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23 posts on "Crisis Chronicles "

May 13, 2016

Crisis Chronicles: Gold, Deflation, and the Panic of 1893



LSE_Crisis Chronicles: Gold, Deflation, and the Panic of 1893

In the late 1800s, a surge in silver production made a shift toward a monetary standard based on gold and silver rather than gold alone increasingly attractive to debtors seeking relief through higher prices. The U.S. government made a tentative step in this direction with the Sherman Silver Purchase Act, an 1890 law requiring the Treasury to significantly increase its purchases of silver. Concern about the United States abandoning the gold standard, however, drove up the demand for gold, which drained the Treasury’s holdings and created strains on the financial system’s liquidity. News in April 1893 that the government was running low on gold was followed by the Panic in May and a severe depression involving widespread commercial and bank failures.

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Posted by Blog Author at 7:00 AM in Crisis Chronicles , Economic History, Monetary Policy | Permalink | Comments (2)

January 15, 2016

Crisis Chronicles: The Gold Panic of 1869, America’s First Black Friday



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Wall Street in the late 1860s was a bare-knuckles affair plagued by robber barons, political patronage, and stock manipulation. In perhaps the most scandalous instance of manipulation ever, a cabal led by Jay Gould, a successful but ruthless railroad executive and speculator, and several highly placed political contacts, conspired to corner the gold market. Although ultimately foiled, they succeeded in bankrupting several venerable brokerage houses and crashing the stock market, causing America’s first Black Friday.

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Posted by Blog Author at 7:00 AM in Crisis Chronicles , Economic History, Financial Markets | Permalink | Comments (3)

November 20, 2015

Crisis Chronicles: The Cotton Famine of 1862-63 and the U.S. One-Dollar Note



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When the U.S. Civil War broke out in 1861, cotton was king. The southern United States produced and exported much of the world’s cotton, England was a major textile producer, and cotton textiles were exported from England around the world. At the time, many around the world depended on cotton for their livelihood. The South believed this so deeply that when the North blocked Southern ports to cut off the South’s primary means of financing war—cotton sales—Southern leaders were sure that Britain would enter the war on their side. That never happened. So when cotton supplies dried up in late 1862, thousands in Manchester and Lancashire who either directly or indirectly depended on cotton for a living found themselves without work. In this post, we describe the British cotton famine of 1862-63 and the stoic British national response. We draw primarily from a fascinating BBC Radio broadcast on the subject and John Watts’ matter-of-factly named Facts of the Cotton Famine, published in 1866.

Continue reading "Crisis Chronicles: The Cotton Famine of 1862-63 and the U.S. One-Dollar Note" »

Posted by Blog Author at 7:00 AM in Crisis Chronicles , Economic History | Permalink | Comments (0)

October 02, 2015

Crisis Chronicles: Defensive Suspension and the Panic of 1857



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Sometimes the world loses its bearings and the best alternative is a timeout. Such was the case during the Panic of 1857, which started when a prestigious bank in New York City collapsed, making all banks suddenly suspect. Banks, fearing a run on their gold reserves, started calling in loans from commercial firms and brokers, leading to asset sales at fire-sale prices and bankruptcies. By mid-October, banks in Philadelphia and New York suspended convertibility, meaning they would not allow gold to be withdrawn from their vaults even while all other banking services continued. Suspension then swept the nation as part of a defensive strategy, supported by local business interests, to prevent the Panic from spreading. While the suspensions appeared successful and few banks ended up failing, President Buchanan was outraged by what he viewed as yet another corrupt banking practice. He proposed making suspension a “death sentence” for banks as a draconian incentive to encourage safer banking practices. In this edition of Crisis Chronicles, we describe the Panic of 1857 and explain why businesses pushed for national suspension to save themselves.

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Posted by Blog Author at 7:00 AM in Crisis Chronicles , Economic History | Permalink | Comments (3)

August 07, 2015

Crisis Chronicles–The California Gold Rush and the Gold Standard



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On the crisp morning of January 24, 1848, James Marshall, a carpenter in the employ of John Sutter, traveled up the American River to inspect a lumber mill that Sutter had ordered constructed close to timber sources. Marshall arrived to find that overnight rains had washed away some of the tailrace the crew had been digging. But as Marshall examined the channel, something shiny caught his eye, and as he bent over to retrieve the object, his heart began to pound. Gold! Marshall and Sutter tried to contain the secret, but rumors soon spread to Monterey, San Francisco, and beyond—and the rush was on. In this edition of Crisis Chronicles, we describe the excitement of the California Gold Rush and explain how it constituted an inflationary shock because the United States was tied to the gold standard at the time.

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Posted by Blog Author at 7:00 AM in Crisis Chronicles , Financial Markets | Permalink | Comments (7)

June 05, 2015

Crisis Chronicles: Railway Mania, the Hungry Forties, and the Commercial Crisis of 1847



Editor’s note: This post was updated on June 15 to clarify details regarding suspension of the Bank Act.

