Panic of 1819

The Panic of 1819 was something of a delayed result of the War of 1812, occurring as the Second Bank of the US restructured itself in the midst of an unstable economic environment. The American manufacturing sector, which had developed and expanded during the War of 1812, was severely damaged by the avalanche of European imports following the war. Speculation in western lands was conducted without regulation, placing many in danger of bankruptcy if land prices were to fall. The number of state banks increased dramatically, generally without enough money and caution to provide security and stable banking. Into this atmosphere of instability was introduced a final element: the poor management of the Second Bank of the United States. In order to save the bank, its administration began contracting credit, requesting that the state banks repay their loans. This forced the state banks to contract as well, reducing the amount of money in circulation. The timing was unfortunate, since failing manufacturers and unsuccessful speculators were in need of money to deal with their financial difficulties. Banks suspended specie payments, which led to business failures. This caused an increase in unemployment. Export prices fell as a general recession followed the Panic of 1819. In addition, the federal government announced that is was facing a deficit. The Second Bank of the US authorized a loan to the government, to cover debt payments.