Panic of 1837

The economic crisis of 1837 was one of the biggest economic crises in the history of the United States. It had its origin in a speculative fever. The bubble burst on May 10, 1837 in New York than any bank stopped the convertibility of paper money into gold and silver. On the crisis was followed by five years of economic depression, the permanent insolvency of many banks and record -like unemployment.

Causes

The crisis was an economic boom preceded, which was based on the Indian Removal. The areas that Indian Removal Act of 1830 had to be evacuated by the Indians after the were sold by the federal government to settlers. Here, as large excesses were obtained that the federal budget the years 1835 to 1837 not only had a surplus, but the United States was debt free for the first and to date only time in its history.

The individual states of the Union responded to this development by an expansionary spending policy. They invested heavily in infrastructure such as roads and assumed that this investment would be worth about increasing property taxes. At the same time, there was a wave of new banks. These were often equipped (especially in the southern states ) by the states with capital. Both were funded by a massive expansion of government debt by issuing government bonds.

Between 1834 and 1836, the sale of public lands increased five-fold. A variety of speculators bought large tracts on credit. The banks financed this about mortgages and gave in exchange paper money from.

The crisis

1837 burst the bubble and the biggest economic crisis in the United States began. One of the triggers of the crisis was the economic policies of U.S. President Andrew Jackson. He distrusted the fiat money and therefore regulated in the " Specie Circular" (currency circulars) that purchases of Indian land were authorized only in gold and silver and not in bank notes. Also, the withdrawal of government funds from the Second Bank of the United States contributed to the uncertainty. Martin Van Buren, Jackson had chosen as his successor and who won the elections in 1836 then, was therefore held responsible for the crisis. His refusal to take government action to rescue the economy, also contributed to the view of critics to increase the damage and duration of the crisis.

Decisive, however, was the decline in property prices. The expansion of space offering in the Indian areas has led to an extension of the offer, the bursting of the bubble to a reduction in demand. As a result, land prices plummeted, prices of agricultural products fell, the mortgages could no longer be operated and property tax revenues collapsed.

With the bursting of the bubble broke and the capital imports, particularly from the United Kingdom together.

Follow

Within two months, the losses amounted to nearly $ 100 million due to bank failures in New York alone.

"Out of eight hundred and fifty banks, three hundred and forty-three closed Entirely, sixty -two failed Partially, and the system of State banks received a shock from Which it never fully recovered. "

" From 850 banks in the U.S., closed their doors forever 343, 62 failed partially, and the system of State banks received a shock from which it has never fully recovered. "

The Inkonvertibilitätsphase

In contrast to the other railway crises of the 19th century, the crisis of 1837 quickly grew from a financial crisis. To avoid bank runs, the American banks were forced to suspend its obligation to exchange the banknotes issued in gold or silver. On May 10, 1837 to March 17, 1842 to an exchange of notes was not possible in the legal tender.

As a result, broke a number of banks. This led to a massive reduction in lending and thus to a worsening of the crisis. It was not until 1843, the crisis was overcome.

The sovereign debt crisis

In the aftermath of the crisis led to a sovereign debt crisis. The states complained massive income losses caused by the collapse of the real estate tax revenue and lost a the equivalent of bank holdings.

1840, the public debt of the states was therefore risen partly solid. The leader was the State of Florida, whose debt ratio accounted for 77 percent. Florida and Mississippi presented quite a debt service, other states such as Arkansas, Louisiana and Michigan partially. Nearly half of the states did not implement its contractual obligations. Consequently, the prices of government bonds fell sharply.

The debate about the rescue of the states

A peculiarity of the situation after the crisis of 1837 was the fact that a virtually debt -free top facing a significant number of over-indebted member states. 1841, the U.S. had approximately $ 5 million debt, but the states over $ 200 million. On December 29, 1842, therefore, a special committee of the House of Representatives has decided to set up to advise on solutions to the crisis. On 2 March 1843, the Committee came to the recommendation that the debt of the states should be taken over by the federal government. For this purpose, found in neither of the two major political parties, a majority in Parliament.

At this decision, the pressure of European creditor banks could not change. In 1840, Barings had asked the federal government to assume the liability for the debts of the individual states. This demand in 1841 joined the big European banks. Rothschild, Gurney and Hope refused to continue to participate in the commercialization of federal government bonds, if a debt assumption would not be made.

After a debt assumption by the Federal did not take place, restructuring agreements were in the states met and recorded the (reduced) payments again, in Pennsylvania in 1845, Illinois 1846, Indiana 1847, and Maryland in 1848.