The 1893 Financial Panic - Essay Example

The financial crisis was as a result of various factors that will be addressed in this section. At the time of the crisis on February that year, America was highly expecting that its economy had picked and growth would be evident in the coming years. However, the collapse of the Baring Brothers bank which was an Argentinian agent bank led to a bump in the banking sector that affected other banks and consequently the US treasury at the time. The banks failure to pick up in the competitive banking environment was as a result of the failure in the wheat industry which came hand in hand with the coup at the Buenos Aires.

These two occurrences acted as the last blow to its investments. Due to the shock, the US treasury started to work on a run on gold strategy due to the fact that investors in the sector still wanted to cash in their investments. The treasury did not want to scare the investors away as that would be more catastrophic and the prospects of recovering would be weak. In the meantime, too much investments were heaped on the railroad construction as it seemed a way of boosting business and consequently the economy.

The result was that the economy was totally injured. The prices of various commodities including the ones in the agricultural sector dropped significantly adding to the misery. As the economy was hit and the banking sector seemed to crumble, people rushed to withdraw their money to avoid the loss that would follow if the banks collapsed with their money. This caused bank runs. To add to the already worsened situation, the United Kingdom was also hit by a financial crisis at a similar time and the result was that people who had invested in the American industry rushed to sell their stock and recover their investment capital.

For a long time, Europe had been trading with the US. At the time of the crisis, the economy of various European countries was not good and that had an effect on America. As discussed earlier