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Mentality of the gold standard

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However, numerous factors that emerged at the same time have undermined investment. First, every person has the motive to invest and this provides a great risk for any investment idea. Companies fear for the balance of demand and supply in a market where every person has a potential to invest. This discouraged investment and companies avoided launching new projects as a precautionary measure. Unfortunately, the World Bank could not reverse their policies since they steel could not push away this mentality (Eichengreen and Temin 23-34). The result of this is that the depression became more severe and it became a problem hard to control.

Since the deflationary measures that existed affected the international scope, this problem was experienced within the country. Einchengreen and Temin (12) argue that the great depression escalated to the international scope due to the fact those who had the gold standard mentality made decisions and policies that affected the global business. For instance, although the state officials who were wedded the gold standard were removed from office, it is clear that the new official had to work with central bankers who suffered from this mentality.

The central bank was responsible for regulate the international monetary policies that affected the whole world. Therefore, they were unable to completely phase away this mentality from the system. Therefore, the banker concentrated on providing low interest rates that could support economic development in the world. The effect of such policies was that the people borrowed but did not invest. This explains that is why the banks run to bankruptcy and the ended collapsing. Like other financial, Eichengreen and Timen (23), they take a close examination of the economic history of over three decades before the set in of the financial crisis.

He notes that the main cause of the problem was the stagnation of the employee wages. Unlike in the past, the wages did not increase proportionally to the economic growth of the country. Therefore, the people’s ability to finance the mortgages they acquired after the government passed its housing policy was low. As a result, the public could not afford to pay back the loans hence resulting to defaulted loans.

Therefore, the government idea of housing the public was important but a policy that did not succeed due to the problem of economic constraint of the public. Therefore, the stripping of home equity links to the policies developed by those who maintained the gold standard mentality.

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