After the Fed inflation led to the boom of the 1920’s and the bust of 1929, well-founded public distrust o fall the banks, including the Fed, led to widespread demands for redemptions of bank deposits in cash, and even of Federal reserve notes in gold. The Fed tried frantically to inflate after the 1929 crash, including massive open market purchases and heavy loans to banks. These attempts succeeded in driving interest rates down, but they foundered on the rock of massive distrust of banks. Furthermore, bank fears of runs as well as bankruptcies by their borrowers led them to pile up excess reserves in a manner not seen before or since the 1930s…
Before 1929, every administration had allowed the recession process to do its constructive and corrective work as quickly as possible, so that recovery generally arrived in a year or less. But now, Hoover and Roosevelt intervened heavily: to force businesses to keep up wage rates; to lend enormous amounts of federal money to try and keep unsound businesses afloat; to provided unemployment relief; to expand public works; to inflate money and credit; to support farm prices; and to engage in federal deficits. The massive government intervention prolonged the recession indefinitely, changing what would have been a short, swift recession into a chronic debilitating depression. (pg 247-248)
The analogy is not perfect. We are no longer on a gold standard. Federal guarantee of bank deposits has served to stave off bank runs (although protection from bank runs has allowed the proliferation of unsound banking practices which are a major part of the problem.) The specific triggers are different. As a whole, our country is richer with fewer people living at the margin so that it is primarily our wealth and savings at risk, not our survival. Still, it is worth the time to study that era closely, from many angles and many points of view, to help us learn from experience as best as we are able, and hopefully not unnecessarily repeat the painful errors of the past.