Bordo (2000) mainly expounds on Anna Schwartz’s sound finances and stable monetary policies. His work presents American historical evidence that shows the interrelationship between measures of financial movement and aggregate price stability. Therefore, the primary purpose of this article is to examine the application and effect of Anna’s policies. Bordo (2000) also wants to study the financial stability levels of individuals that do not use fiscal and monetary policies. Stable money means maintaining standard price stability by keeping money growth close to the actual output growth rate. The monetary policy should not grow the economy by offering short-term disturbances. Notably, this imperfect knowledge of short-run behaviors affects the trends of the economy. Lack of this understanding invokes changes in the money growth in the real economy. Bordo (2000) outlines that the process of stable monetary policy can have severe impacts on the real economy. The continued pursuit of regular monetary policy leads to a sound financial system. The central bank should act as a lender when the public increasingly converts deposits into currency. The monetary authority can also lend out money when it notices a stock market crash that will threaten loan accessibility.
The author found out that most central banks utilize Schwartz’s policies. Most developed countries like the U.S. learned the importance of stable money and financial policy. Such nations reduced the inflation rates, although they did not heed the element of last resort lender. Instead, they have considered discounted window lending, leading to moral hazards. The moral hazards have also been brought about by creative ambiguity and discretionary policies (Bordo, 2000). On sound financial policy, the researcher found that the circumstances in which it should be followed worked on the last lender resort policy. Notably, this was after a keen study of real vs. pseudo-financial crises. The crises hold risks for old and new perceived sources, where they represent unproven economic losses. Wealth losses are not similar to real risks since individuals can deal with them through bankruptcy proceedings.
Future researchers should delve into solutions to money liquidity. The author outlines that the banks panic since most individuals liquidate their resources through open market operations. Researchers should find answers to this banking disaster since it occupies a considerable portion of the national budget. In addition, future research should concentrate on the relations between financial policy and aggregate price stability. According to Bordo (2000), aggregate price shocks did not affect financial stability after the 1993 price shocks. Environmental changes in the ’80s and ’90s may have been credited to the vulnerability of the banking systems. Future researchers should validate the author’s hypothesis despite the financial policies’ differences over time.
The primary strength of the article is evident in its precise and consistent data. Most of the article’s sources are readily available. Therefore, this can be used to validate the information offered by the author. Since most of the data is historical, the author has integrated it into the article, making it easier for the reader to understand the financial trends. Moreover, he has drawn more clarification and analysis from Anna Schwartz’s policies that have enabled the reader to understand the whole concept of money and financial stability. In other words, the resource is very reliable since the information can be used to study the past and make viable future decisions concerning money and economic policies.
One of the weaknesses evident from this article is the poor formulation of the thesis statement. Notably, the report does not have a clear hypothesis. The author directly leads the reader on where he will derive the resources without giving a clear and precise reason for the study. Again, the author does not have anticipated objections. In particular, this is because the main points are not strong enough to warrant detailed discussions of opposing viewpoints. In other words, the authors do not have an objective that derives a strong topic sentence for the article. Another weakness evident from the report includes publication bias. The article mainly concentrates on publications that are from developed nations. The historical evidence used in the article is from America, a developed nation. Therefore, this means that information on fiscal and monetary policy only benefits a particular group. It is important to note that the article cannot help developing nations create effective budgetary and economic policies.
References
Bordo, M. D. (2000). Sound money and sound financial policy. Journal of financial services research, 18(2), 129-155.