The Great Depression & the New Deal
The Great Depression
"The Great Depression was a worldwide economic crisis that in the United States was marked by widespread unemployment, near halts in industrial production and construction, and an 89% decline in stock prices" (New York Times).
Despite the prosperity from the 1920s, the Federal Reserve failed to meet its potential during the Great Depression. After interest rates rose, the economy slowed and panic followed. The Fed is often blamed for weak intervention during the Depression. The Federal Reserve is actually considered a cause of the Depression because it did not regulate currency effectively. However, this experience only led to more policy change that strengthened the Reserve; the New Deal introduced many institutions.
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(Photo Courtesy of The New York Times)
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The New Deal & the Federal Deposit Insurance Corporation (FDIC)
"Franklin Roosevelt's New Deal began as a program of short-term emergency relief measures and evolved into a truly transformative concept of the federal government's role in Americans' lives. More than an economic recovery plan, it was a reordering of the political system that continues to define America to this day" (Hiltzik 1). "Speech by President Franklin D. Roosevelt Regarding the Banking Crisis"
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(Photo Courtesy of Tangient, LLC.)
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The FDIC is one of many reformative institutions from the New Deal. It protects banks and depositors, like Morgan did in 1907. The FDIC saved thousands of banks from bankruptcy by insuring them. It aimed to alleviate the damages from the Great Depression. The FDIC has indemnified banks for the last eighty years; this legacy contributes to America's status as an economic powerhouse today.
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"On June 16, 1933, President Franklin Roosevelt signed the Banking Act of 1933, a part of which established the FDIC" (The FDIC history, para. 7).
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An independent agency of the federal government, the FDIC was created in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s. Since the start of FDIC insurance on January 1, 1934, no depositor has lost a single cent of insured funds as a result of a failure" (Federal Deposit Insurance Corporation). |
"The FDIC was established as an independent agency of the federal government in 1933 at a time when public faith in the banking system was drastically low. Then organization was created to improve and preserve confidence in banks and protect the supply of money by providing insurance for bank deposits and instituting periodic examinations of banks the agency insures" (Leab 28). |
"It is a well-accepted axiom of banking regulation that the central bank must act as a 'lender of last resort' to prevent bank runs. It can do so by explicitly insuring bank deposits" (Sufi 124). |