1837- Panic of 1837

The Jackson years were years of rapid economic expansion in the United States. The expansion was driven by cheap credit, together with rising prices for cotton and land. As prices (especially for land) continued to rise, there was fear that speculators were creating a "land bubble". President Jackson pressed the Congress to pass the Specie Act (an act that required land to be paid for with coinage and not paper money) in order to fight the speculators. The Specie Act had the unattended consequence of draining much of the money from large banks. This made the banks more susceptible to a bank run, where people demanded their money back...

 


The Jackson years were years of rapid economic expansion in the United States. The expansion was driven by cheap credit, together with rising prices for cotton and land. As prices (especially for land) continued to rise, there was fear that speculators were creating a "land bubble". President Jackson pressed the Congress to pass the Specie Act (an act that required land to be paid for with coinage and not paper money) in order to fight the speculators. The Specie Act had the unattended consequence of draining much of the money from large banks. This made the banks more susceptible to a bank run, where people demanded their money back..

The land Bubble burst when the Bank of England decided to try to stem the stream of money leaving the country by raising interest rates. Even in the 1830s the global economy was interconnected in such a way that banks in the U. S. were soon forced to raise interest rates as well. This rise in interest rates coincided with a drop in cotton prices on the world markets. The drop in cotton prices, in turn, forced one of the main cotton brokers in New Orleans to go under. The collapse of the New Orleans cotton broker had a cascading effect through the economy - as the brokers creditors soon found that they could not pay their bills. Soon after, the weakened banks in New York were in trouble and they suspended their redemption of paper money for coinage.

At this point, the economic panic was in full swing. Banks failed. Factories laid off workers when either: they could not get credit, or customers were unwilling to order. The U. S. faced a full-fledged depression. Moreover, thanks to Jacksons insistence on closing the Bank of the United States, there were no tools to fight the depression. Van Buren took a hands off approach to the problem, believing it was not the governments responsibility to fight economic hard times. As a result, President Van Buren's popularity plummeted. It would take a few years for the economy to recover. However, by then, one of President Jackson's proudest accomplishments (i. e. paying off the national debt) lay shattered. Jackson had successfully paid off the debt. Though since tax revenue plummeted (due to the depression) Van Buren was forced to borrow money to pay for national expenditures.