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This page contains a single entry by Westley Annis published on November 10, 2008 12:08 AM.

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The Real Cause of Bank Failures During the Great Depression

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The Great Depression is often said to have been triggered by the Wall Street Crash of 1929 which is said to have caused many of the bank failures in late 1929 early 1930. The real cause is government policies.

The first problem was the passage of the Smoot-Hawley Tariff Act in 1930. By raising tariff's on over 20,000 imported goods, if precipitated retaliatory measures from other countries that caused imports and exports to drop over 60%.

The second problem, just as deadly, but overlooked is the tax policies exacted during this period.

The bank failures of the time were not a result of Wall Street failures. In fact, Wall Street had recovered half of its losses in just six months. The real cause was the excise tax on checks. Every check that was processed by a bank had to pay a stamp tax of two cents regardless of the value of the check. This was at a time when the average wage was $28 per week and a loaf of bread cost nine cents.

Ogden Mills, who was promoted to Secretary of the Treasury in 1932, pushed the excise tax on checks, believing the use of checks implied an ability to pay the tax. He failed, along with President Herbert Hoover, to recognize that American's who were scrounging to save every penny, would withdraw their money from the banks and move to an all cash economy.

As banks began losing their deposits, they couldn't replenish their dwindling reserves, and eventually failed as more and more depositors pulled out their money in a vicious circle.

In his first Inaugural Address, President Ronald Reagan stated it clear and simple:

In this present crisis, government is not the solution to our problem; government is the problem. From time to time we've been tempted to believe that society has become too complex to be managed by self-rule, that government by an elite group is superior to government for, by, and of the people. Well, if no one among us is capable of governing himself, then who among us has the capacity to govern someone else? All of us together, in and out of government, must bear the burden. The solutions we seek must be equitable, with no one group singled out to pay a higher price.

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