Panic of 1884
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The Panic of 1884 was an economic panic during the Depression of 1882-85. It was unusual in that it struck at the end rather than the beginning of the recession. The panic created a credit shortage that led to a significant economic decline in the United States, turning a recession into a depression.
The gold reserves of Europe were depleted and as demand for it rose, more than $150 million in gold was exported from the United States between 1882 and 1884. Beginning in 1882, the U.S. economy contracted with major available indexes such as railway revenue, coal production, imports, and domestic cotton production declining by more than 25 percent. The New York City national banks, with tacit approval of the United States Treasury Department, halted investments in the rest of the United States and called in outstanding loans. A larger crisis was averted when New York Clearing House bailed out banks in risk of failure. Nevertheless, the investment firms Grant & Ward, Marine Bank of New York, and Penn Bank of Pittsburgh failed along with more than 10,000 small firms. This was an economic crash that occurred during the Depression of 1882–1885. It was one of the eight panics that happened in 1863–1913, in the money center of Manhattan. It occurred around the time of the Gilded Age, which was a time around the end of the Civil War, and the beginning of the 1900s. It was an era when economic progress masked social problems and the siren of financial speculation caused financial foolishness in sensible people. Panics like this tended to happen in fall, during the time of greatest strain for the banking systems. Farmers needed money for crops, and the holiday season also brought demands for increase of currency and credit. Since the National Banking System couldn't supply the currency for the increase of the demand, they rose the price of currency, instead. They increased interest rates and lowered the value of banks’ assets, which gave them trouble repaying deposits. It pushed them to insolvency. Because of this dynamic, it triggered more runs in chain reactions, that threatened the entire financial system. An estimation was made that 5% of all American mines and factories had been completely shut down due to this crash. This panic was confined in nearby states and cities around New York. During that time, the uncertainty about banks’ stability and fear that other depositors would be the first to withdraw, triggered panics.
The immediate cause of the Panic of 1884 was the failure of Grant and Ward and Marine National Bank of New York City. These two firms were joined closely together as James D. Fish was a partner in both. When these two major firms collapsed, it had a ripple effect across Wall Street, causing many firms to fail. Another major cause was the aftereffects of the Panic of 1873, which involved practices such as speculative bonds and overextension of credit to fund the construction of infrastructure. In addition, this failure undermined the confidence people had in Wall Street as it rebuilt after the events of 1873, especially after it became known that John Chester Eno had embezzled over $3 million and fled to Canada. Even though the bank replenished the missing amount and avoided failure, the news was still a huge blow to any remaining good will and confidence Wall Street had and furthered the panic. Overall, the panic was mostly contained to New York but acted as a foreshadow to the Great Depression. In May 1884 the two firms, the Marine National and the brokerage firm Grant and Ward, crashed when their owners’ speculative investments lost value. Shortly after the first incident, the Second National Bank suffered when it was discovered that John Chester Eno embezzled 3 million dollars and ran away to Canada. Large numbers of depositors simultaneously ran to the bank to withdraw their deposits. This wave of panic forced the bank to sell more assets, further depressing asset prices, further weakening banks’ balance sheets, and further increasing the unease for the public about banks. The Metropolitan National Bank also closed after a rumor spread that the president was going to borrow money, from the bank, to use on railroad securities. Though later, this claim was proven untrue. The latter institution had financial ties to the banks around them, which raised doubts to the banks it was linked with, after its closure. This started to spread through Metropolitan's network to institutions located in New Jersey and Pennsylvania. But, it was quickly contained.
The New York Clearing House thoroughly examined the Metropilton and realized it was a solvent. They understood that they were able to pay off their debts. They advertised this new find and loaned Metropolitan three million dollars so it could withstand the run and not crash. These successful actions were able to reassure the public that their money was safe, and the panic came to an end. This panic severely disrupted industry and commerce, even after it concluded.
Other accounts also blamed the New York Clearinghouse's decision to stop publishing bank-specific information along with other actions since it is viewed to have alleviated the need for a suspension of convertibility. It is argued that this is evidenced in the way the panic was largely confined to New York.
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