Most everyone has at least heard of the Great Depression that hit America by storm in the early twentieth century. Even though people are taught about the Great Depression, I personally think that a lot of people do not understand the severity that it caused and the livelihoods that it forever changed. The Great Depression, which lasted over a period of ten years, resulted in a lot of heartache for many nations worldwide (Fraser, 2010). As for the United States, the worst of the Great Depression harbored between 1929 through 1933 (Fraser, 2010). The Great Depression went down into history as being the worst traumatic economic moment for the United States (Paul Evans). It is still recognized for being the longest and severe depression that
…show more content…
The bank only keeps a certain percentage of reserves, called required reserves, on hand at all times. The rest of the reserves are excess reserves that the bank can loan out to make money (Cecchetti, 2008). Because banks no longer had excess reserves to loan out, which inevitably allowed them to make more money, banks started experiencing a drastic toll from the depression (Richardson, September 2007). Over one-third of banks in the United Sates during the Great Depression had failed. This seemed to cause a chain reaction to the overall scheme of things (Romer). Since banks were failing there was no one to lend manufacturer’s money for investments for growth, which also meant no money coming into the banks for excess reserves for financial investment (Richardson, September 2007).
The gold standard is another assumed cause of the Great Depression (Romer). There are thoughts circulating that the Federal Reserve either allowed or possibly caused the decline of the American money supply in order to preserve the gold standard. Since the United States’ money is backed by gold, foreigners were likely unsure of the United Sates commitment to the gold standard (Romer). This would have undoubtedly led to a large outflow of gold which would have unfortunately made the United States devalue. This unfortunately led to the decline not only to the United States but the rest of the world as well (Romer). During the late 1920’s, there became a rise in American stocks and bonds,