“The only thing we have to fear is fear itself, nameless unreasoning, unjustified terror which paralyses needed efforts to convert retreat into advance” (Parker, p. 236). This quote was made famous by the President of the United States Franklin D. Roosevelt for his campaign at the most difficult time period in the world. This unprecedented event for the world began in the United States on October 29th 1929, also known as “Black Tuesday”, when their economy fell into peril of complete economic collapse. What started out in the United States was soon felt all over the world as a depression began to affect the Western world. Jobs became scarce to the population, and nominal wages were at poverty levels unsupportive of a middle class
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Most of this deflation was attributed to the Gold Standard. The Gold Standard was a backing of currencies to ensure the safety and reliability of fiat money. That being said, this only allowed the production of new currency into the market if more gold was imported into the country. In the theory of monetary policy, a decrease in the money supply in tandem with an increase in interest rates causes inflation to depreciate. That being said, the Gold Standard was not allowing the money supply to fluctuate and keep inflation stagnant to maintain wealth. Therefore, deflation continued further cutting into business profits. The Gold Standard after the First World War was allocating all responsibility to the U.S to keep other economies afloat. For instance, the reparations and war debt coming into the U.S in the form of gold or other monetary payments was actually false profit for government coffers. For example, Elser states “Allies depended on reparations from Germany to pay the U.S for their war loans, and Germany relied on the U.S to pay the Allies” (Esler, p. 613). This circular flow of currency is what brought most of the economies down when the U.S began to falter.
Next, because the depression was in hindsight, there was a contraction in credit that was attributed to massive bank failures. According to Bill Ganzel of the Ganzel Group Communications, “9,000 banks failed during the 30s…4,000 banks failed during the one year of