The Federal Reserve and the Depression
The Federal Reserve, established in 1913, was the leading cause of the Great Depression. They induced the Depression in a number of ways that is directly correlated to the collapse of the US economy. They played a key role in the stock market crash in 1929 and the economic failure that followed with policies that were horrid and also failed to address the new concept of the Wealth Effect and unequivocal distribution of wealth. They also exposed their interests to highly tumultuous parts of the world that carried a great deal of risk, and after the Depression, failed to enact or enforce any laws to help prevent such a disaster from occurring again. The collapse of the stock market is widely thought to be the cause of the Great Depression. The Fed's policies during the stock market rise and after the crash were appalling and make many of today's economists wonder how they could be so wrong. From 1922 through July of 1929, the Dow Jones Industrial Average rose an astonishing 575% and created hundreds of billions of dollars of wealth worldwide. However, Federal Reserve Chairman Adolph Miller was extremely late to the game and did not even think about the possible implications that a stock market slump may have on the economy
Of all of the major players in law reform, the Federal Reserve, the largest contributor to the Great Depression, enacted or enforced a very small amount of new laws, perhaps none depending upon who you ask. htm) The reliance of the Federal Reserve on these banks stripped them of reserves, the Fed's very foundation, when it's "owners" began to fail. Why? Quite simply, they never fully understood what was happening in the Depression. With no liquidity on the market, people were forced to sell their stocks in order to pay off brokers, who were becoming worried about the fact that people had bought stocks on margin and wanted to make sure they would be repaid. Finally, the market has been saturated so fully that there is no one left to buy it, and the company has a huge inventory surplus with no one to buy it. Instead, The Fed raised rates furiously in 1929, hoping to slow down inflation. In addition to this, as investors began defaulting on margin calls, investment banks like Goldman Sachs and Lehman Brothers also defaulted on their debts to the Fed. Unfortunately, the idea that margin rates poised a threat to the economic health of the country never became apparent to the Federal Reserve, or if it did, they did not take it as a serious threat to the United States' economic prosperity. Since the Fed failed so miserably in its rate increase attempts, it should have raised the Margin Requirement rate when it became apparent that the stock market rise might be unsustainable at the rate that it was proceeding. The Federal Reserve comes into all of this because their antiquated view of looking at the consumer caused them to fail to realize the dangers that a consumer spending slowdown posed to the economy. The years 1931 and 1932 were the two worst years of the Depression, and without help from interest rates, inflation was nonexistent and was actually recessionary for quite some time, inflation is essentially the rise or fall of prices in a year over year comparison, which in turn provides more money for the industrial sector, which can then afford to hire more workers, who can afford to buy goods, and increase income for companies and so on. Our Congress turned the treasury department over to a private corporation, the Federal Reserve and their agents. But what does this have to do with the crash being part of the Depression? How did the Fed react after their highly misinformed decisions after the crash had occurred?The Fed's policy did not improve after the Crash of 1929, in fact it deteriorated further. As consumers were forced to pay their debts, many felt taking a loan of some sort was in order. Durable Goods orders (Items that are designed to last 3 or more years) began to fall and they were forced to lay off workers in a process that leaves no one with enough money to buy products of a company.
Common topics in this essay:
Federal Reserve,
Margin Requirement,
FDR's Deal,
Discount Rate,
Fed Funds,
Adam Smith,
Mariner Eccles,
Wealth Effect,
United States',
Fed Fed,
stock market,
federal reserve,
wealth effect,
stock market crash,
market crash,
raised rates,
fed decided,
margin requirement,
stock prices,
market rise,
people buying,
stock market rise,
chairman mariner eccles,
senate banking committee,
treasury act 1921,
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Acceptance Essays
