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boom-bust cycles-- CAN BE APPLIED TO ANY PANIC!
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boom-bust cycles-- CAN BE APPLIED TO ANY PANIC!


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  • 1. Boom Bust Cycles: can apply these characteristics to any Panic!Boom- Post-War periods because people save during wartime1. 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)!Bust1. Overproduction (surplus), Under-consumption!2. Prices (surplus means prices fall) and wages drop3. Land values fall!4. Foreign investment falls!Vicious Cycle!-When prices fall, businesses and banks start to fail, foreign investment falls, wagesfall, unemployment risesCan 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 economybegins 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