The Federal Reserves Role During the Great Depression

The Federal Reserve was faced with the ultimatum of either preserving the gold standard currently in place, or to dent the depression as quickly as possible. Denting the depression would require much easier credit than the latter, but the â€Å"gold standard handcuffed governments around the world (econlib).† After Britain went off gold, higher interest rates initiated by the Federal Reserve followed to â€Å"stem gold outflows.† Once this happened, â€Å"the discount rate went from 1.5 to 3.5 percent,† which was a â€Å"huge increase† considering the current situation of the economy. Although the gold standard was not the sole cause of the depression, there is a trace amount of evidence suggesting that it helped foster the depression in that â€Å"once countries abandoned it† their â€Å"economies usually began to grow again (econlib).† Despite the fact that the actions of the Federal Reserve were not the leading causes of the Depression, it is important to note that the decision to increase interest rates only instigated the crash of 1929, while also highlighting the complications of the gold standard, which then led to its dismantlement and the initiation of slow but sure recovery. †¢ The Dust Bowl With 30 percent of Americans already agitated by the crumbling prices of agricultural goods, the severe drought known as the Dust Bowl, lasting nearly ten years, wiped out farmers crops, and carries with it implications of prolonging the end of the Great Depression. 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