The Great Depression (chap 4) Flashcards
Bilateral agreement , which where the three main kinds ?
- Compensation Agreement , effective barter agreement
- Clearing Agreement, Bilateral agreement ,each country a bank account in the other country
- Payment Agreement ( cover goods and financial transactions) (Germa-Anglo 1937)
Attempts of international cooperation after the Great Depression:
- The bank for international Settlement (BIS)
- The tripartite Monetary Agreement (France,USA,UK)
- The Ottawa Agreement (1932) (system of tariffs between commonwealth )
- Cartels (commercial companies )
Regional Currency Systems: (after the Gold Standard collapse)
- Sterling Area
- Dollar Area
- Exchange Control Area
- Gold Bloc (until 1936)
- Japanese bloc could be also added
Sterling Area (regional currency system):
- Used pounds sterling as an international currency
- United Kingdom, commonwealth (except Canada), several small European countries , much of the Middle East
what is the exchange control system?
- with exchange controls foreign currency transactions are controlled by the central bank (discord trade pattern)
- a disadvantages was the distortion in trade pattern
in the context of 1930’s, advantages of exchange control system ?
- They prevented foreign exchange crises
2. They enabled government to pursue expansionary domestic policies, without the worry of escape of financial capital .
Trades restrictions examples: (after gold standard)
- Smoot-Hawley Tariff (1930)- in U.S
2. Import Duties Act (1932) - in U.K
What is the function of The bank for international Settlement (BIS) ?(post-gold standard)
- Promote cooperation between central banks
- manage German reparations payments
Contemporary explanation to the U.S depression: (at that time)
- The classical approach
- Say’s law and self equilibrating powers - The Austrian school
- Result over investment in the 20’s
no government intervention - “Liquidationists”
- viewed as punishment for the excessed of the 20’s
- believed in allowing the depression to continuo if not encourage deflation
Non-monetary factor that show the weakness in the US economy 30’s :
- Inequality (main)
- the corporate structure
- problems with external balances
- economics orthodoxy
- composition of production
- agriculture (main)
- A collapse in housing construction (main)
- Alvin Hansen
Recents explanation of the US depression:
- Credit Hypothesis (Ben Bernanke)
- effect on deflations in the banks - Deflationary Expectation
- static effect
- dynamic effect - the stock market crash
- started it or prolong the depression (dismiss)
what international factor were present in the U.S depression ?
- Charles Kindleberger theory
- Gold Standard (lack of symmetry)
- European Financial crisis of 1931
- Protectionism
explanation of the US depression according to the Credit Hypothesis? (Ben Bernanke)
- The same as debt deflation hypothesis of Fisher but this time, he focus in the effects of deflation in the banks
- deflation in the price of assets
- –> less nominal value
- –>fear insolvency
- –>cut lending
- –>focus in secure investment (such as government securities )
- –> Borrowers were unable to obtain funds
- Chain reaction , causing more deflation in the market
What is the monetarist explanation of the Great Depression ?
- The U.S Federal Reserve (The Fed) Policies
- The banks failure
- Gold Standard
who is Charles Kindleberger? and what effect had in the U.S depression ?
- He was the creator of the theory “Kindleberger”
- he emphasized that the shift in world economic leadership (London to Washington)
- The Depression was able to spread from US to other mayor economies:
1. partly through the mechanism of gold standard (deflationary bias)
2. Partly the lack of economic leadership from the US, and inability and/ or unwillingness of U.K and U.S