The economy began to contract still further immediately after the election of Franklin Delano Roosevelt. Fears that Roosevelt would devalue the dollar or even abolish the Gold Standard caused both domestic and foreign investors to once again to "convert dollars to gold, putting pressure on both the banking system and the gold reserves of the Federal Reserve System. Bank failures and the Fed's defensive measures against the gold drain further reduced the stock of money. The economy took its deepest plunge between November 1932 and March 1933, once more confirming the temporal sequence predicted by the monetary hypothesis. Once Roosevelt was sworn in, his declaration of a national bank holiday and, subsequently, his cutting the link between the dollar and gold initiated the expansion of money, prices, and output" (Bernanke 2002). Roosevelt did not abandon the gold standard wholesale. However, he did devalue the dollar, nationalize gold owned by private citizens, and declared contracts in which payment was specified in gold to be invalid as part of his stabilization policies (Bordo 2002)....
"It is an interesting but not uncommon phenomenon in economics that the expectation of a devaluation can be highly destabilizing but that the devaluation itself can be beneficial," observes Bernanke (Bernanke 2002). Ultimately, the current Fed Chairman's single-minded assessment of past monetary policy, in terms of its assessment of the causes of the Great Depression seems incomplete -- a cash infusion into the economy could doubtfully have circumvented the decline in consumer confidence alone. However, the influence of monetary policy and the gold standard is an important warning about the fact that both fiscal and monetary policy must be examined in conjunction when assessing the causes of depressions and recessions in our nation's history.
Validity and reliability have not been addressed in this paper at all. There is no empirical test being proposed for the paper. The a priori conclusion of the paper, in the absence of research, begs serious questions about the validity of this research. If you think you already know the answer, why ask the question? 6. In terms of style, the proposal sounds disjointed, and the giant paragraphs do not help. Ideas
Their basis of criticism is that it had very expansionary monetary policy in the early days that gave room for misallocation of various capital resources. This lead to various undesirable economic scenarios such as the support of a massive stock price bubble. It has been argued that even though the Federal reserve did not cause the Great depression, it mitigated it through the unnecessary contraction of the money supply
Federal Reserve buys government bonds, it increases the overall money supply in the nation and thus pursues an expansionary monetary policy. Through buying bonds the Fed increases the amount of reserves in the banking system, leading to more loans and hence more deposits. Since deposits are part of the money supply, the money supply increases. This is often done in combination with lowering interest rates to speed up the
End the Fed? The nation does not need to go back to a gold standard, though this certainly wouldn’t hurt. The nation has the right to coin its own currency and that currency can be backed by the authority of the U.S. government and nothing else. It does not need to be backed by gold. The point of the gold standard is to help control inflation—to keep the dollar supply at
It has been an expected fact that the balance of payments is self adjusting under fixed exchange rates, at least to the point when monetary authorities interfere with it by sterilizing the variations in the money supply that determines the adjustment mechanism. Irrespective of the omission of a global unit of account, base for neutral nations and means of settlement, the important disadvantage and the significant threat to prosperity
Federal Funds Rate The federal fund rate was part of the solution, comprised in the Federal Reserve Act of 1913, to centralize the banking system and gain public control of the money supply, inflation, and economic growth. The banking crisis of 1907 was a result of decentralized, unregulated banking that caused confusion with private bank notes being used as currency. There were occasional episodes of monetary mismanagement where the money supply
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