The Great Depression of 1931

I'm sitting in the doctor's office and I saw this Newsweek (12/11/2011) that had an article called

Double-Dip Depression.

The author points out that many people forget what caused The Great Depression and how many world leaders, financial, and economic leaders don't know.

The Great Depression was "like a soccer match with two halves". The first half was the stock market crash of 1929; the second half was the truly "great" crisis that was begun by the European bank crisis of 1931. This was caused by the Fed tightening credit rather than loosening (ie buying bond and lowering interest rates.) This caused bank failures which led to many bank failures and a contraction of the money supply by 1/3 and economic output dropped by the same amount. This caused the problem to go global and most of the banks were held to a gold standard and in an acrimonious political environment they were not able to come to any agreement.

It was not until they abandoned the gold standard and focused on job creation that the world pulled out of the problem.

Unfortunately the author points out, the job creation was in armaments and Germany was best at it and - well - we know the rest.

The author of the article Niall Ferguson mentions two books that one should read if you want to really understand this problem:

Milton Friedman and Anna Swartz,

http://en.wikipedia.org/wiki/A_Monetary_History_of_the_United_States

and

Golden Fetters by

http://en.wikipedia.org/wiki/Barry_Eichengreen

Also, written by the author

Niall Ferguson The West and the Rest