How did federal reserve board contributed to the outbreak or spread of the Great Depression?

Answer 1

An economy based on fractional reserve banking is cyclical in nature with economic booms followed by periodic busts. These booms and busts reflect either an expansion or contraction of the money supply. Booms are considered good times, whereas busts are deemed undesirable economic downturns. Economic downturns used to be called depressions, at least until the Great Depression of the 1930s. In an effort to lessen their psychological impact they have called recessions since the decade long Great Depression of the 1930s

The Federal Reserve Banking System was created in 1913. The Federal Reserve Banking cartel was given exclusive control over the nation's money supply. It aided the Federal Government in financing World War I and expanding the general domestic economy in the 1920s, a decade known as the Roaring Twenties. The Fed expanded the money supply in the 1920s in an effort to shore up the weak British Pound Sterling. Suddenly in 1929, the Fed reversed its monetary policy and begin contracting the money supply. Between the summer of 1929 and the election of 1932 the Fed reduced the money supply by 1/3. Individuals and businesses were caught short and forced to liquidate at reduced prices causing the economy to cave in on itself.

Rather than improving the nation's poor economy the fiscal policies of the New Deal only made a bad situation worse. It was not until the outbreak of World War II that the Great Depression came to an end. With more than 10 million plus men wearing the uniform unemployment ceased to be a problem. Furthermore, with the conversion to a war economy there was plenty of work for those who wanted to work.

Without question the monetary policy of the Fed was the single cause of the Great Depression. The Great Depression's longevity was due to the failed fiscal policies of the FDR administration.

It should be noted that the Federal Reserve System is a private banking cartel that is only very loosely controlled by the Federal Government. It might be fairer to say that the Fed is the engine that drives the Federal Government. For many years we have been in a situation where the central banking tail is wagging the political governing dog. If you remember from one of the 2000 presidential debates both candidates Gore and Bush responded to a question about a falling Stock Market by saying the first thing they would do would be to call Greenspan (then Fed chairman).

Answer 2

ANSWER No, the Great Depression was caused by the stock market crash, widespread bank failures, the worldwide economic crisis brought about by World War I, and the collapse of agricultural prices. World War I left our main trading partner, Europe, utterly bankrupt, and they were too busy trying to jumpstart their economies through tariffs and whatnot. The Fed was around since it was initiated in the Wilson administration, but it really didn't do anything to solve or cause the depression due to its limited capacity. ANSWER Yes, many economists believe that the Fed did cause the Great Depression. Economists could not at first explain the Depression because they were unaware of the dramatic shrinkage in the quantity of money. It was not until Friedman and Schwartz dug into the facts that the culpability of the Federal Reserve became known. Moreover, most economists found this culpability to be unwelcome information. In the 1960s economists were uniformly Keynesian in outlook. They were emotionally supportive of government intervention, and their human capital was invested in policies that rested on their belief in the effectiveness of government action. Although they could not refute the evidence, they did not warmly endorse the revelation that the Fed had caused the Great Depression. Source: http://www.hoover.org/publications/policyreview/3476271.html

Answer 3

They didn't.

Actually banks made it worse because many banks invested all the money the bank had including the deposits of customers in the stock market. When the stock market crashed, the bank went bankrupt and it was closed down.