What happened to the money customers deposited in banks when the banks failed at the start of the Great Depression?
And in the 1930s there was no such thing as deposit insurance--this was a New Deal reform. When a bank failed the depositors were simply left without a penny. The life savings of millions of Americans were wiped out by the bank failures.
When the money supply recovered, the economy started expanding again. That is the monetary explanation for the Great Depression. Bank failures, bank runs caused a contraction of the money supply, causes a decline in spending, investing, and GDP.
For the most part, if you keep your money at an institution that's FDIC-insured, your money is safe — at least up to $250,000 in accounts at the failing institution. You're guaranteed that $250,000, and if the bank is acquired, even amounts over the limit may be smoothly transferred to the new bank.
From the fall of 1930 through the winter of 1933, the money supply fell by nearly 30 percent. The declining supply of funds reduced average prices by an equivalent amount.
As the financial markets collapsed, hurting the banks that had gambled with their holdings, people began to fear that the money they had in the bank would be lost. This began bank runs across the country, a period of still more panic, where people pulled their money out of banks to keep it hidden at home.
Not everyone, however, lost money during the worst economic downturn in American history. Business titans such as William Boeing and Walter Chrysler actually grew their fortunes during the Great Depression.
How did many banks fail consumers in the stock market crash of 1929? Banks had invested customer savings in the stock market, losing depositors' money in the crash.
- Stocks.
- Bonds.
- Mutual funds.
- Annuities.
- Life insurance policies.
- Safe deposit boxes.
- US Treasury bills, bonds or notes.
- Municipal securities.
Between 1929 to 1933, depositors lost about $1.3 billion when their banks failed. Today, FDIC insures depositors' money up to $250,000 per depositor for each account ownership category if the bank is a member of the FDIC.
Banking customers were negatively impacted during the bank failures because they lost their money if their bank shut down. Because of the bank failures during the Great Depression, the U.S. created policies to better protect bank customers.
Should you hold cash in a recession?
Finance Experts All Say the Same Thing
They all said the same thing: You need three to six months' worth of living expenses in an easily accessible savings account. The exact amount of cash needed depends on one's income tier and cost of living.
Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.
The best performing investments during the Depression were government bonds (many corporations stopped paying interest on their bonds) and annuities.
In most cases, accounts are sold to another bank, and you will automatically have access to your funds at the new institution. Funds should be available immediately.
Domestic Bonds, Treasury Bills, & Notes
Mutual funds and stocks are considered to be a big gamble during depressions. While Treasury bonds, bills, and notes are more secure investments. These items are issued by the U.S. government.
When a bank failed the depositors were simply left without a penny. The life savings of millions of Americans were wiped out by the bank failures.
Paul Getty grew his already considerable fortune during the Great Depression. He used his millions to purchase panicky sellers' stocks for pennies on the dollar. "It is the opportunity of a lifetime to get oil companies for practically nothing," Getty wrote in a letter to his mother in 1932 (via University Archives).
Many cheap foods still common among the poor today made their debut during the Depression: Wonder Bread (1930), Bisquick (1931), Miracle Whip (1933), and Campbell's Cream of Mushroom soup (1934). Ragu spaghetti sauce, Kraft mac-n-cheese, and Hormel Spam all appeared during the Roosevelt Recession in 1937.
- This has all happened before and it will all happen again.
- Food. ...
- Household products + essential consumables. ...
- Healthcare. ...
- Communications. ...
- Capital goods. ...
- Security. ...
- Anyone who keeps advertising & innovating.
If you have a certain amount in your investment account and that balance drops during a market crash, what happens to that money? It doesn't actually go anywhere, as confusing as it may seem. While it appears that you're losing money during a market crash, in reality, it's just your stocks losing value.
Could the Great Depression happen again?
The Federal Deposit Insurance Corporation also oversees bank operations and insures depositor's' money to prevent bank runs that became an iconic image in the 1930s. While a drop like 1929 could potentially happen again, it wouldn't have the same the consequences today as it did 90 years ago.
By the summer of 1932, the Great Depression had begun to show signs of improvement, but many people in the United States still blamed President Hoover.
While it is legal to keep as much as money as you want at home, the standard limit for cash that is covered under a standard home insurance policy is $200, according to the American Property Casualty Insurance Association.
Where to safely keep cash at home. Just like any other piece of paper, cash can get lost, wet or burned. Consider buying a fireproof and waterproof safe for your home. It's also useful for storing other valuables in your home such as jewelry and important personal documents.
Cash equivalents are financial instruments that are almost as liquid as cash and are popular investments for millionaires. Examples of cash equivalents are money market mutual funds, certificates of deposit, commercial paper and Treasury bills. Some millionaires keep their cash in Treasury bills.
