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How Did The Federal Reserve Affect The Economy Of The Late 1930's

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“If you want to understand geology, study earthquakes. If you want to understand the economy, study the Depression” (Ben Bernanke Quotes). Ben Bernanke, a tenured professor at Princeton University, served two terms as the Federal Reserve chairman from 2006-2014 and orchestrated the Fed’s actions during the Great Recession. Being a student of the Great Depression, Mr. Bernanke’s policies and regulations surrounding the late 2000’s crisis reflected the adaptations to the Fed’s failed actions in the 1930’s. Throughout economic history, the stability and health of our economy depends on the balance achieved by the Federal Reserve over their three major roles: Monetary Policy, Regulation, Lender of Last Resort. Studying and learning from policy and regulatory mistakes executed during the Great Depression, the Federal Reserve implemented a contrasting liberal and …show more content…

According to Bernanke, “The economy expanded too fast. There was too much growth. There was too much credit extended. Stock prices went too high. So what you need when you have a period of excess is a period of deflation” (Bernanke, 21). A period of deflation is exactly what occurred, brought on by commodity and mineral prices falling as well as the popping of credit market bubble. In 1930, the economy was contracting a significant amount annually and was accompanied by a soaring unemployment rate of 25% causing depositors to run out on banks, initiating the Great Depression. This forced the Federal Reserve to exercise its powers on a wide scale for the first time since its formation in 1913. Using monetary policy, regulation, and their role as lender of last resort, the Fed had no precedent of which to base their actions off, possibly leading to their numerous failures and

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