The sudden contraction of credit by the Second Bank of the United States.
Loss of market value of the American cotton.
Loss of jobs and closing factories due to pressures from foreign competition.
Obligatory payment in hard currency of land purchases.
If there had been a better credit management in the first place. This would have prevented the sudden need of the contraction of market credit which led to a succession of chain fatal economic events.
Explanation:
After what is known as post Napoleonic war of 1812, the United States sought to recover its economy. This period saw massive liberation of paper money from the western banks and business concerns thus, leading to excessive speculation of public lands. Europe was recovering its economy and badly needed supplies of American produce such as cotton, tobacco and flour.
In about the beginning of 1818, the Second Bank of the United States not finding this procedure complimentary to the growth of the America economy, decided to take stock by calling in its loans and forcing the state banks to do the same. This lead to widespread bankruptcy, as many mortgaged businesses and agricultural concerns depended on this loans. These loans could not be paid and the banks went broke. Apart from the mass unemployment, which followed in the American market, there was also the large influx of foreign goods, mainly from Europe, which further led the slumming of prices of commodities such as cotton from the south. Americans lost their homes and farmlands, there was no incentive for agriculture, and manufacturing of goods as these factories could not compete with the price of foreign goods.
This financial crisis could have been prevented if the Government had not in its haste to accelerate growth in the economy provided a basis for inflation and then in its aim to control inflation, loans were called in and debtors required making hard-currency payments for land purchases.
