> The key thing was the Fed mismanaging and misunderstanding how money worked. The key thing was the Fed was (early on) complying with how the gold standard wo

> The key thing was the Fed mismanaging and misunderstanding how money worked. The key thing was the Fed was (early on) complying with how the gold standard worked, which is a finite amount of cash being available, and only being able to be increased by having more of the shiny stuff. > When the Great Depression hit in 1929, the Fed’s instinct was to do little and let the economy and markets correct. But the Fed seemed to have no sense of how big the credit bubble from the 1920s was. Consequently, from 1929–1933, the Fed remained committed to a tight monetary policy. Under the gold standard then in force, when the gold balances held by the government contracted, the money supply did so as well. Faced with the increasing economic turmoil, US businesses and the public at large trusted gold more than paper currency. Overseas investors, fearing a potential devaluation of the dollar, preferred gold too. This created a gold drain. As the Fed’s gold stocks declined, the United States unwittingly reduced credit in the economy. Over the 1929–1933 period, the US money supply contracted sharply, declining by roughly one third between 1929 and 1933, and the country experienced its worst ever downturn, with unemployment soaring to roughly 25%. * https://blogs.cfainstitute.org/investor/2015/09/17/the-ghost-of-1937-the-fed-stalls-on-rate-hike/ https://blogs.cfainstitute.org/investor/2015/09/17/the-ghost... This is one of the reason why the gold standard (or any "hard" currency) is a bad idea: * https://www.moneyandbanking.com/commentary/2016/12/14/why-a-gold-standard-is-a-very-bad-idea https://www.moneyandbanking.com/commentary/2016/12/14/why-a-... The sooner the US (and other countries) got off the gold standard, the sooner their economies started to recover: > In the end, recovery from the Great Depression does not begin until countries give up on the combination of the Bagehot Rule and of commitment to sound gold-standard finance. Those countries that have central banks willing to print up enough money so that people are willing to spend it--it is when you adopt such policies that your economy begins to recover. If you don’t, you become France, which sticks to the gold standard all the way up to 1937, and never gets a recovery. When World War II begins, Nazi Germany’s production--equal to France's in 1933--had doubled between 1933 and 1939. French production had fallen by 15%. * https://delong.typepad.com/delong_long_form/2013/10/the-great-depression-from-the-perspective-of-today-and-today-from-the-perspective-of-the-great-depression.html https://delong.typepad.com/delong_long_form/2013/10/the-grea... There was a misstep in 1936 when there was pressure to raise rates and also to reduce spending due to deficits, and so rates were raised and austerity was enacted… and the economy tanked again.