In last blog I talk about the damage and the reasons for central bank factors to caused the Great Depression. This blog will research on the measures took by US central bank and the effects.
The New Deal was a series measures enacted in the US from 1933 to 1938. It not only focus on the real economy, but also adjusted the virtual economy. The new regulations issues from central bank are important in the New Deal. The three cores of the New Deal is Relief, Recovery and Reform.
At the third day of Franklin Roosevelt became a president, he declared that domestic commercial banks go "bank holiday". Then proclaimed Emergency Banking Act in 9th March. The Federal created insurance for the healthy banks. Examined the bank's balance and issue permit for these healthy banks. The Federal insured that reopened banks would be sage. In the 16th June, US passed the 1933 Banking Act for establishing Federal responsibility borne by the Federal Reserve System. The separation of investment banks and commercial banks, to prevent banks from using depositors funds speculation, also provides for the establishment of the Federal Deposit Insurance Corporation, the implementation of insurance for small deposits. At the same time Federal Reserve Bank issued notes to save money shortage, authorize Reconstruction Finance Company to purchase preferred stock banks to provide liquidity to the National Bank, Ministry of Finance authorized the bank to rectify and funding, and to prohibit the storage and export of gold. The series measures are central bank use regulations to resolve financial crisis.
As a consequence, the New Deal got a positive effects for American economy, especially in finance area. The number of unemployment rate has significant decrease after the New Deal. And the USA real GDP have a huge increase.
In conclusion, through the crisis explanation and the facts. Commercial bank is unstable and it need central bank to control or hold the system's reserves. In my opinion, the Great Depression and the New Deal are the first time let people understand how important of central bank. But it is just the basic function of central bank. In the recent few times financial crisis, we found many new problem and new functions for central bank. I will think it critically in following blog.
Data:
The video collected from http://www.youtube.com
The graph collected from http://en.wikipedia.org/wiki/File:US_GDP_10-60.jpg http://en.wikipedia.org/wiki/File:US_Unemployment_1910-1960.gif
Conference
1. Hickson, C. and Turner, J. (2004) Free Banking and the Stability of Early Joint-stock Banking, Cambridge Journal of Economics. 28 (6), 6, p. 903-919
2. Arthur Meier Schlesinger, Jr. The Coming of the New Deal, Houghton Mifflin Book (2003), p. 115
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