Worst Recessions & Depressions in American History

For those who believe that the American economy is presently teetering over a dangerous recessionary abyss, since the nation’s founding in 1776, Americans have endured some 48 panics, recessions and depressions in her 249-year history, and while an in depth examination of each downturn would make for a tediously long film, daily dose documentary looks at some of the all-time worse financial moments in American history.

A little more than a decade after the signing of the Treaty of Paris, which formally recognized American independence from Great Britain, the Panic of 1797 was a financial downturn for both the United States and Britain, caused by a combination of burdensome debts left over from the Revolutionary War, American port closures due to repeated yellow fever epidemics, banking instability and economic mismanagement, the later caused by a bursting bubble in land speculation. The downturn left economic activity stagnant in the North, while causing a deflationary contraction throughout the nation until the end of the century.

Given America’s reliance on British resources at the time, when Britain became heavily engaged in the French Revolutionary Wars, the Bank of England issued large amounts of banknotes to fund their war efforts, leading to inflation and a run on bank resources, leading the Bank of England to halt the redemption of banknotes for gold and silver, which in turn had a ripple effect across the Atlantic, sparking a severe credit contraction in American banks, primarily in cities like New York and Philadelphia, when British investors withdrew their funds. Made worse by the First Bank of the United States’ limited centralized influence, the Panic of 1797 led to bank failures, rising unemployment and collapsing land speculation, highlighting the fragility of early American banking systems, while exposing the risks of excessive credit expansion during wartime.

The nation’s first depression was to follow in 1807, when English trade restrictions combined with President Thomas Jefferson’s Embargo Act of 1807, which was an attempt to preserve American neutrality as tensions rose between England and France during the Napoleonic Wars. In response, the embargo crippled the American economy, especially in trade-dependent regions like New England, plummeting American exports from $108 million dollars in 1807 to just $22 million in 1808, devastating merchants, shipbuilders and farmers in the embargo’s wake, while the subsequent financial instability led to widespread business failure, unemployment and across the board financial distress.

Political backlash also contributed to the rapid decline of Jefferson’s Democratic-Republican Party—particularly in the North—leading to the rise of opposition groups seeking preeminence within the American political landscape. Facing intense pressure from all sides, Jefferson and Congress repealed the Embargo Act of 1807, replacing it with the Non-Intercourse Act of 1809, which allowed trade with nations other than Britain and France. While the nation’s economy did not fully recover until 1813—just in time for a second American depression—the Depression of 1807 demonstrated the impact of economic isolationism, while foreshadowing future challenges tied to international conflicts.

Thanks to heavy debts racked up during the War of 1812, the Depression of 1815 to 1821 was caused by multiple bank-related economic capital contraction on both sides of the Atlantic, leaving Great Britain heavily in debt due to the War of 1812 against the Americans and the Napoleonic Wars of 1803 to 1815 against France. With the Napoleonic Wars now ended, demand for American imports of cotton, wheat and tobacco plummeted, as European men laid down their arms and returned to farming. In an effort to stimulate home grown agriculture, Britain imposed the Corn Laws of 1815, which forbade the importation of all cereal grains including wheat, oats and barley, which in turn collapsed grain prices in America, leading to a period of marked deflation, financial turmoil and widespread instability in agriculture and trade.

The depression was further worsened by the Panic of 1819, following yet another period of runaway land speculation, which further collapsed the American economy when banks called in speculative loans on land assets now in free fall after years of rising values, leading to foreclosures, bankruptcies and ultimately 500 bank failures. Business failures surpassed 15,000 by the end of the depression, leading to the rise of economic nationalism, which called for protective tariffs and a stronger centralized banking system.

During a time when American banks and merchants relied heavily on trade with England and financing from British banks, in 1832, President Andrew Jackson vetoed the rechartering of the Bank of the United States, declaring that the Bank was “unauthorized by the Constitution, subversive to the rights of States, and dangerous to the liberties of the people.” To hasten its demise, Jackson redistributed federal funds among smaller, unregulated state banks across the country, leading to the creation of hundreds of new banks that printed their own currency and made speculative loans in excess of the value of the gold and silver specie in their vaults. 

To further worsen the landscape for the looming disaster, the federal government increased its selloff of western lands to finance infrastructure projects like the construction of roads, canals and bridges, leading to a speculative bubble as western land prices rose in response to demand, leading Jackson to issue his Specie Circular of 1836, requiring payment for government land in gold or silver instead of the increasingly valueless paper currency. The final blow landed when the Bank of England raised interest rates that same year, leading to a tightening of credit as well as a drain of specie from U.S. banks.

