Impact Of The Fed In The 1920s

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The 1920’s was a flourishing decade; the economy was rapidly growing and changing, World War I was over and Jazz was emerging as the new fad of music. Sadly, the United States could not stay prosperous due to lack of understanding of simple economics during that time. After the war, the use of credit really hit it off in America, this allowed Americans to ‘buy now and pay later’. This meant that many Americans were saving less and spending more simply because they could. With introduction of stock markets many people were able to invest their money and profit off of it later on. Investing money in order to make money worked for a while until people began to speculate. Many people began to get greedy and speculate on many stocks at once, this …show more content…
The Federal Reserve Board in the 1920’s were in charge of controlling the stock market and the amount of money in the economy. “The Federal Reserve Board mismanaged financial matters during the 1920’s” (Baughman 113). The Federal Reserve Board believed that if they increased rates on the banks and forbid them from using their money on speculation, it would even out and stabilize the economy. That is where they went wrong. They kept continuously raising the rates for banks and that caused bank debt and speculation to reach an all time high. If the Federal Reserve Board had not raised the prices so high it would have mostly eliminated bank debt which would have caused for less borrowing and speculation. Benjamin Strong, the governor of the New York Federal Reserve Bank had hoped that the availability in easy money would help get businesses going and hopefully increase stock market investments. As stated in American Decades by Judith Baughman, “In October 1929, speculation had reached such a high level that the stock market collapsed” (113). The bank’s speculation rate increased when the rates went up because they had no money so they had to depend on money from the stock market. If the Fed had not raised the prices on banks, the banks would not have had to speculate on the stock market. Combined with businesses, investors, brokers and speculators, …show more content…
After the stock market crash, many people went into a panic and tried to sell their stocks to any willing buyer. In the book titled, The Crash of ‘29 and The new Deal, Bruce Glassman wrote on page 28 that “On Tuesday, October 29 more than 16 million shares of stocks changed hands, and many stocks closed at half the value they showed that morning”. The value of stocks had dropped to a devastating level so when the stockowners tried to sell their stocks they made little to no money off of it. That put many Americans in the red because they were not able to pay off the loans they took from the bank. In turn, that meant, combined with their already building debt, the banks did not have enough money coming in. The Stock Market Crash of 1929 was a leading cause and the beginning of The Great Depression but the tipping point of it was because there was a money shortage throughout the banks in America. “By the spring of 1930, six months after the crash, more than 4 million Americans were out of work” (Glassman 29). Businesses who lost money in the crash had to lay off workers and stores were not making any money because no one had money to buy goods. The Great Depression was the worst economic downturn in American history, and with President Herbert Hoover, who was unwilling to step in and help the growing poor population,

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