History of Financial Panics & Crises in the U.S.

This research examines financial panics, depressions, and crises that have occurred in the United States from the time the nation was founded through 1987. Particular attention is given to those crises occurring or beginning in or near the years of 1837, 1857, 1873, 1893, 1907, 1929, and 1987. A liberal definition what constitutes a financial panic, depression, or crisis is observed in this research, because some of these crises affect professional investors to a much greater extent that the general economy is affected, while other crises were manifestations much broader sets of problems, the combined impact of which was detrimental to the general economy of the United States (Kindleberger, 1989, pp. 232238). Further, the duration of the effects of the various financial crises also tends to vary widely.

Financial crises are closely associated with the nation's banking system and financial securities markets. Commercial banking in the United States developed "concurrently with the growth in population, agriculture and manufacturing output, and transportation facilities" in the country (Fenstermaker, 1965, p. 1). Prior to 1791, there existed little need for commercial banks in the US, because of the relatively lowlevel of overall economic activity. The types of banks and their functions that existed in the nation's earlyyears were determined largely by state governments because little federal control over banking

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old. When the crisis struck, there again was no lender of last resort in the United States, and European bankers refused to help because of the chaotic character of the American financial system (Laughlin, 1984, pp. 209280). The metals crisis was eventually resolved, and the American economy entered into another period of growth. By 1906, the economy was overheated, and by 1907 another financial crisis had developed. Enormously high debt ratios characterized the American economy in 1907 (Kindleberger, 1989, p. 69). A high proportion of this borrowing was supported through bank borrowings from Europe (Kindleberger, 1989, p. 84). Speculation became rampant in the American stock market (Kindleberger, 1989, p. 111). The crash occurred when the Bank of England advised against loaning any more money to American banks, and, again, there was no American lender of last resort to maintain liquidity in the American financial sector (Kindleberger, 1989, pp. 84, 111112). Crises Subsequent to 1907 Beginning in 1908, financial crises in the United States have been closely associated with business cycles. The term business cycle is the name given to relatively shortterm fluctuations in the general level of economic activity as measure

Category: Economics - H