The resulting panic of 1837 reached its zenith in May of that same year, when hundreds of banks and businesses shuttered their doors, leading to soaring unemployment among the nation’s approximate 14,000,000 Americans, as well as plummeting prices for commodities and durable goods that lasted well into the mid-1840s. In response to the crisis, the Van Buren administration undertook measures to stabilize the economy, including the establishment of an independent treasury system, which wrested control of federal funds away from private banks, while issuing treasury notes to alleviate the shortage of currency in the American economy. The Panic also delivered far-reaching consequences in shaping both American politics and economic policy, fueling debates over banking regulation and the role of the federal government in managing future financial crises. The Panic also contributed to the rise of the Whig Party and the election of Whig candidate William Henry Harrison to the White House in the election cycle of 1840, making the Panic of 1837, a stark reminder of the dangers surrounding over speculation and the inherent fragility of financial systems.

After the infusion of gold into the American economy following the California Gold Rush of 1849, which in turn caused a heavy devaluation of paper currency, leading to the Recession of 1857 rapidly devolved into a full-scale panic after the New York branch of the Ohio Life Insurance and Trust Co. collapsed on August 24th of 1857, leading to the American stock market crash of that same year, which witnessed a 33.7% drop in equity values across the board. To add to the mayhem, the Crimean War of 1853 to 1856 had artificially increased American grain exports to Europe, which in turn plummeted dramatically by 1857. Over speculation in railroads and lands furthered the misery, leading to a period of plummeting values that trapped speculators in a litany of defaults and foreclosures that ultimately led to 5,000 bank failures and an equal number of business failures. 

Severely shaking consumer confidence, the Panic of 1857 led to mass unemployment, especially in the industrializing north where factories and small businesses shut down due to economic distress. The north also saw devastating impacts to farmers, while the South’s heavy reliance on unaffected cotton exports led slaveholding planters to believe in the superiority of their economic system. Considered one of the first major global economic downturns, while the economy began to recover by 1959, financial instability in Northern states and the relative stability of the cotton growing South intensified divisions between the North and the South, contributing substantially to the growing winds of war.

After the end of the Civil War, the United States experienced a period of dynamic industrial growth, fueled primarily by heavy speculative investments in railroads, financed by banks such as Jay Cooke & Company, who relied heavily on government bonds to support their railroad expansions throughout the United States. Prior to the crash of 1873, as railroad expansion outpaced demand, rail companies struggled to remain profitable, while a series of disasters in the years leading up to the crash did much to reign in American economic growth, including the Great Chicago Fire of 1871 and the Equine flu epidemic of 1872, which over a 50-week period, nearly every horse in America was demobilized or killed, in turn grinding most transportation and industry to a halt. 

On September 18th of 1873, Jay Cooke & Company’s speculative overreach into the Northern Pacific Railroad suspended after it was unable to sell enough bonds to cover its debts, triggering widespread panic that led to the closure of 100 banks and 18,000 businesses over the next two years as credit markets froze, while unemployment skyrocketed in excess of 14% of working age adults in the aftermath of a sharp decline in industrial production. Markets around the world crashed in sympathy, forcing the New York Stock Exchange to freeze trading for the next ten days after Jay Cooke & Company’s failure.

In the two years that followed, widespread layoffs and wage cuts sparked labor unrest throughout the nation, while the depression further hit farmers as crop prices dropped below their operating expenses. As the nation’s economic concerns shifted away from rebuilding the South after the Civil War, the crisis effectively ended Reconstruction Era meddling of northern Carpet Bag intrusions into the South. 

Led by President Ulysses S. Grant, the federal government rejected inflationary calls to issue more greenbacks, instead remaining steadfast to the gold standard, which prolonged the nation’s hardship. As the economy began to rebound by 1879, the Panic of 1873 led to a tightening of bank regulations, as well as changes in economic policy intended to ward off future panics and national hardships.

After two decades of robust Gilded Age growth and prosperity—including an oversupply of silver due to a massive strike in Nevada’s Comstock Lode, as well as gross overreach in the American railroad industry—a confluence of disastrous events led to the Panic of 1893, effectively crushing the American economy and the American spirit, with a stunning cascade of bank failures, bankruptcies and foreclosures, not to be equaled until the Great Depression of the 1930s. Troubles began on February 20th, 1893, just twelve days after President Grover Cleveland was sworn into office, when the Philadelphia and Reading Railroad followed by the National Cordage Company—two of the nation’s largest employers—filed for receivership, while the lingering effects of a wheat crop failure and an unsuccessful coup in Argentina encouraged skittish European investors to sell their American stock holdings, which in turn started a run on gold in the U.S. Treasury, since specie or coins made of precious metals were deemed safer than paper money.

