What Caused The Great Depression Essay

The Great Depression was the worst economic blunder in the history of the Western industrialized world. While many people believe that the Great Depression was caused by the stock-market crash of 1929 or the banking crisis that followed this crash, the Great Depression was actually caused by government policies. The stock-market crash of 1929 only started an inevitable recession that was going to happen regardless of whether there was a crash or there was no crash. Also, the banking crisis in the early 1930’s was actually caused by the stock-market crash, and the crisis would have never occurred if the Federal Reserve would have done its job correctly. Lastly, even after the government mishandled the stock-market crash and the banking crisis,

government would have handled the economy correctly and would have put in place proper economic safety nets.

This belief that the stock market crash of 1929 caused the great depression is wrong. Because the economy naturally cycles, the U.S. was bound to go into a recession at some point in the late 1920s and early 1930s. The economy naturally expands, peaks, recedes, recovers, and then repeats the process. In the late 1920s, the economy was peaking historically high. After an economy peaks, the economy will naturally go into a recession. The stock market does not usually affect the economy. In fact, the stock market usually only reflects how the economy is doing. For example, If the economy is doing well then the stock market will usually reflect or show that the economy is doing well. If the economy is doing poorly then the stock market will usually show that the economy is doing poorly. However, in some cases the stock market can affect the economy in a negative way during a crash or a loss in shares, investments, or both. In the case of the 1920s, poor reflection of the economy by the stock market led to an economic bubble which resulted to a stock market crash. This

In order for someone to understand why the Federal Reserve was probably the primary cause of the Great Depression, one must ask and answer the following: What is the Federal Reserve? Why was the Federal Reserve created? And what could the Federal Reserve have done to prevent the Great Depression? The Federal Reserve is the centric bank of the United States and was founded by Congress on December 23, 1913. According to the Board of Governors of the Federal Reserve System, the Federal Reserve’s responsibilities fall into four general areas. These areas are conducting the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices; supervising and regulating banks and other important financial institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers; maintaining the stability of the financial system and containing systemic risk that may arise in financial markets; and providing certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions, and playing a major role in operating and overseeing the nation's payments systems. The Federal Reserve was created because of events such as the panic of 1907. The panic of 1907 was very similar to the