Economy: The Glass-Steagall Act created restrictions on speculating purchases. In doing so, it prevented banks from investing in assets with high risks and consequently missing out on high returns. While in the run for presidency, Donald Trump saw it fit to bring back the back the bill into the country’s economic platform. Nonetheless, the separation of commercial and investment banking could have done little to prevent the financial crisis. Therefore, there is a probability that its re-introduction will not prevent the next financial crisis. What constituted to the crisis are legal factors which have little to do with the act. For instance, most financial institutions relied heavily on short-term funds and at the same time operated on liquid assets with minimal capital (Funk& Hirschman, 2014). Many firms utilized derivatives which meant they could easily hide outstanding risks. As a result, unless such risky behaviors can be addressed sufficiently, the financial system will still be in turmoil. Hence, to ensure its safety, the financial system needs to be fortified to be more resilient to interruptions undermining intermediary’s balance sheets.
Funk, R. J., & Hirschman, D. (2014). Derivatives and deregulation: Financial innovation and the demise of Glass–Steagall. Administrative Science Quarterly, 59(4), 669-704.https://doi.org/10.1177/0001839214554830
Lowering fluctuations within the economy demands using either a monetary or fiscal policy. As it stands, most governments rely on monetary policies when targeting low inflation rates. Using fiscal policies results in high taxes while it lowers expenditure. Nonetheless, using fiscal policies helps reduce the budget deficit (Smets, 2014). However, it is problematic trying to reduce public spending by increasing taxes due to political agenda. Therefore, most countries rely on monetary policies to fine-tune the economy. An effective way of lowering inflation is increasing the interest rates. This is because high-interest rates lower the level of economic activity by increasing borrowing costs. Hence, fiscal policies are quite unpopular because simply altering interest rates is the simplest way to affect an economy.
Smets, F. (2014). Financial stability and monetary policy: How closely interlinked?. International Journal of Central Banking, 10(2), 263-300. Retrieved from https://econpapers.repec.org/article/ijcijcjou/y_3a2014_3aq_3a2_3aa_3a11.htm