Convinced that an oversupply of silver was at the heart of the crisis, Cleveland convinced Congress to repeal the Sherman Silver Purchase Act of 1890, creating a credit crunch that rippled throughout world economies. As stock prices on Wall Street began their precipitous tumble, a domino effect of financial collapses soon followed, including bankruptcies for the Northern Pacific and Union Pacific Railroads, the Atchison, Topeka & Santa Fe Railroad, 500 regional and national banks and more than 15,000 companies across the United States. At the depression’s peak, which dragged on until 1897, unemployment reached 17 to 19% nationally, with some states reaching even higher figures such as 35% in New York and 43% in Michigan, causing once-secure middle-class Americans to walk away from home mortgages they could no longer afford. 

Facing starvation, many in the fallen middle-class accepted manual labor jobs in exchange for food, while many women resorted to prostitution as a meanings of feeding hungry children back home. The American president took the brunt of a struggling nation’s blame, and when the U.S. Treasury fell to dangerously low levels of specie, he was forced to borrow $65 million from Wall Street banker J.P. Morgan and Great Britain’s Rothschild banking family. Combined with the bloody Pullman Strike of 1894, Cleveland’s Democratic party suffered massive losses in the mid-term elections of 1894, followed by Republican President William McKinley’s landslide victory in the presidential election of 1896, making the Panic of 1893, another worst hard time in American history.

Sometimes referred to as the Bankers’ Panic, in the years leading up to the Panic of 1907, America’s decentralized banking industry, which harkened back to the Jacksonian era, failed to reign in their speculative investments during a period of rapid growth leading up to the recession of 1907, as they loaned money freely to leading industries like railroad, steel and oil trusts. The crisis began when banker F. Augustus Heinze and businessman Charles W. Morse attempted to manipulate the stock price of the United Copper Company, which led to a run on banks and trusts—the later far less regulated than banks.

After the Knickerbocker Trust Company—one of the largest in New York—suffered a run on October 22nd, after the trust company suspended, the American stock market lost half of its value from the previous year. In a nation still lacking the stabilizing impact of a central bank, financier J.P. Morgan intervened with a rescue plan, convincing major banks to pool in support of the weakest financial institutions teetering on failure, while U.S. Treasury Secretary George Cortelyou arranged for the deposit of government funds to boost a given ailing bank’s liquidity. During the worst of the crisis, Morgan locked bankers in his library overnight, forcing them to agree on a bailout plan, leading to restored confidence by the American public by late November. The Panic of 1907 at last woke up the federal government to the need of a strong centralized banking system, leading to the creation of the Federal Reserve in 1913.

Throughout the Roaring Twenties, the U.S. economy nearly doubled its wealth, leading to reckless over-speculation on Wall Street, which reached its peak by August of 1929. Combined with declining industrial output, rising unemployment, a widespread drought in multiple farming regions and a banking sector bloated with questionable loans, conditions morphed into a perfect storm that exploded on Wall Street on October 24th, 1929. Known at “Black Thursday,” panicked investors sold off a record 12.9 million shares, followed five days later by the “Black Tuesday” selloff of an additional 16 million shares, wiping out millions of individual fortunes while setting the stage for widespread bank failures as their individual solvency grew challenged by loan defaults. As consumer confidence eroded in the wake of Wall Street’s collapse, a decrease in industrial production led to even high unemployment, lower wages and decreased consumer buying power. By 1931, the nation’s industrial production had dropped by half, and as bread lines and soup kitchens formed in cities across the nation, so did the growing number of homeless people, as well as a Dust Bowl in the Southern Plains, that prompted additional mass migrations of destitute farmers seeking employment in cities.

By its peak in 1933, the Great Depression witnessed a national unemployment rate of 20%, while thousands of regional banks had closed their doors for good. Known as a laissez faire Republican, President Herbert Hoover’s failure to intervene on an ailing economy led to the naming of homeless encampments as Hoovervilles, as well as a landslide victory for presidential candidate Franklin D. Roosevelt in the election of 1932, who famously encouraged downtrodden Americans that “the only thing we have to fear is fear itself.” FDR’s fireside chats soon projected optimism and calm over a jittery nation, which he turned into action with his New Deal policies, including the Tennessee Valley Authority and the Works Progress Administration that gave  government-funded infrastructure employment to 8.5 million Americans from 1935 to 1943. He also sought reforms in the financial sector, including the Federal Deposit Insurance Corporation or FDIC, which protected individual bank accounts with government-backed assurances, and the Securities and Exchange Commission or SEC, which applied regulation and oversight on all stock and commodity markets intended to prevent the kinds of abuses that led to the stock market crash of 1929.

