Boom Bust Cycles: can apply these characteristics to any Panic!

Boom- Post-War periods because people save during wartime

1. New jobs available because of higher demand when people are buying again

-People demand staples, finished goods

: staples- things you always need

: finished goods- luxury items

1. Speculation/Investment: when people have extra money, they buy land, invest in new

businesses (later, stock market)

2. Foreign Investment in USA (buying of American goods/loaning to American

businessmen)!

Bust

1. Overproduction (surplus), Under-consumption!

2. Prices (surplus means prices fall) and wages drop

3. Land values fall!

4. Foreign investment falls!

Vicious Cycle!-When prices fall, businesses and banks start to fail, foreign investment falls, wages

fall, unemployment rises

Can apply this to the 1819 Panic!

Over-speculation of Post-War years is the main cause:

-Cotton Prices drop because of overproduction (Cotton Gin)

-Farm products are not being sold to Europe because wars there are over!

-1817 Congressional Act says land sales have to be paid in Specie (hard money), not paper

money (paper money is not trusted!)

-Land speculators are not able to sell land for profit because people do not have

specie to buy it with!

-Land prices drop to try and sell the land (speculators are not making money)

-Speculators/Farmers/Business owners cannot make loan payments to regional banks

because of falling prices, less foreign investment

-Regional banks fail if they are not getting paid back by borrowers!!

-PANIC: investors try to redeem paper money for specie at banks, but banks run out

of specie (not enough to back up bills)

South and West blames Northeast/bankers for the Panic (National Bank)

-Why Bank? -no government regulation

-National Bank called in loans (pay back in specie)

-Borrowers (regional banks and businesses) cannot pay back loans because

foreign investment and prices are dropping

-National Bank is hording gold because it has value, not loaning it out or accepting

regional bills at face value (doesn’t trust regional bills, wants pay back in GOLD!)

-When they do loan it out, they loan to NE banks and businesses because they

are trusted!

-Business growth/expansion occurs in NE!

-Americans have very little faith in banking system (especially in West/South)!!

Shows the newly interconnected market economy is volatile! When one part of the economy

begins to fail, other parts fail as well!

-Hard work and personal merit have little impact on whether or not you outlast the

panic!

-International/national market trends, National Bank policy, regional bank

overspeculation (gave out more money than they had gold to support it