The spark that ignited the inflation was an unusual and spectacular inflow of Mexican silver coins into the United States—brought about by the minting of debased Mexican copper coins which the Mexican government tried to keep at par value with silver. The system of fractional reserve banking, however, fundamentally was to blame for magnifying the influx of specie and pyramiding notes and deposits upon the specie base. In 1837, the boom came to an end, followed by the inevitable bust, as Mexico was forced to discontinue its copper coin issue by the outflow of silver, and the
Bank of England, worried about inflation at home, tightened its own money supply and raised interest rates. The English credit contraction in late 1836 caused a bust in the American cotton export trade in London, followed by contractionist pressure on American trade and banks.
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Panic of 1837 - Mises Wiki, the global repository of classical-liberal thoughtrices, in turn, rose from 84 in the spring of 1834 to 131 in early 1837, a rise of 52 percent in a little less than three years—or an annual rise of 19.8 percent.
The monetary expansion, however, was not caused by state banks going hog wild. <span>The spark that ignited the inflation was an unusual and spectacular inflow of Mexican silver coins into the United States—brought about by the minting of debased Mexican copper coins which the Mexican government tried to keep at par value with silver. The system of fractional reserve banking, however, fundamentally was to blame for magnifying the influx of specie and pyramiding notes and deposits upon the specie base. In 1837, the boom came to an end, followed by the inevitable bust, as Mexico was forced to discontinue its copper coin issue by the outflow of silver, and the Bank of England, worried about inflation at home, tightened its own money supply and raised interest rates. The English credit contraction in late 1836 caused a bust in the American cotton export trade in London, followed by contractionist pressure on American trade and banks.
In response to this contractionist pressure—demands for specie—the banks throughout the United States (including the old BUS) promptly suspended specie payments in May 1837. The
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