The History of Economic Downturns in the US

Climate Change Timeline | History of Economic Downturns | 8th Grade Final Exam

The US has suffered a great many economic downturns in history. Here is a listing of most of the significant ones:

Depressions

During the era where commodities played a key role in controlling US currency, there tended to be economic depressions, different from recessions because they lasted longer, involved price collapses and bank failures, and were much more severe.

• 1797
  • 3 Years
  • Caused by gold-based deflation in Britain hitting US economy
  • Price failures

  The Bank of England was unable to maintain specie payments during that country’s war with France. This produced a cascade effect of currency shortages that easily crossed to the trade-based economy of the United States, where it caused massive inability to pay debt and lack of capital investment.
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• 1819
  

  Deflation punishes investment and property ownership, attacking capitalism at its roots

  • Two Years
  • Caused by contraction of money by the Second Bank of the US
  • Credit crisis
  • Deflation
  • Cotton and other price failures

  In 1819, the Second Bank of the United States forced a reduction in money supply, creating a credit crisis, forcing downward pricing pressures resulted in a collapse of banks, cotton prices, and prices in general.

http://en.wikipedia.org/wiki/Panic_of_1819 http://www.thehistorybox.com/ny_city/panics/panics_article2a.htm
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• 1832
  • Two years
  • Caused by contraction of money when the National Bank was shut down by “Hard Money” advocate Andrew Jackson
  • Credit crisis
  • Price failures
  • Massive unemployment
  • Bank failures

  In 1832, another contraction of credit and money causes a series of bank failures. Part of the lack of money supply was caused by Andrew Jackson shutting down the Second Bank of the United States…akin to shutting down the Fed. http://history1800s.about.com/od/thegildedage/a/financialpanics.htm http://www.thehistorybox.com/ny_city/panics/panics_article3a.htm _____________________________________________________________

• 1836
  • Six years
  • Caused by a return to gold-backed currency creating a money shortage
  • Credit failure
  • Record unemployment dwarfing 1832
  • Bank failures
  • Cotton price collapse
  • money supply down 58%

  In 1836, just a few years later, Jackson’s effort to force the use of “hard money” (gold and silver) produced ANOTHER contraction, causing real estate prices to plummet, as well as prices in general. Remember, suddenly declining prices are as harmful to the economy as rising prices. You don’t get something for nothing. Banks in the 1830s retained a stable ratio of gold to currency…this meant that when the economy grew, the ratio of money to the economy’s wealth plunged, creating negative price tensions that always result in economic failure. Within a year, 1837, yet another price contraction occurred, including cotton price failures, bank failures, an explosion of unemployment (normal with globally falling prices), continued real estate price instability…this gold-caused depression lasted six years, the second longest in US history. http://en.wikipedia.org/wiki/Panic_of_1837 http://www.thehistorybox.com/ny_city/panics/panics_article6a.htm _____________________________________________________________

• 1857
  • Two years
  • Metallic currency causes a cyclical price collapse
  • Stock prices collapse
  • 900 mercantile firms, in New York alone, fail
  • Agricultural prices fail, triggered by a decline of demand form Europe
  • Real estate prices collapse
  • Significant unemployment increase
  • money supply down 23%

  In 1857, another cyclical wave of price/money collapse, as is inevitable under a commodity-based currency. Stock prices plunge, banks fail, prices fall…prices fall in almost every gold-based economic depression, because the economy grows but the currency cannot, creating a shortage that forces prices back down, causing rampant unemployment, bank failures, bubble-bursts of whole industries, et cetera. This lasts two years. Oh, by the way, the 1819 collapse lasted two years, too. That’s pretty much the minimum for an economic depression, whereas that would be abnormally long, for a modern recession. http://en.wikipedia.org/wiki/History_of_central_banking_in_the_United_States#1837-1862:_Free_Banking_Era http://www.thehistorybox.com/ny_city/panics/panics_article7a.htm _____________________________________________________________

• 1869
  • Two years
  • Gold directly causes an economic failure
  • Gold prices collapse
  • Stocks fail
  • Rail companies collapse, paralyzing the economy

  Another depression. Gold was DIRECTLY at fault for this one: Gold goes through a speculative bubble, suddenly collapsing in price, much like in 1981. This is the famous Black Friday. Gold speculators like the gold bugs you guys have to beware heeding attempted to drive the price up even higher (as they’re trying now), causing the price to spike, then collapse. As in 1981, and as will soon happen again, everyone attempting to invest in gold is pretty much bankrupted. This failure lasted two years. http://en.wikipedia.org/wiki/Black_Friday_(1869) http://www.thehistorybox.com/ny_city/panics/panics_article8a.htm _____________________________________________________________

• 1873
  • Either 5 years, or is the start of a 23 year span of economic weakness known as the Long Depression
  • Caused, in large part, by a switch to the Gold Standard producing a prolonged money shortage
  • Credit collapse
  • Banks fail
  • Insufficient money even to do normal business/trade, therefore
  • 18,000 businesses fail

