Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

140th Year Anniversary of Black Friday 1869 Banking Panic, History Repeating?

Stock-Markets / Financial Crash Sep 24, 2009 - 07:05 AM GMT

By: GoldCore

Stock-Markets

Best Financial Markets Analysis ArticleToday is the 140 Year Anniversary of the original Black Friday on September 24th, 1869. Since then the word ‘Black’ has been used to describe any day that the stock market, currencies or financial markets have crashed. There have been many, many such crashes but the one that birthed the term happened on this day 140 years ago.


This financial crisis is one of the many to have challenged humanity throughout history. It came about when the Union government started printing non gold backed dollar “greenbacks” to finance the war effort and a subsequent attempt to corner the gold market. This led to a bank panic where savers attempted to withdraw their life savings (in gold coinage) from banks causing a bank run.


Credit: Library of Congress

The "Boy of the period" stirring up the animals, 1869. Print shows a caricature of financier Jay Gould, left, who attempts to corner the gold market, represented by bulls and bears in a cage. On Black Friday, September 1869, in the midst of scandal, President Ulysses S. Grant, center, restored prevailing gold prices by having the U.S. Treasury sell five million dollars in gold which he brings forward in a bag.

The US Civil War was an important factor in creating the crisis. Indeed, gold prices fluctuated in paper dollar terms as various battles were won or lost in the Civil War. The Union’s efforts to battle Confederate forces were financed by the floatation of“greenbacks” by Abraham Lincoln. No longer backed by gold or silver reserves, these were promissory notes, redeemable at some indeterminate future date for specie-backed currency.

Gold began to rise in price in greenback terms on speculation that these greenback paper dollars issued would fall in value due to the money printing by the Union government. Speculators and investors accumulated gold in anticipation of higher prices. Gold then fell in price as the Union government flooded the gold market to suppress the price of gold and preserve the value of the greenback dollar. The two sides in the Civil War had gone off the Gold Standard in order to finance the American Civil War. The large amount of paper money or ‘greenbacks’ issued by the Union government was backed by nothing but credit and the “full faith” of the government.

During the Civil War, the greater value of gold compared to paper money resulted in a post war premium for the finite currency of gold, which during 1868 and early 1869 ranged from about 35 to 42 -- meaning that 135 to 142 paper greenback dollars were required to purchase 100 gold dollars. The variation in prices tempted speculators and investors to buy gold bullion in order to protect against a decline in the value of the freshly printed paper money.

Photograph of the black board in the New York Gold Room, September 24, 1869, showing the collapse of the price of gold. Handwritten caption by James A. Garfield indicates it was used as evidence before the Committee of Banking & Currency during hearings in 1870

Black Friday led to increasing distrust of politicians and governments involving as it did a corruption and nepotism scandal. Financier and stockbroker Jay Gould and railroad tycoon James "Diamond Jim" Fisk, like many of their counterparts in banks today, carried financial buccaneering to extremes. Their conspiracy included the wholesale bribery of legislatures, the buying of judges and seeking to influence the President. They ‘enlisted’ President Grant's brother-in-law to persuade the President into paying a higher rate for gold after they'd amassed a very large holding. They let it be known around Wall Street that President Grant was in their corner and that he would not use the Union gold reserves to flood the market and suppress the price.

Gold as expected soared from $144 to $164 (greenback dollars) in a matter of hours. Demand grew so strong that militias were dispatched to put down the violence that was taking place at banks as depositors demanded their gold. Some threatened to hang bankers who wouldn't pay out. The President realizing the serious nature of what was transpiring ordered his Treasury Secretary to announce that gold from the reserves would be sold into the market. The Union government didn't have the $4 million worth of gold it claimed to have. The Treasury Secretary later said he had made a "mistake" and meant to say $400,000, but added a zero. The threat of a flooded market ended the run on gold. In just one hour, gold fell from $162 to $135 (greenbacks) or some 20%.

Highest and Lowest Prices of Gold, 1862-1868

Year High Low
1862 134 __
1863 172.50 122.125
1864 287.00 151.5
1865 233.75 128.625
1866 167.75 125
1867 145.625 132
1868 150 133.25

Source: Francis Eames, The New York Stock Exchange,
New York, 1894 cited in Robert Sobel, Panic on Wall Street ,
New York: E.P. Dutton, 1988, p. 137.

