Question

Why didn't the Federal Reserve save The Banking system during the great depression?

Answer 1

Actually The Great Depression is a huge black mark, on the Federal Reserve. And to some extent, it's a black mark on the founding organization of the Federal Reserve. B/z it coundn,t save banking sector during great depression. There many reason behind this not all adequate.actually when the Depression hit, there was no consensus about who was running monetary policy. Who had the responsibility for marshaling and executing an effective response to the Depression? Was it the New York Federal Reserve bank? Was it Washington? Was it the president? As a result,we got series of policy. Some banks were more hawkish, some were more dovish. The Federal Reserve System, means we can say the board in Washington, was fairly weak. Very much quite a contrast to recently, when we had this terrible economic crash in 2008. No matter what you think about Bernanke's response, whether you like it or not, there's no doubt about who was in charge. Now we come to point. According to Milton Friedman, the Depression was caused by the government. It was the result of bad government. It was the result of government actions not working the way they were intended to. The Federal Reserve System was established in 1914 for the purpose of preventing things like the Great Depression.but it couldn't save banking sector. Additionally, due to the failures committed by the Fed, more permanent changes were introduced in the institutions of the country. If a private organization makes a mistake and does things badly, it will lose money and eventually will have to go out of business. What is the logic that if a public organization does things badly, and governmental organizations evidently make bad mistakes, their programs will be expanded. Finally we say Federal Reserve System was established to prevent the bank runs and bank failures that happened during the Great Depression. However, they made it worse. They were supposed to provide liquidity and instead they reduced liquidity. That's a reason it couldn't save banking sector.