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Throughout history, there has been multiple repeating recessions over hundreds of years, however this recession was due to the monetary policy. The Federal Reserve System had been established to proven t what actually happened. It was set up to avoid banks closing down and avoiding banking crisis-The Fed followed policies which led to a decline in the quantity of money by a third. For every $1 00 in paper money, in deposits, in cash, in currency, in existence in 1929, by the time you got to 1933 there was only about $65, $66 left.
And that extraordinary collapse in the banking system, with about a third of the baa inks failing from beginning to end, with millions of people having their savings essentially wash De out. Before the reaction of the Federal Reserve, bank panics were usually handled by the ban KS not the government. It was in large part to improve the management of banking pans CSS that the Federal Reserve was created in 1913. However, in the early sass the Fed did not serve e as that function.
The problem within the Fed was concentrated in the doctrinal. Most of the fail inning banks were small banks and were not members of the Federal Reserve System. Thus, the Fed saw no particular need to try to stem the panics. At the same time, the large banks – which would have intervened before the founding of the Fed – felt that protecting their smaller return was no longer their responsibility. Indeed, since the large banks felt confident that the e Fed would protect them if necessary.
The Federal Reserve drastically reduced interest rates, and fueled by recent SST sock gains, stock market investment was at an all time high. The Stock Market was making g gains approaching 20% per year in the midi sass, while the interest rate was around d at the time. If you could borrow money at 1% and get a return of 20% with inflation being m original, wouldn’t that sound like a good idea? Thus, massive loans were taken out.