The Panic of 1837 was a financial crisis that had damaging effects on the national economy.
The United States government recognized the need for a national bank following the war of 1812, to regulate the printing of currency and to issue of government bonds. Many in the public opposed the Bank of the United States, believing that it limited their ability to make land purchases and to pay off debts. Jackson had opposed banks since the 1790s.
The head of the Bank of the United States, Nicholas Biddle asked to have the institution re-chartered four years before it was due to expire. Congress agreed with Biddle, but Jackson vetoed the bill, preventing the existence of the Bank after 1836. Jackson felt 1836 was too far to wait for the United States Bank to end. Therefore, he ordered the withdrawal of federal funds from the Bank and deposited the funds in state banks and privately owned financial institutions, commonly known as “pet banks.”
Biddle tried to keep the national bank operational by calling in loans, yet many businesses did not have the funds available to pay off their debts. As a result, numerous businesses had to close their doors due to the lack of funds during 1833 and into 1834.
After this brief economic downturn, the United States' economy boomed. State banks began loaning money to industrialists and farmers. The banks also began printing large amounts of currency. This action led to high inflation.
Currency quickly depreciated. In July 1836, Jackson issued the Specie Circular. Under this act, the government would only accept gold or silver in payment for federal land.
During the Panic of 1837, approximately ten percent of U.S. workers were unemployed at any one time. Stores refused to accept currency in payment of debts, as numerous banks printed unsecured (backed by neither gold nor silver) money. It took until 1843 before the United States' economy began to recover.
Source: Panic of 1837
Ohio History Central