The collapse of the stock market is widely thought to be the cause of the Great Depression. The Fed's policies during the stock market rise and after the crash were appalling and make many of today's economists wonder how they could be so wrong. From 1922 through July of 1929, the Dow Jones Industrial Average rose an astonishing 575% and created hundreds of billions of dollars of wealth worldwide. However, Federal Reserve Chairman Adolph Miller was extremely late to the game and did not even think about the possible implications that a stock market slump may have on the economy

The Federal Reserve's actual existence is called into question during the Depression with its astonishing exposure to many of the weakest economies during the Depression. One of the most unknown sectors of the US economy is a law passed 1921 called the Independent Treasury Act of 1921. "The Independent Treasury Act of 1921 suspended the de jure (meaning by right or legal establishment) Treasury Department of the United States government. Our Congress turned the treasury department over to a private corporation, the Federal Reserve and their agents. The ownership of the Federal Reserve System, a very well kept secret from the American Citizen, is held by these banking interests: Rothschild Bank of London, Rothschild Bank of Berlin, Warburg Bank of Hamburg, Warburg Bank of Amsterdam, Lazard Brothers of Paris, Israel Moses Seif Banks of Italy, Chase Manhattan Bank of New York, Goldman, Sachs of New York, Lehman Brothers of New York, Kuhn Loeb Bank of New York." (http://www.freerepublic.com/forum/a3823343b3f71.htm) The reliance of the Federal Reserve on these banks stripped them of reserves, the Fed's very foundation, when it's "owners" began to fail. In addition to this, as investors began defaulting on margin calls, investment banks like Goldman Sachs and Lehman Brothers also defaulted on their debts to the Fed. Since the Fed lacked the reserves to stimulate the economy, the whole idea of the Fed became irrelevant since they did not have the capabilities to stimulate the economy. (Newton 154) This portion of the depression could thus be placed on those ten banks that support the Fed, however, it is rather well known that instead of putting liquidity onto the market, the Fed aggressively raised interest rates. At first many felt it was simply a desperate attempt to gain reserves, but as it continued, and as Fed Governors spoke in public, it became clear there were other motivations. These motivations were found to be corrupt in a 1934 Senate Banking Committee Testimony by Louis T. McFadden. Although cleared of all charges, probably out of fear for the confidence in the banking system, the Fed was accused by a Senate Banking Committee Head of 10 years of Fraud, Unlawful Conversion of Currencies, Conspiracy, and Treason. (www.afn.org/~govern/mcfadden.html) This deeply affected the already rattled banking sector of the economy.

. Only at the beginning of 1929 did he increase interest rates, versus more ideal times of around mid-1928, when it became evident that the rally in the stock market had the potential for a long-term run up. But these increases in the stock market are not sustainable without the help of economic policies and Chairman Miller's only policy was to sit back and enjoy the ride. Had he increased rates slightly throughout 1928, the economy would have slowed slightly, forcing people to focus more on their debts and paying them off, than the exuberance in the stock market. This would of course, have caused selling in the market, but at a slow pace, and would have given stock prices to catch up to their overly speculated prices. Instead, The Fed raised rates furiously in 1929, hoping to slow down inflation. By August of 1929, people were only beginning to see the effects of the rate increases on the economy since the Federal Reserve was not required to announce decisions on interest rates. By this time, the stock market was already coming off of its highs, but the people were selling to pay off their short-term debts on credit cards and loans since the Federal Reserve had hiked rates so drastically. This left no money from the selling to buy stocks back as they sunk. Money was also disappearing from the government treasury markets as the Fed had increased rates so dramatically they had effectively turned the liquidity in the debt markets into a standstill operation. With no liquidity on the market, people were forced to sell their stocks in order to pay off brokers, who were becoming worried about t

Some common words found in the essay are:
Federal Reserve, Margin Requirement, FDR's Deal, Discount Rate, Fed Funds, Adam Smith, Mariner Eccles, Wealth Effect, United States', Fed Fed, stock market, federal reserve, wealth effect, stock market crash, market crash, raised rates, fed decided, margin requirement, stock prices, market rise, people buying, stock market rise, chairman mariner eccles, senate banking committee, treasury act 1921,
Approximate Word count = 3176
Approximate Pages = 13 (250 words per page double spaced)