Economic Crash of 1863

The Economic Crash of 1863, was an economic disaster that caused a depression through out the United States in the aftermath of the that countries loss in the War of Secession.

Due to the inflationary finance measures undertaken to help pay for the war against the Confederacy, the US government found it difficult to pay its obligations in gold or silver and suspended payments of obligations not legally specified in specie (gold bonds); this led banks to suspend the conversion of bank liabilities (bank notes and deposits) into specie. In 1862 paper money was made legal tender. It was a fiat money (not convertible on demand at a fixed rate into specie). These notes came to be called Greenbacks.

After the war was lost, this gold crisis struck with a vengence, as the value of the greenback plummeted, hitting the nation hard. The west coast of the US was hit the hardest due to being cut off from the east. Here the value of the greenback sunk as low as three cents to the dollar. Only after the completion of the Tarns-continental Railway, linking both west and east, did the economic situation start to improve. This disaster, along with the loss of the war, was the final nail in the coffin for the Lincoln administration.

In the years following, this left the country very little to spend on its defence, hitting the Army, Navy and shore defence insulations hard. This would later come back to hunt the nation during the Second Mexican War.

