how to prevent a depression
in modern times a deep recession or an outright depression is most often fended off by the use of two weapons wielded by separate branches of government expansionary fiscal policy and expansionary monetary policy there is another course fiscal austerity that has been controversial to say the least fiscal policy is the job of the u s congress and the president 17 in warding off an economic downturn fiscal policymakers spend taxpayer money they may approve massive public works projects such as the works progress administration wpa which was created in 1935 to create jobs to replace those lost 18 they may put money directly into the hands of the public through such measures as the expanded child tax credit that increased the spending power of families during the covid related recession monetary policy is the job of the central bank in the u s that s the federal reserve the fed can goose the economy simply by lowering the interest rates it charges banks for the short term loans that keep the banking system running 17these rates influence all other rates that are charged for consumer and business loans cheap money encourages more borrowing and more business investment leading to the creation of more jobs when it works the rolling disaster of a looming depression comes to a halt and begins to reverse course if still more firepower is needed the fed may adopt a policy of quantitative easing the fed uses its own reserves to buy massive amounts of the government s debts such as bonds this has the effect of adding more cash to the economy that cash becomes available for new investments fiscal austerity stands in direct opposition to expansionary policy as a strategy for fending off an economic downturn in times of recession government revenues decline fewer people are working fewer projects are getting off the ground and consumer spending is reduced all of the taxable events that keep a government humming are in decline a commitment to a balanced budget could logically be met with cuts in government spending that course was followed during the great recession by some nations in the european union as well as by some u s states which were hamstrung by balanced budget rules or had a pronounced aversion to increasing government debt whether this strategy cures a recession or feeds it continues to be a matter of debate most recently u k prime minister liz truss was ousted from her job after a record short tenure for recommending fiscal austerity in response to the nation s economic problems 