After having killed the Second Bank by vetoing its re-charter and removing the government’s deposits from it, Jackson attacked the entire banking industry by issuing in 1836 an executive order known as the Specie Circular. The order, which was issued by Jackson’s fifth and final Treasury Secretary, Levi Woodbury, required payment for government lands in specie (full-bodied gold or silver coins), not in bank notes or deposits, after August 15.
Jackson’s handpicked successor, Martin Van Buren, continued the policy despite the fact that contemporary critics blamed it for the Panic of 1837 and the long and deep recession that followed. In fact, all of Jackson’s major financial policies contributed to the economic fiasco by removing the financial system’s ability to respond to shocks, like the steep decline in cotton prices that followed a financial panic in London. Under President Nicholas Biddle, the Second Bank of the US had stopped the spread of a similar panic to America in 1825. By 1837, however, the remnants of the defunct Second Bank had been transformed into just another state bank with a high falutin’ sounding name (United States Bank) and president (Biddle) that instead of acting as a lender of last resort had actually exacerbated the panic by massively speculating in cotton. The Specie Circular added to the problem by withdrawing specie from the banking system at the moment that banks should have been increasing their specie reserves.
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