Who Controls America

by Mark Mullen

The Fed was created to prevent bank panics, so what happened? Let’s start with the Fed’s flawed policy. Between 1929 and 1932, the Fed shrunk the amount of money in the economy by one-third causing the recession of late 1929 to turn into a full blown multi-year depression. Shrinking the quantity of money in the economy created deflation which increased debt. Mounting debts caused reduced consumption of products and increased unemployment. High unemployment led to bankrupt businesses, banks, and individuals. Instead of contracting the monetary base the Fed should have been expanding it in order to save banks and stem deflation. They didn’t because, like most government agencies, the governors of the Fed could not agree on a course of action, so they did nothing. Failure to act was the wrong action. The Fed was not the only government entity that created the Great Depression. It had help from Congress and President Hoover. In the summer of 1930, Congress passed the Smoot-Hawley Tariff Act raising American tariffs on imports by some 20 percent. The rest of the world did not like this and reacted in kind. American exports fell from over $5 billion in 1929 to roughly $1.5 billion in 1932. Unemployment in export industries exploded and farmers who normally exported nearly a quarter of wheat production and half of all cotton and tobacco saw their markets totally collapse. As if Americans weren’t already down and out, President Hoover and Congress landed another devastating blow ...