The Federal Reserve Caused the Great Depression

Please read the "To My Opponent" section of my argument before you read my argument and start on your rebuttals. Yes. The Burden of proof does rely on me. I must prove that the Federal Reserve did not cause the Great Depression. I. Bank Failures I.i Investments "Still, the importance of rural failures in the twenties is evident from comparison with the Great Depression, when rural banks accounted for 68% of the failures, but only 19% of the loans and investments of failing banks"[1] So while the small bank failures might have been the majority of the failures during the Great Depression, their effects weren't as huge as the fewer, larger, urban banks, and most importantly, the central bank, or the Federal Reserve. "solvent banks were closed by runs because the Federal Reserve failed to act as lender of last resort. Failures were thus caused by a failure of monetary policy"[1] So in truth, not only did the rural banks' failing have a lot less effect on the economy than big banks, but the Federal Reserve failed to help stop the banks from failing. The depression could have been prevented if so. "It is similar to saying the Titanic sank because it is made of Iron and steel, and while yes the titanic was made of iron and steel and those elements do sink in water it wasn't the reason it sank. Ships made out of iron and steel float all the time. Only when something major happens (like hitting an Ice Berg) do they sink."[2], the major happening being the Federal Reserve. So the stock market did cause the great depression, but the Federal Reserve was the one who wrecked it, so the Federal Reserve caused the Great Depression. And the banks also crashed for another reason, their customers. When the stock market corrected, everybody did what economists call a "bank run", where everyone gets their money out of the bank. This will dry the bank of money quickly. But are bank runs bad? "So if a bank fails, suddenly there's a lot less money for other banks to borrow. Depositors get worried about the solvency of those banks, and they start demanding money back there, too. Pretty soon, the whole system is collapsing."[3] System collapse. I.ii. Lies This is a little misguided. First of all, it was the Federal Reserve that caused the mini-crash. Why? Because they have just raised the discount rate. "When the Fed increased interest rates in 1929 it would be one of the main causes of the great depression."[2] Second of all, the lies don't exist because the investors actually got out. "Some investors who saw this happening got out of the marketplace early, weakening the bullish market."[2] This was the mini-crash. As the high investors left, the businesses they had invested in took a hit, and the common investor started to pull out, this causing the infamous black Friday. The Great Depression can be attributed to the common investor leaving, which can be attributed to business falling, which can be attributed to the mini-crash, which was caused by the Federal Reserve. Thus, the Federal Reserve caused the Great Depression. By the way, more investment=a better economy, so more investment cannot be attributed to the Great Depression. II. Business Failures II.i Investments Correct. Business owners did heavily invest into the stock market, and this was a major part of the '20s boom. I have two questions for my opponent. Why would the banks repossess the capital of the businesses and what right do they have unless it was a loan taken out from the bank? If they repossessed the capital, couldn't the pay off the loans? I apologize to my opponent, but he is a little vague here and I can't quite understand it. II.ii. International Trade I agree with you here. The Smoot-Hawley Tariff Act was dumb since GDP=C+I+G+X, you want to raise GDP in a depression, and Tariff Acts would lower net exports (the X), which would lower GDP. However, the Smoot-Hawley Tariff Act did not cause the Great Depression, it only made it worse. Still, the Federal Reserve caused the Great Depression, worsened both by the Federal Reserve itself and by the Smoot-Hawley Tariff Act. III. Stock Market Failure III.i Stock Market Failure Ok. My opponent seems to be making an assumption here, and his proof seems to be below. The stock market crash was caused by the Federal Reserve due to incorrect discount rates and by raises in the discount rate. The raises in the discount rate caused a slowing of the bull market, which begot more selling, eventually turning the bull market into a bear market, and then after that, crash. III.ii Inaccurate Stock "However, the stock market collapse did not cause the depression; nor can it explain the extraordinary length and depth of the American contraction."[4] "The stock market crash was only a reflection — not the direct cause — of the destructive government policies that would ultimately produce the Great Depression: The market rose and fell in almost direct synchronization with what the Fed and Congress were doing. And what they did in the 1930s ranks way up there in the annals of history's greatest follies."[5] Why were these destructive government policies so bad? "By 1928, the Federal Reserve was raising interest rates and choking off the money supply. For example, its discount rate (the rate the Fed charges member banks for loans) was increased four times, from 3.5 percent to 6 percent, between January 1928 and August 1929. The central bank took further deflationary action by aggressively selling government securities for months after the stock market crashed. For the next three years, the money supply shrank by 30 percent. As prices then tumbled throughout the economy, the Fed's higher interest rate policy boosted real (inflation-adjusted) rates dramatically."[5] So the Federal Reserve end up choking off the money supply, that drained the economy of money it needed to flow (money in an economy is like oil in an engine), and this caused a significant reduction of the amount of goods, which caused businesses to lose profit, and of course, a recession. And if the stocks were invested in real companies, then they would not be worthless without outside (the Federal Reserve) forces, as is socialism's way. Conclusion: The Federal Reserve did cause the crash because of wrong discount rates. It's not that they were untimely, just that the wrong monetary policy was used at the wrong time. When they had to raise the rates due to incredible inflation (caused by incorrect monetary policy), the stock market slowed down, stopped, reversed, and crashed. Your causes are either incorrect, or did not cause the Great Depression, but rather just made it worse (i.e. the Smoot-Hawley Tariff Act). I have provided several arguments with a few reasons per argument. To My Opponent: First of all, I don't think so, but do you agree that the Federal Reserve was the main cause of the Great Depression? If yes, that is my fault. I misworded the resolution. If not, forget it. Second of all, if you would like to do you some history debates, that's fine by me. I love them (yes, I did get the WWI one and will accept it in a day or two when some of my debates go into voting period. I will accept). Thank you. Sources: [1]:http://web.lemoyne.edu... [2]:http://www.stocks-simplified.com... [3]:http://www.marketplace.org... [4]:http://www.econlib.org... [5]:http://www.fee.org...