Every recession from U.S. history and how the country responded
U.S. quarterly gross domestic product dropped at an annualized rate of 32.9% in the second quarter of 2020 amid business closures and social distancing, with the overall economy down by 9.5% than the same time period in 2019. The dropoff is the largest since records began being kept in 1945, and more than tripling the previous 1958 record of 10%.
The sharp contraction proves the old adage that what goes up must come down, especially when it comes to the U.S. economy. Stacker looked at data from the National Bureau of Economic Research to get a sense of how the United States responded to recessions tracing back to 1785.
There are nearly 50 notable national economic declines in America’s financial past, some more detrimental than others. Not to be confused with an economic depression, a recession is the period of six months or two three-month consecutive quarters of real gross domestic product (GDP) decline. Other key factors that determine a recession, along with a GDP decline, are negative shifts in employment, manufacturing, retail sales, and income. Recession dates are defined by the National Bureau of Economic Research.
The reasons for America’s historic economic downturns are wide-ranging. Many were caused by the actions of the Federal Reserve as it tried to control for inflation, while others were the products of stock market crashes and corrections. One was even caused by a single man—Henry Ford—who closed his factories in the late 1920s to transition production from the Model T to the Model A. More than 60,000 workers lost their jobs during the six-month closure, putting a temporary halt to the otherwise “roaring” ‘20s.
The two greatest recessions in U.S. history, the Great Depression of the early 1930s and the Great Recession of the late 2000s, saw the stock market suffer tremendous losses and unemployment rise, reaching 24.9% during the Great Depression.
Included with each slide is information regarding what may have caused the dip, as well as what happened to help the economy recover. Adaptive fiscal policies, transitions from peace to war, and stimulus packages have been the primary factors in pulling the country out of recession.
Keep reading to learn more about every recession in U.S. history, and how the country responded.
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Panic of 1785
The economic boom that came on the heels of the American Revolution ended two years after the war’s final battle in Yorktown. The Panic of 1785 was caused by post-war deflation, an abundance of accrued debt, and overexpansion. Making the four-year recession worse was a lack of significant intercontinental trade and a fledgling country without credit or paper currency.
Copper Panic of 1789
When counterfeiters began circulating fake copper coins following the American Revolution, the value of real copper plummeted. Ultimately, the Copper Panic of 1789 led the U.S. to transition from coin to paper currency. The Bank of America in Philadelphia was the first institution to introduce a parchment banknote in place of low-quality coins, which quickly restored public confidence in U.S. currency.
Panic of 1796–97
The credit overexpansion begun in the early 1790s by the Bank of the United States led to low interest rates, inflation, and an investment bubble for things like infrastructure and real estate. That inflation affected the pricing of exports. Prices dropped, interest rates shot through the roof, and businesses folded. Deflation in the Bank of England exacerbated the economic distress.
Trade disruptions caused by pirates in 1801 inspired the First Barbary War. Meanwhile, the end of the French Revolutionary Wars in 1802 caused a slump in demand for wartime materials and supplies, and a significant dip in commodity prices.
[Pictured: Drawing of the USS Enterprise fighting the Tripolitan polacca during the First Barbary War, by William Bainbridge Hoff].
Depression of 1807
Amidst tensions with the U.K., President Thomas Jefferson signed The Embargo Act of 1807, a law passed by Congress that halted all American ships from trading in foreign ports.The plan caused a significant decline in product prices and trade measures, causing significant hardship for shipping industries in particular.
[Pictured: Cartoon of a merchant trying to smuggle goods out of the country during the Embargo Act. He is assaulted by federal authorities represented by a turtle. He exclaims "Oh, this cursed ograbme!" which is "Embargo" spelled backwards.]
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An economic downturn in 1812 was brought on by international trade restrictions and America’s expansion. The financial crisis was short-lived, as production for the War of 1812 infused the American economy with cash. As with many battles, the United States’ conflict with the United Kingdom promoted wartime profiteering, which enabled competitive pricing and higher trade volumes to boost the U.S. economy, under President James Madison’s administration.
[Pictured: A view of the U.S. Capitol of Washington before it was burnt by the British during the War of 1812].
Inflation followed the 1815 conclusion to the War of 1812, steeling the United States against a severe, six-year depression that was prolonged by the Panic of 1819. From the decline of cotton prices to faulty land speculation deals, the U.S. economy got hit from all angles, as banks produced more paper currency than their gold collateral and the U.S. credit system collapsed. This depression is considered the first “boom-bust” period in America’s financial history.
Just when America began to see some financial light after six years of depression, commodity prices capped, with nowhere to go but down. Trade took a turn for the worse, and employment declined. The United States got only a slight reprieve before the Panic of 1825, when a stock market crash devastated the economy.
[Pictured: Drawing of pedestrians on the street outside the Second Bank of the United States on Chestnut Street in Philadelphia, 1820s].
After Scottish investor Gregor MacGregor in 1822 duped American and British investors into believing in the imaginary country of Poyais, he collected hundreds of speculative bond investments for the Latin American land that didn’t exist. This money flowed alongside other investments throughout Latin America, leading to a bubble that inevitably burst in 1825 and caused an abrupt decline in stateside business activity. Many were left penniless, and British and American financial markets were severely disrupted. That same year, the Bank of England raised interest rates at the same time mining stocks fell, causing even more financial upheaval.
[Pictured: A Bank of Poyais "dollar", printed in Scotland].
When Britain banned American trade with its English colonies for a year, it caused an unexpected deficit. The trade decline, along with England’s credit issues at the time, caused a rise in unemployment and decreased personal consumption, inevitably causing further financial strain during President John Quincy Adams’ administration.
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