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Money was plentiful in the United Kingdom in 1842, and with low yields on government bonds and railway shares paying handsome dividends, the desire to speculate spread—as one observer put it, “the contagion passed to all, and from the clerk to the capitalist the fever reigned uncontrollable and uncontrolled” (Francis’s History of the Bank of England). And so began railway mania. Just as that bubble began to burst, a massive harvest failure in England and Ireland led to surging food imports, which drained gold reserves from the Bank of England. Constrained by the Bank Charter Act, the Bank responded by tightening policy. When food prices fell in the spring of 1847 on the prospects for a successful harvest, commodity speculators were caught short and a crisis, one of the worst in British history (Bordo), ensued. In this edition of Crisis Chronicles, we cover the Commercial Crisis of 1847.

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Posted by Blog Author at 7:00 AM in Crisis Chronicles | Permalink | Comments (5)

May 08, 2015

Crisis Chronicles: The Man on the Twenty-Dollar Bill and the Panic of 1837



Correction: This post was updated on May 8 to correct the book title and spelling of the author’s name in the fifth paragraph. We regret the error.

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President Andrew Jackson was a "hard money" man. He saw specie—that is, gold and silver—as real money, and considered paper money a suspicious store of value fabricated by corrupt bankers. So Jackson issued a decree that purchases of government land could only be made with gold or silver. And just as much as Jackson loved hard money, he despised the elites running the banking system, so he embarked on a crusade to abolish the Second Bank of the United States (the Bank). Both of these efforts by Jackson boosted the demand for specie and revealed the soft spots in an economy based on hard money. In this edition of Crisis Chronicles, we show how the heightened demand for specie ultimately led to the Panic of 1837, resulting in a credit crunch that pushed the economy into a depression that lasted until 1843.

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Posted by Blog Author at 7:00 AM in Crisis Chronicles , Economic History | Permalink | Comments (8)

April 10, 2015

Crisis Chronicles: The Panic of 1825 and the Most Fantastic Financial Swindle of All Time



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Centered in London, the banking panic of 1825 has been called the first modern financial crisis, the first Latin American crisis, and the first emerging market crisis. And while the panic displayed many of the key elements of past crises we have covered—fluctuations in money growth, an investment bubble, a stock market crash, and bank runs—this crisis had its own twists, including a Bank of England that hesitated before stepping in as lender of last resort. But it is perhaps best known for an infamous bond market swindle surrounding an entirely made-up Central American principality. In this edition of Crisis Chronicles, we explore the Panic of 1825 and visit the mythical nation of Poyais.

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Posted by Blog Author at 7:00 AM in Crisis Chronicles , Economic History | Permalink | Comments (3)

December 05, 2014

Crisis Chronicles: The Panic of 1819—America’s First Great Economic Crisis



Authors’ Update: Murray Rothbard’s The Panic of 1819: Reactions and Policies was an additional source for this post and should have been cited. We regret the omission.


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As we noted in our last post on the British crisis of 1816, while Britain emerged from nearly a quarter century of war with France ready to supply the world with manufactured goods, it needed cotton to supply the mills, and all of Europe needed wheat to supplement a series of poor harvests. The United States met that demand for cotton and wheat by expanding agricultural production, facilitated by the loose credit policies of a growing number of lightly regulated state banks. Meanwhile, the Treasury needed revenue to pay off debts from the Louisiana Purchase and the War of 1812, so the government turned to selling land acquired in the Louisiana Purchase. But the increased agricultural demand and easy credit policies led to a speculative real estate boom, particularly in Alabama. So when the Treasury started to pay off its debts, the specie drain caused a painful but necessary contraction and the boom went bust. In this edition of Crisis Chronicles, we describe America’s first great economic crisis.

Continue reading "Crisis Chronicles: The Panic of 1819—America’s First Great Economic Crisis" »

Posted by Blog Author at 7:00 AM in Crisis Chronicles | Permalink | Comments (6)

October 03, 2014

Crisis Chronicles: The Crisis of 1816, the Year without a Summer, and Sunspot Equilibria



In 1815, England emerged victorious after what had been nearly a quarter century of war with France. And during those years, encouraged by high prices and profits, England greatly expanded its agricultural and industrial capacity in terms of land and new machinery, with these activities often financed on credit. Improved harvests from 1812 to 1815 coincided with an export market boom in 1814, as the continent began to reopen for trade and speculation in South America increased. But the speculation turned to frenzy compared to the boom of 1810 as everything that could be shipped was shipped—until the speculation broke. The crisis started first with farmers and landlords, spread to business and industry, and was followed by mass starvation on the continent. In this edition of Crisis Chronicles, we recount the Crisis of 1816, the Year without a Summer, and the idea of Sunspot Equilibria.

Continue reading "Crisis Chronicles: The Crisis of 1816, the Year without a Summer, and Sunspot Equilibria" »

Posted by Blog Author at 7:00 AM in Crisis Chronicles | Permalink | Comments (0)
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