After an economic peak in 1891, Chicago and the nation faced a serious downturn in 1893. It was one of two serious panics that occurred in the 1890s. Banks and other businesses failed. Many farmers lost their farms. Double digit unemployment rates, as high as 43% in Michigan, caused riots, strikes and a march on Washington. Political control shifted from the Democratic Party to the Republican Party.
The roots of the panic can be traced to increased support for investment in the Baring Brothers Bank, an Argentinian agency bank. When a political coup in Argentina ended further investments, the U.S. Treasury experienced a run on gold as investors liquidated their investments.
At the same time, national expansion was driven by speculation in overbuilt railroads, whose expenses exceeded their revenues. Railroad financing was driven by speculation, and it was insecure. Agricultural commodities experienced a decline, hurting the nation’s farmers. The emergence of numerous silver mines caused the price of silver to decline as silver flooded the market.
The first tangible sign of trouble occurred with the Philadelphia and Reading Railroad bankruptcy. After his second inauguration, President Grover Cleveland worked to solve the treasury crisis. He convinced Congress to repeal the Sherman Silver Purchase Act, which he believed was responsible for the panic.
As the downturn worsened, frightened depositors withdrew their savings from banks and caused a ripple of bank runs throughout the nation. Banks limited the availability of credit, and many banks also called in their loans as the economy worsened.
The panic upset worldwide markets, which also affected the American economy. Great Britain experienced a money panic. As European trade dropped, foreign investors unloaded their American stocks and obtained funds backed by gold.
To be continued…
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