The US Rail Road Accident (1850's)
When: In the 1850's
The amount the market declined: More then 1000 banks failed and the New York Mining Exchange was forced to close down .
What they gave us A network of Rail and Road Transport line connecting the whole of the United States .
- In the early part of the 19 th Century the US was primarily a cotton growing nation with insignificant investments in Infrastructure.
- The first part of the Rail Road boom was a result of the Canal Construction drive which was initiated by the completion of the Erie Canal which cut down shipping and travel costs by 90% from cities like Detroit , Buffalo and Cleveland . Another Canal was built to link the Great Lakes to the ST. Lawrence River . The two Canals were enormously successful as they integrated the grain producing centers to New York .
- Canals in those days were as popular as Internet stocks were in the late1990's or oil stocks were in the early 1970's.
- The booming business attracted huge doses of capital from Europe . In 1853 foreigners owed 26% of all US assets.
- The common practice by unscrupulous promoters is to offer more paper as prices of their shares rose and the US was no different. This increased over supply of paper created a huge over hang which depressed prices even while business continued to grow at its usual pace.
- Meanwhile unrest and war in Europe signaled rising interest rates. An over supply of paper by the Railroads coincided with European investors pulling out from US bringing down stocks from their highs.
- In 1857 the Ohio Life and Trust Company failed and a ship carrying gold from California to the East Coast sunk in the Ocean. This created a panic fro the Banks in the East Coast.
- In the cascading problem more then 1000 Banks and financial Intermediaries were unable to keep up to their commitments.