Failed Interventions: The Increasing Ineffectiveness of Monetary and Fiscal Policies in High Debt Environments

Macroeconomic stabilization policies are implemented to smooth the real effects ofperiodically recurring business cycles. However, since empirical evidence proves thateconomic policy can itself confer negative costs onto societies, the effectiveness ofmonetary and fiscal policies is often questioned. Of crucial importance today, increasingpublic and private debt levels pose huge challenges for policy implementation. As such,this thesis utilizes post-recession stabilization experiences in the U.S. since the 1970s,with particular emphasis on the reflationary efforts of the current economic crisis, andlooks at other countries that have high sovereign debt levels who have gone into or areapproaching default, to illustrate that the sustained use of monetary and fiscal policies inincreasing high public and private debt environments further frustrates the ability ofmacroeconomic stabilization to steady economic activity.