The effects of Black Friday caused dislocations in the financial markets which lasted into 1870. The term "Black Friday" came about as nervous depositors withdraw their gold coin savings from banks. Angry mobs dragged bankers out of their offices if they did not give back people’s life savings (in gold coins) and there are reports that bankers were hung in New York. Grant’s government had to send in troops to stop the riots. Many speculators and investors were wiped out.

E. C. Stedman, a poet as well as a broker, summed up the situation in verse:

One Hundred and Sixty! Can’t be true!
What will the bears-at-forty do?
How will the merchants pay their dues?
How will the country stand the news?
What’ll the banks—but listen! hold!
In screwing up the price of gold
To that dangerous, last, particular peg,
They had killed their Goose with the Golden Egg!

The fall in the gold price led to the stock market plummeting and deflation which then rippled into the broader economy. The stock market crash of 1873 (like its 1929 counterpart) was more damaging and led to a ‘Long Depression in the United States and much of Europe’.

There are historical parallels with modern US history and today in that Nixon went off the Gold Standard partly to finance the Vietnam War and Cold War spending (and also the Great Society spending programmes). Today the massive and growing US government debt levels and money printing on a scale never seen before ( in order to bail out banks and the banking system, defence spending in Afghanistan etc, health spending etc.) is again leading to worries regarding the dollar’s status as a ‘store of value’ and leading to questions regarding its continuing position as the global reserve currency by many including Warren Buffett. Indeed Alan Greenspan has warned that rising prices of precious metals are “an indication of a very early stage of an endeavor to move away from paper currencies.”

It is interesting that the price of gold fell from 162 paper dollars back to the previous level of 135 paper dollars. This is some 20% which is nearly the same amount that the Dow Jones Industrial Average fell in one day in 1987 (-22%). It is also worth remembering that the Dow Jones Industrial Average fell by about 90% into the 1932 low and the Nikkei fell from over 40,000 to 7,000 or by some 80%.

The moral of the story is that history has a habit of repeating itself and there is nothing new under the sun. The laws of economics state that that which is in short supply will rise in value and that which is in abundant supply will fall in value. With governments internationally printing the modern version of paper greenbacks on an unprecedented scale, prudent investors and savers should be diversified and have an allocation to precious metals.


Mark O'Byrne
Director

IRL
63
FITZWILLIAM SQUARE
DUBLIN 2

E info@goldcore.com

UK
NO. 1 CORNHILL
LONDON 2
EC3V 3ND

IRL +353 (0)1 632 5010
UK +44 (0)203 086 9200
US +1 (302)635 1160

W www.goldcore.com

WINNERS MoneyMate and Investor Magazine Financial Analysts 2006

Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: Past experience is not necessarily a guide to future performance. The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. GoldCore Limited, trading as GoldCore is a Multi-Agency Intermediary regulated by the Irish Financial Regulator.

GoldCore is committed to complying with the requirements of the Data Protection Act. This means that in the provision of our services, appropriate personal information is processed and kept securely. It also means that we will never sell your details to a third party. The information you provide will remain confidential and may be used for the provision of related services. Such information may be disclosed in confidence to agents or service providers, regulatory bodies and group companies. You have the right to ask for a copy of certain information held by us in our records in return for payment of a small fee. You also have the right to require us to correct any inaccuracies in your information. The details you are being asked to supply may be used to provide you with information about other products and services either from GoldCore or other group companies or to provide services which any member of the group has arranged for you with a third party. If you do not wish to receive such contact, please write to the Marketing Manager GoldCore, 63 Fitzwilliam Square, Dublin 2 marking the envelope 'data protection'

GoldCore Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

JG Savoldi
27 Sep 09, 01:42
BAM Calling for 50% Crash

Great article! We love pieces written about market history--always something new to learn.

The current set ups is more bearish than last year’s according to our stock market model. We’re on record calling for a 50% crash and we have clients in cash or bearish ETF’s.

You may follow us on Twitter until October 11th at no charge. http://bit.ly/l3hv8


Rojer Pedric
28 Sep 09, 00:27
Black Friday 140th Anniversary

Its a great news that the Black friday passed 140th years of it.There is huge past and history of this black friday.

Nice to see this info.

http://www.2009blackfridayads.com

Visit this for more info on blackfriday 2009.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in