Federal Reserve Actions during the Great Depression in 1929 and 1930, and the Global Economic Recession of 2008 and 2009 - Essay Example

Download file to see previous pages... The main reason for this is due to the circulation of goods in different continents. Besides, effects of commerce are experienced on a global scale. Therefore, an economic slump in the US will also be faced in Europe and the Far East. There are two critical periods in history whereby the global economy has slumped markedly, affecting millions of people around the world. The first is the Great Depression of the late 1920’s and more recently, the Global Economic Recession of the late 2000’s. Various factors have been implicated in these notable economic slumps in history, but these vary widely according to many economists, pundits and authors of economics books all have given their opinions on what may have caused the Great Depression and the Global Economic Recession. This essay analyses the Great Depression and the Global Economic Recession in detail by analyzing the causes and the role that Federal Reserve Actions played in the economic slumps. The paper also describes opinions concerning the economic slumps from four economists. The first two are Jeremy Attack and Peter Passell, authors of the book, “A New Economic View of American History: From Colonial Times to 1940”. The other authors are Jonathan Hughes and Louis Cain, authors of, “American Economic History”. In order to understand arguments put forth by these authors, it is important to analyze the Federal Reserve System and the two economic slumps. The Federal Reserve System Federal Reserve actions have been the countermeasures after the Great Depression and the Global recession of 2008. The Federal Reserve is an independent central bank that works in an independent manner since its actions are not ratified by the Congress or President. The Federal Reserve System was established in 1913 by Congress and its role was to supervise all banking operations in the US by raising or lowering interest rates, and to shape the US economy through institution of various economic policies1. As much as it is independent, this body is still answerable to Congress on various issues. The Federal Reserve System comprises seven Board of Governors members and 12 Federal Reserve banks that are distributed in various cities of the US. The Federal Open Market Committee (FOMC) is the policy maker of the Federal Reserve System and it affects monetary policy through many ways, some of which are; Open market operations; altering of reserve requirements and adjusting discount rates. These three tools are used to expand or tighten money supply. An example of this is in inflation. In case the FOMC wants to control inflation, it can restrict and control the US government’s money supply through selling of government securities and increasing the amount of money which banks need to use for reserve requirements2. These two actions by the FOMC remove money away from circulation, hence inflation would be controlled. This is because, a lower supply of money leads to less spending, and hence, there will be lower prices. As a result of these, economists argue that Federal Reserve actions are entirely responsible for economic slumps since they control inflation through their actions. Furthermore, the FOMC is able to amplify interest rates for purposes of controlling inflation. This is because, by raising rates of interest, this would make it expensive to borrow money; hence, consumers would find it easier to save money instead of spending it. The result of this is that prices of commodities would be lowered. With time, the initial roles of the Federal Reserve System have expanded due to the changing economic realities. Foe example, the Great Depression changed the manner in which the system operated so that future economic slumps would not be the case. However, this was not the case, ...Download file to see next pagesRead More