Great Depression What
The Great Depression
The Gold Standard Monetary Policy
The Great Depression was an economic downturn which started in 1929 and its effects continued to last through the 1930s. Although the main effects were felt in North America and Europe, it affected countries around the world. Cities around the world that were based on heavy industry were hit the hardest and unemployment and homelessness shot up. Outside of the cities farmers, miners, and loggers were also hit because demand and prices fell dramatically. The causes of the Great Depression are numerous and have been examined many times by many different people. Although economists have come up with and supported numerous theories- such as the Debt Deflation Hypothesis, The Gold Standard and Monetary Policy, and Contractionary Issues- there will continue to be debate on what the underlying cause of the Great Depression that began in 1929 was.
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The 1920's
In the United States the decade of the 1920's was a decade of brisk economic growth in the United States that was marked by an expansion of consumer credit. Major innovations in the consumption behavior of households led to the purchase of durable goods such as automobiles, refrigerators, and radios, which utilized the availability of more credit. Between 1920 and 1929 the United States saw an annual growth rate of real GNP to equal 4.6%. Throughout the 1920s the Federal Reserve began to use Monetary Policy as an implement to stabilize business cycle fluctuations along with other actions to stabilize the economy.
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The Beginnings of the Great Depression
Members of the Federal Reserve System, President Herbert Hoover, and other public officials perceived there to be speculative excesses that were driving the stock market boom and a speculative bubble in equity values. These public officials were intent on ending these speculations. By 1928 buying rates on bankers' acceptances were raised from 3 percent in January 1928 to 4.5 percent in July. This rate increase reduced the Federal Reserve holdings of such bills, leaving only $185 million of these bills on balance. After the death of the Federal Reserve Bank President Benjamin Strong, the Federal Resrve was put into the hands of Adolph Miller, which insured that the fall in the stock market would become a reality.
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