  After only two years of economic recovery, DEFLATION itself directly causes a FIVE year depression. Credit collapses, banks fail, as do over ten thousand businesses (remember, the population of the US was a fraction of what it is, today, so that’s even worse than it sounds). This was caused, in part, by the attempt to “reign in” money supply, to synchronize it more tightly with gold. http://en.wikipedia.org/wiki/Panic_of_1873 http://en.wikipedia.org/wiki/Long_Depression _____________________________________________________________

• 1893
  • 3 years (or else, it’s the final throw of the Long Depression started by gold in 1873)
  • A shortage of gold creates a deflation of the US Dollar, causing the usual economic depression
  • 500 banks fail
  • 18% unemployment
  • commodity prices collapse, including steel, grain, cotton, and timber
  • 15,000 businesses fail

  A return to a metal-based currency sets off another depression, the worst one until the Great Depression (which was, itself, actually a series of two depressions, the 1929 depression having gone into recovery in late 1932, and then failed under the idiotic minstrations of FDR). This depression starts with a contraction of credit, a run on banks (which is common when people expect money to be backed by metal) over 500 of which fail, the collapse of the stock market (this happened in 1869, too, forgot to mention that), then the failure of SIXTEEN THOUSAND businesses. It lasts four years…three times longer than a bad post-metal recession. But it’s also deeper and harder than the previous six year depression, making it our second worst.
  http://blogs.ancestry.com/circle/?p=2824

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• 1901
  

  Because of the worry that dollars leaving the country would create a domestic currency shortage, in the late 19th century countries often coined separate money for foreign trade, like this US Trade Dollar

  • 1 year
  • Declining money supply meets rising stock market
  • Stock market collapse

  The bimetal standard produces yet another price contraction, shattering the stock market (makes our current stock decline seem like a golden age). Bank failures, economic malaise that spread globally - the US is an economic superpower already, though people don’t realize it yet, and their foolishly metal-based business cycle hurts everyone. http://en.wikipedia.org/wiki/Panic_of_1901 _____________________________________________________________

• 1907
  • A shortage of money supply caused yet another disaster
  • Bank failures, nationwide
  • Stock failure, loss of over 50% of value

  As money supply contracted, J.P. Morgan convinced various wealthy New York bankers to act as a private Federal Reserve, shoring up the banking system, and halting this economic failure…note that it worked better than any government-mandated monetary rescue before or since, including those by the Federal Reserve, FDIC, or the recent $700,000,000,000 bailout. Recognition of the dangers of an unmanaged metal currency, and the power of an influx of money to fight economic depression, resulted in an unfortunate swing to the other extreme as a “solution”: The founding of the Federal Reserve System.

  http://en.wikipedia.org/wiki/Federal_Reserve http://en.wikipedia.org/wiki/Panic_of_1907 _____________________________________________________________

• 1920
  • 2 years
  • The Federal Reserve draws down money supply, exacerbating the economic failure caused by WWI and increasing socialist control of national economies worldwide
  • Banks fail
  • Stock market crashes
  • Prices plummet

  Government centralization of economies during WWI resulted in worldwide economic weakness, but with a new player: the Federal Reserve, founded in 1913, suddenly began tightening money supply. Because money was still based upon gold, this did not result in a modern recession in the US, but an actual economic depression. This economic failure was credited with the defeat of Woodrow Wilson’s successor, James Cox, in the 1920 election.

  On the other hand, this depression was abnormally short, primarily because the Harding administration’s response was NOT more government intervention, “stimulus” programs, Keynesian economics, but simply to leave their hands off and let the correction happen.

  http://en.wikipedia.org/wiki/Post-World_War_I_recession

  http://www.answers.com/topic/depression-of-1920

• 1929
  

  When money deflates, people choose to just hold onto it, starving the marketplace and causing a spiral of ever more deflation

  • 11 years
  • The Federal Reserve draws down money supply, right when banks are needing it to serve its function of providing liquidity, causing massive failures
  • Banks fail
  • Stock market crashes
  • Depressionary spiral
  The Great Depression was not, initially, all that great. It was deep, but was of a normal length, with two quarters of recovery by the end of 1932. Unfortunately, while FDR campaigned on balancing the budget, cutting government spending, regulation, and taxes, he actually expanded all of those things, enagaging in “stimulus” activity that caused the depression to drag on another eight years. One major factor in its eventual recovery was the ending of the gold standard in 1938.

Recessions

In 1938, the US removed the dollar from the gold standard. Starting with its first recession in 1948, and going through 2007, the US — no longer strongly dependent upon the value of metal commodities for the value of its currency — did not suffer the severity of depressions, but instead tended to have relatively minor economic recessions when the Federal Reserve suddenly raised interest rates, causing a contraction of GDP growth.

