The US Social Security Administration And The Great Depression

The Great Depression was a financial crisis that began in 1929 and lasted until 1939. Prior to The Great Depression, the financial markets were booming in America during the period known as The Roaring 20’s. Share prices rose tremendously in throughout the 1920’s; according to the Federal Reserve History in their article Stock Market Collapse of 1929, economist Gary Richardson and collogues explain the Dow Jones Industrial Average increased 600% between August 1921 and September 1929 (Richardson et al. 2013). The Dow Jones Industrial Average is a stock market index for 30 large corporations. The Great Depression began in September 1929 when the stock market plummeted. The Federal Reserve History describes that the stock market collapse started

According to the US Social Security Administration, in the article The Depression, banks held large portions of their assets in the stock market during this time (US Social Security Administration). When the market plummeted, their assets did too. This created an insolvency and liquidation problem with these banks. The Social Security Administration describes the public lost confidence with the banks, which led to bank runs across the country. Depositors went to the banks in mass to pull their funds out of the bank, since the banks were facing insolvency and liquidation problems due to the failing market, they did not have the funds on hand to pay back to the depositors. The Social Security Administration notes that 9,000 banks failed during this period and defaulted on $7 billion of deposits. There was no deposit insurance during The Great Depression, so the depositors lost their

He explains that the Federal Reserve allowed the money supply to fall during this time because they did not implement monetary policy in time to prevent the fall in money supply (Fishback 2010). Between 1929 and 1933 Fishback explains that the Fed raised the discount rate and made open market sales of bonds to lower the money supply. The Fed could not increase money supply at this time because they were still using a gold standard for the monetary system. In 1932 the Hoover administration increased federal spending and federal lending through the Reconstruction Finance Corporation (RFC). Price Fishback explains that the RFC was a government financial institution that lent funds to banks and other financial institutions. It is noted that the RFC made $784 million to 4,000 banks during 1932 to prevent these banks from failing. After the Roosevelt Administration took office in 1933, they removed the United States from the gold standard; shortly after the U.S. Fed decreased the discount rate to provide liquidity to banks; by 1937 the discount rate was at 1%. This helped the country recover from the