fights recessions. Investopedia. Web.
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