Great Depression---Refers
to the horrible, long-lasting economic storm which began with the stock market
crash in 1929: the bursting of a speculative stock market bubble. After banks
failed many people stuffed cash in mattresses, floors, yards and walls, if
still lucky enough to have a house and yard. Bank runs had spooked
people---some never forgot the experience of closed windows and doors. As the
prices of things were going down each day, hoarding cash was like getting paid
interest---the dread liquidity trap.
Banks did not have enough cash on-hand to sustain a run. The Federal Deposit Insurance
Corporation (FDIC) was created
to insure deposits up to a certain amount, so as to avoid panicky banking
behaviour, and the Glass-Steagall
Act putting the FDIC temporarily into operation was passed in 1933 to
separate commercial and investment banking. Banks are lending institutions and cannot
at the drop a dime return all deposits to all of its depositors, only a
fraction thereof, and must therefore be careful to keep enough reserves
on-hand. Deflation and
liquidation
took hold as people lost jobs and houses like mad, and some began living in cars,
garages and trains. The unemployed and homeless masses stormed Pennsylvania
Avenue, movie theatres and soup kitchens.