Depression Monetary Policy

Objective: Analyze the Monetary Policy of the Great Depression

HistoryPanic 1893

Overbuilding of RailroadsRun on gold supply

(populism)Banks closed

Panic 1907NYSE fell 50%Run on banksBanks closed

The FED1913 – Federal Reserve

Act Response to Panic of

1907 Run on Banks

Created a central bank to run monetary policy for US Goal

maximum employmentStable pricesInterest rates

Make sure Banks DON’T FAIL for no reason

Monetary PolicySavings during 20s

declined

Banks reckless with money invest in stocks

Less money = less loans

Fed allowed banks to fail

Could not loan money – no gold to support loan

Hoover’s approach

Leave it alone approach

Smoot-Hawley Tariff

Cut taxes for rich – lead to deficit for government

Then raised taxes when saw the problem Including a tax on checks (2

cents = 30 cents today)

HooverAsked business not

to cut wages

Increase government spending

1932 started to have public works projects – too late

FDR’s RoleFDR closed banks

for 3 days

FEDS put billions of dollars back in circulation

Got rid of Gold Standard