While early signs of recovery became measurable in the spring of 1933, a sharp downturn occurred four years later, largely inspired by the Federal Reserve’s decision to increase its requirements for money held in federal coffers, in turn creating a contraction that zeroed out most of the gains witnessed since 1933. Nor were depression-era hardships limited to America, which helped to fuel the rise of extremist political movements in Europe, including Adolf Hitler’s ascension to power in 1933 Germany. Following Hitler’s invasion of Poland in 1939, the WPA switched its emphasis to strengthening American military infrastructure, followed by a massive increase in defense manufacturing after FDR’s decision to support Britain and France in their struggle against Nazi aggression. While most historians place the end of the Great Depression in 1939, the true economic turnaround occurred in 1941, after the U.S. entered World War Two following the Japanese attack on Pearl Harbor, making The Great Depression one of the worst hard times in American history.

Next on the list of America’s worse hard times was the Recession of 1973 to 1975, which was marked by a combination of high unemployment and high inflation known as stagnation, caused primarily by the Federal Reserve’s expansionary monetary policies of the 1960s and early 1970s, which increased the money supply and led to rising prices. Considered one of the worst economic downturns in post-WW2 America, the recession was further triggered by the OEPEC Oil Crisis of 1973, when the Organization of Arab Petroleum Exporting Countries imposed an oil embargo on the U.S. and its Western allies who supported Israel during the Yom Kippur War. 

Quadrupling oil prices from $3.00 to $12.00 per barrel, higher energy costs further fueled inflation by increasing the price of goods and services. 

Combined with increased spending due to America’s increased involvement in the Vietnam War, the Recession of 1973 to 1975 was further fueled by the end of the Bretton Woods System in 1971, when then President Richard Nixon took the U.S. economy off the gold standard, causing wide fluctuations in the dollar’s value that both contributed to inflation and weakened international trade stability. The underlying causal factors led to a collapse in investor confidence and the Stock Market Crash of 1973, which saw a 51.9% drop in equity values before its recovery in 1974. Unemployment rose to 9% by 1975, up from 4.6% in 1973, while GDP shrank by 3.2%, leading to the failure of more than 15,000 businesses. The recession ended in 1975 as oil prices stabilized and the Federal Reserve adjusted their policies, yet the period’s deleterious effects would linger for years to come.

By the late 1970’s, with the previous recession’s lingering high inflation exceeding 13% by the end of 1979, Federal Reserve Chairman Paul Volcker to aggressively tightened monetary policy yet again, including sharp increases in interest rates, which rose the federal funds rate from 10% in 1979 to over 20% by 1981, in turn causing capital investment purchases to dry up as capital became less available. The policy shift brought about a drop in inflation and a rise in unemployment, leading to a two phase economic downturn known as the Early 1980s Recession. The effects of high interest rates were widespread among businesses and consumers, leading to sharp declines in investment, construction and consumer spending. Unemployment peaked at 10.8% by late 1982—the highest since the Great Depression—and while the period was painful to most Americans, by 1983, inflation had fallen to 3% as the economy began to recover, fueled by Reagan-era tax cuts, increased defense spending and financial deregulation.

Beginning in late 2007 and lasting to the middle of 2009, the Great Recession was a severe global economic downturn caused primarily by the collapse of the U.S. housing market, heralding the worst economic crisis since the Great Depression of the 1930s. Beginning in the early 2000s, as housing prices rose and speculation became rampant yet again, overconfident bankers began packaging risky subprime mortgages to borrowers with poor credit, before bundling them in with loans to borrowers with high credit, effectively poisoning most mortgage-backed securities and collateralized debt obligations that were then sold to banking institutions worldwide. When the U.S. economy began to falter in 2008, poor credit homeowners defaulted en masse, leading to a Global Financial Crisis that saw millions of Americans lose their homes, jobs and savings.

The crisis went into high gear in March of 2008, when investment bank Bear Stearns became the first of dozens of major financial institutions failed or were bailed out by the federal government, followed by bailouts to other major financial institutions like AIG, GM and Countrywide, while Lehman Brothers collapsed entirely on September 15th of 2008, citing $613 billion in debts on assets of $639 billion. Unemployment hovered just below 10% for the next two years to come. In its aftermath, U.S. GDP shrank by 4.3%, while the American-inspired crisis cause recessions throughout Europe and Asia. Recovery happened slowly thanks to the federal government actions like the Troubled Asset Relief Program, Quantitative Easing under the American Recovery and Reinvestment ACT of 2009, while the Dodd-Frank Act of 2010 imposed stricter banking regulations to prevent similar disasters in the future, making recessions and depressions in America, an ongoing struggle between regulation and human greed.