The first economic crisis

introduce

At the beginning of the 20th century, the banking industry continued to expand. From 1896 to 1907, the number of state banks reached 6000, many of which continued to operate with insufficient reserves. From 1896 to 1907, the number of trust companies increased from 250 to 1500, there were over 5300 savings institutions, and assets reached 570 million US dollars. The entire financial industry is overdeveloped, lacking effective regulatory technology and systems.

In 1907, a huge financial crisis occurred in the history of American finance, and the entire financial industry suffered enormous risks and losses. The result of the disorderly development of the financial industry can be imagined. In March and August 1907, two financial panics occurred, triggering a major crisis that almost overturned the US financial market and economy. More than 100 state banks and 30 state banks have gone bankrupt.

After the crisis, the federal government lacked tools and means to rescue the market, and had to rely on the New York Clearing Bank to rescue it, but it was unsuccessful. Later, private financier J.P. Morgan saved the entire American financial market through his personal efforts. He became the "one person Federal Reserve" and took extraordinary measures to prevent the continued spread of the crisis. During this financial crisis, the US federal government has been very weak. After the 1907 financial crisis, the preparation plan for the US central banking system was put on the agenda, marking that the US government would no longer rely on private financiers to handle the country's financial problems and respond to financial crises.

1913 was an important year in the history of financial development in the United States. On December 23rd, the US Congress passed the Federal Reserve bill. In 1914, the US Federal Reserve system was officially established and subsequently operated. The establishment of the Federal Reserve system in the United States is mainly aimed at limiting and balancing the interests between regions, private and government sectors, bankers, businessmen, and the public. Its main responsibilities include dealing with a series of financial panic events, fulfilling the "lender of last resort" function of the US government, supervising and regulating the operation and management of financial institutions, and maintaining the stability of the financial system.

During the First World War in 1914-1917, in order to promote the development of military industry and meet the needs of the war, the US government still issued treasury bond for financing. The issuance of treasury bond increased from US $1.2 billion in 1914 to US $25 billion in 1917 and reached US $27.39 billion in 1919. From 1920 to 1930, the United States federal government used the fiscal surplus to repay part of its debt, but the decline in the balance of treasury bond was still limited. By 1930, the balance of treasury bond was still as high as 16.2 billion US dollars.

After the establishment of the Federal Reserve system, it has continued to develop and improve, and has established an internal link with the secondary market of treasury bond bonds. Among the functions of the Federal Reserve system, the most closely related to treasury bond is the open market operation business that took place in the 1920s. By publicly buying or selling securities, the Federal Reserve can release or retrieve the base currency of commercial banks, and regulate market liquidity through the currency multiplier effect. Due to the fact that most of the open market operations of the Federal Reserve involve federal government bonds, the establishment of the Federal Reserve system also laid the foundation for the formation of an orderly and highly liquid secondary market for federal government bonds. Treasury bond has an organic internal relationship with economic development, money supply and the government's monetary policy.

Through financial and other means, the United States provided a large amount of capital for the First World War. The US stock market experienced long-term prosperity after World War I, but collapsed during the Great Economic Crisis of 1929, posing great risks to the US financial industry. During the Great Crisis, the banking industry in the United States was hit the hardest. There have been three banking crises, with a large number of commercial banks going bankrupt, banks suspending operations, and closing down.

In March 1933, even the Federal Reserve Bank of the United States closed, and the country experienced the longest economic recession in history. President Roosevelt, who came to power during the Great Economic Crisis, vigorously promoted the "New Deal", among which financial industry reform was crucial.

During the crisis, the US federal government successfully intervened in many areas of the national economy and social life through a series of emergency measures and New Deal legislation. Many significant changes in the financial field have changed the situation where big bankers have dominated the financial industry since the 19th century. In the Hundred Day New Deal, the Roosevelt administration was the first to rectify the order of the money market. In 1931, the United Kingdom, Germany, and some other European countries abandoned the gold standard, and gold speculation prevailed both domestically and internationally. The United States faces significant risks of gold outflows, which pose challenges to the Federal Reserve's monetary policy and money supply management.

