There are a few key moments in life that alter a person’s life forever. And some of those key moments are so strong that it can affect others as well. Sometimes the key moments in life and in history could cause such a massive impact that it could affect us till this very day. While others managed to bounce through hardships, others are still doing everything they can just to make ends meet. This is a story of one of those great key moments that affected nearly everyone. One that serves as a reminder on the pros and cons of money. Thus I give you the story of the Great Depression.
In this article, we will discuss everything there is to know about the great depression. The cause, effect, and the importance shall be explained in detail.
History Of The Great Depression
The Great Depression was a worldwide economic crisis that persisted for 10 long years. But before the Great Depression happened another crisis happened right before it. It was called the “Black Thursday“ of 1929. The day the crash of the stock market began. In fact, in just 4 days the stock market economy had crashed its prices by about 23%. However, the stock market was already on its way downhill before all this happened. In fact, August 1929 was when the stocks were overvalued the most.
The Cause Of The Great Depression
The central bank was one of the main reasons for how depression came to be. The bank used ludicrously tight monetary policies that see their stocks rise rapidly to a dangerous state. Thus leading to severe bankruptcy for the smaller establishments. Ben Bernanke, the former chairman of the Federal Reserve, said in a statement that the FED made five grave critical errors that caused the downfall of the economy.
Five Errors Of The Fed
These were the five critical errors that were made by the Fed:
– The Fed started to increase the funding rate during the spring season of 1928. However, they did not stop the incremental increase until the recession hit back in August of 1929.
– As the stock market crashed, investors start to move towards currency markets and trading. Leaving the gold standard, which supported the dollar. People then started to suspect the sudden change in choice investments. Thus causing a panic move that made everyone else trade their dollars into gold. However, that created a problem with the dollar supply.
– The Fed, in an act of desperation, decided to again increase the interest rate to maintain the dollar’s rule. Thus hindering any growth for businesses.
– The Fed did not increase the supply of money
– Thus all investors withdrew their money from the banks. The banks failed which caused people to panic. However, the banks did not heed to the public and kept going with its usual decisions. Therefore completely destroying the trust of the common people in any sort of financial institutions. And almost everyone has decided to withdraw their money and bury them someplace only they will remember. Thus destroying the supply of money.