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8.2 Great Depression - Coggle Diagram

- - - - Fed raised rates instead of lowering them
      - Contraction when there should have been expansion - drive to austerity in fiscal policy
    - - Wage reductions
      - Doublign of corporation tax and estate (inheritance) tax
      - Gift tax introduction
    - - Academic focus has recently shifted towards the insidious effects of the post-WW1 gold exchange standard
      - Widespread desire to resurrect the GS over the 1920s
        
        Seen as a pillar of pre-war globalisation
        
        A mark of stability and safe investment as a developing country
        
        Trade and capital-export facilitator
        
        Guarantor of low inflation (esp with 1923 German experience in mind)
        
        Preserver of investor incomes (esp rentier)
        
        Same reasons as euro put in place - not worrying about foreign exchange, stabilising and facilitating foreign trade
      - Gold standard essentially fixed exchange rates in relation to another country's currency, which was ultimately bound to gold. Fixed exchange rate without any co-ordinating agency
      - Although technically a gold standard, reserves were also held in foreign currency (dollar and sterling in particular)
      - Asymmetry between trade deficit (gold loss) and surplus running (gold gain) countries
      - Due to different rates of inflation during and after the war, countries re-entered the gold standard at different parties than those of 1913
      - UK re-entered at pre-war parity of $4.86, creating a deflationary hit
      - France managed to stabilise the franc prior to re-entry only at 20% of pre-war parity
      - If a country ran out of reserves, it would crash out of the GS and not have access to foreign loans, and face rising inflation
      - Only thing to do was deflate currency -> cut spending -> reduce investment -> cut wages (you could not devalue your currency to be more competitive)
        
        Deficit running countries suffered a persistent outflow of gold
        
        This could only be made up for by foreign loans from surplus countries like the US
        
        Europe had to convince gold to stay there. So could only raise interest rates or cut costs
        
        France's re-entry into the GS necessitated a significant accumulation of gold and FX reserves, whihc reduced the globally available pool of gold
        
        Real estate crisis in USA, French re-entry, downturn in the economy in 1928, tax increases, financial system weighed down by bad loans -> countries begin to hoard gold and FX -> more deflation