Roosevelt subsequently announced the nationalization of gold, prohibiting Americans from storing gold privately, and the government exchanged it at a price of $20.60 per ounce. In October 1933, the government bought a large amount of gold at a price of around $34 per ounce and announced the depreciation of the US dollar. In order to fix the exchange rate of the US dollar, in 1934, the US Congress passed the Gold Reserve Act, officially abolishing the 1900 Gold Standard Act.

Unless authorized by the US federal government, the US dollar cannot be exchanged for gold; Only the Ministry of Finance can buy and sell gold, thus establishing the credit standard position of the US dollar. After the United States withdrew from the gold standard, the long dormant Silver Party revived and demanded that the government purchase silver. Under pressure from the Silver interest group, the federal government has also done the same thing. In 1933, it began purchasing silver. In August 1934, it was announced that silver would be nationalized, domestic silver payments would be suspended, and the New York Silver Exchange would be closed.

The government paid a price of $1.5 billion for this. In 1938, it purchased 40000 tons of silver. The withdrawal of gold and silver coins from circulation ended the long-standing debate in the United States about the currency standard, and the United States began to establish the authoritative position of the US dollar credit standard. In addition, the federal government has established a strict control system over the financial industry. In order to enable banks to weather liquidity and bankruptcy crises, President Roosevelt, authorized by Congress, declared nationwide bank closures, vacations, and reorganizations on March 6-13, 1933.

With the help of the US federal government, some banks have been able to resume operations. Subsequently, the Bank Act of 1933 and the Bank Act of 1935 passed by Congress outlined the basic outline of institutional reform in the United States financial industry. Firstly, the principle of separating business operations between commercial banks and investment banks has been established; Secondly, in order to protect the interests of depositors, the Federal Deposit Insurance Corporation was established in 1934, specifically to handle bank bankruptcies and bankruptcies; Thirdly, according to the Q Regulation of the Glass Steagall Act, the United States began implementing interest rate controls; Fourthly, further reform the Federal Reserve to politicize its management system; Fifthly, regulate the securities and futures markets through legislation and establish a diversified financial regulatory system.

During the New Deal period, the US federal government reformed the financial industry, ending the era dominated by free banks and private investment bankers, and laying the foundation for the US government's strict control over the financial industry for over half a century. In the later period of the New Deal, the United States was involved in the world anti fascist war, which happened to closely link US debt with political and economic development. In response to the major economic crisis, the US federal government began implementing an active fiscal policy, namely deficit fiscal policy, thus paving the way for a debt economy in theory and practice.

Government officials no longer focused on the balance of fiscal revenue and expenditure, and issuing government bonds became the only feasible way to solve the economic depression at that time. In the New Deal, the federal government provided direct or job assistance to the unemployed, provided loans for public works, established a social security system, and began subsidizing agriculture. Through proactive fiscal policies, increasing government purchases, thereby increasing total demand, promoting economic recovery and growth, gradually lifting the US economy out of the shadow of the Great Depression.

During World War II, in order to support the war, the US government issued large-scale war bonds multiple times and mobilized the public to actively purchase them, thereby incorporating government finances into the track of wartime finance. In 1941, the US government began issuing the "E Series" 40 Year War Bonds, which lasted until 1980. From 1951 to 2007, the development and change of the US economy could not be separated from the promotion of treasury bond.

After the 2008 financial crisis, the US government injected a large amount of liquidity into economic entities through quantitative easing monetary policy, and issued treasury bond to finance this initiative. The ceiling on the balance of treasury bond has been repeatedly breached. Since the founding of the country, due to the shortage of currency and finance, Americans have tried many financial innovations. After discovering that treasury bond is a tool for developing the national economy, they increasingly feel that it is a very useful financial tool, which has been proved by practice.

Americans used treasury bond to complete industrialization, win many wars, overcome economic depression and recession, improve people's living conditions, and make the United States a world economic power. All of this benefited from treasury bond, the financial system derived from treasury bond, and the mechanism of international capital flow. The issuance of treasury bond mostly affects the operation of the whole economy through interest rates, thus affecting the changes of asset prices such as stock markets and bulk commodities, as well as other non economic transmission channels. A series of financial products related to treasury bond are very important financial instruments in the US financial market at present. They are an inevitable product of the development of American history, with strong American characteristics.