• 1948
  • 18 months
  • Sharp inflation, except for:
  • Decline in commodity prices
  • Increased employment: 3.5% unemployment

  The Federal Reserve suddenly cut interest rates, as the economic damage of WWII was being fully realized.

• 1953
  • 12 months
  • Moderate increase in unemployment
  • GDP dropped by 6% in one quarter
  • 6% unemployment

  In 1952, the Federal Reserve contracted the money supply, which let to an economic recession, aggravated by the realization of the economic damage caused by the Korean War — Wars are always bad for economies, but this is usually not revealed until the war ends.

• 1957
  • 8 months
  • 7.5% unemployment
  • 9% GDP decline
  • Price inflation

  The Federal Reserve again raised rates and cut money supply. Because of the economic dominance of the US, this recession spread across the whole globe. http://en.wikipedia.org/wiki/Image:Federal_Funds_Rate_(effective).svg

• 1960
  • 10 months
  • 6.9% unemployment
  • 5.7% inflation
  • Decline in goods production

  Very minor downturn, on the heels of yet another sudden rate hike by the Fed. Largely confined to an increase in unemployment and inflation, like most recessions.

• 1969
  • 11 months
  • Moderate unemployment
  • Decline in GNP
  • Decline in goods production
• 1973
  • 16 months
  • 8.7% unemployment
  • 12.2% inflation
  • Dramatic decline in goods production and investment
  • 11.2% interest rate

  Economic upheaval caused by the end of the Breton Woods accord, the scandal and resignation of Richard Nixon, and the massive increase in oil prices caused by the OPEC embargo, produced one of the most significant recessions of the post-gold era, leading to prolonged stagflation.

• 1980
  • 6 months
  • 7.8% unemployment
  • 12.2% inflation
  • Significant investment decline
  • 20% interest rate

  After the end of the official recession in 1975, the economy never reached its normal economic growth, in part because of continued high oil prices, price controls unsuccessfully placed on oil that caused shortages of supply, massive increases in government regulation and spending, and price inflation caused by the high oil prices combining with the Federal Reserve’s expansion of money. By 1980, it was attempting to cut money supply again, and this era of “stagflation” climaxed in another, very short, official recession.

  http://www.applet-magic.com/rec1980.htm

• 1981
  • 16 months
  • 10.8% unemployment
  • 12.2% inflation
  • Dramatic investment decline
  • 21.5% interest rate

  The dramatic economics changes of the Reagan administration (and the end of the Carter administration, who actually started the process, for example “deregulating” banking), albeit good in the long run, exacerbated the symptoms of stagflation in the short-term, especially a dramatic tightening by the Fed, leading to a rapid and dramatic economic downturn.

• 1991
  • 8 months
  • 6.1% unemployment
  • 6.5% inflation
  • 11.2% interest rate

  Tax hikes, a spike in oil prices, significant interest rate hikes and Fed tightening, a general reversal of “Reaganomics” with the expansion of government under the Bush administration, the bailout of the Savings and Loan industry by the Federal government, preserving bad debt and inefficient businesses, the Gulf War, and other factors led to this significant, and persistent economic downturn, which was no longer officially a recession in 1992 or 1994, but was still a stagnant economy leading to two dramatic upset elections.

• 2001
  • 16 months
  • 8.7% unemployment
  • 12.2% inflation
  • Dramatic decline in goods production and investment
  • 11.2% interest rate
  • Prolonged stock market downturn

  Ongoing Fed tightening had led to a dramatic stock market decline starting in 2000. The spike in oil prices, expansion of government, and direct economic disruption caused by the 9-11 attacks exacerbated this already-building downturn, producing a relatively short “recession”, that did not actually include two quarters of official shrinkage, followed by a prolonged period of relatively slow economic growth, in which, for example, the Stock Market never actually recovered to its previous levels (which, previously, it had almost always done within two years).

• 2007
  

  We face, as was normal during the days of the gold standard, massive bank runs, a credit freeze, price failures

  • ongoing
  • 9.4% unemployment
  • 1% deflation
  • Bank failures
  • Commodity price collapse
  • Bank failures

  While the economy never fully returned to normal economic growth, it staggered along for several years, but by 2007 the pressure of ever-increasing oil prices, years of increased government regulation, two voluntary wars, and enormous new “foreign aid” spending added up to a currency shortage that produced the first economic depression since 1938.

(this list is incomplete, but will continue to grow)

http://209.85.173.132/search?q=cache:Q8uet96fQYIJ:www.coba.panam.edu/ecofina/web_site/selectedworkingpapers/Recessionof60-61.pdf+”recession+of+1960″&hl=en&ct=clnk&cd=3&gl=us http://www.albany.edu/~renshaw/leading/ess13.html#tab13.2 http://www.bookrags.com/wiki/List_of_recessions

Climate Change Timeline | History of Economic Downturns | 8th Grade Final Exam