This article first appeared in the Broomfield Enterprise (Oct. 19, 2008).
Like most worry warts, I was glued to the internet and TV news during the October 2008 crash, watching through fingers while the financial world as we knew it crumbles into a new, unfamiliar configuration. Some aspects of the recent mayhem remind me of another event from long ago – not the Great Depression but the Panic of 1893.
We’ve had many recessions in this country, and a couple of depressions. The Panic of 1893 stands out as an event that had a catastrophic impact on Colorado because it involved several areas critical to the state’s economy at the time: railroads, farming and silver.
The 1880s saw unfettered expansion, much of it around the building of railroads. A lot of that was going on in the West. Eventually, the railroads bit off more than they could chew – in the 1890s they became overextended and couldn’t pay their debt. (Sound familiar?) Several major railroads failed. A financial panic ensued, characterized by runs on banks, which resulted in many bank collapses. On a national level, over 15,000 companies and 500 banks failed. At the peak of the panic, the unemployment rate was 20 to 25%.
The same year, the Feds repealed the Sherman Silver Purchase Act, which required the government to purchase a certain amount of silver every month. The price of silver plummeted.
The West was also suffering from an ongoing drought, a blow to farmers already reeling from low wheat and corn prices. Many of these farmers were heavily mortgaged and could not pay their debt. (Sound familiar?)
An enormous project had been underway in the West to convert the narrow-gauge railroads that served the mines to standard gauge. That project was suspended.
This “perfect storm” of events devastated Colorado’s economy. Denver and environs experienced a large bank panic. In one day, four major banks closed due to lack of cash. Three of those never reopened. By the end of the panic, six national and several local banks had failed in the area. Thirty thousand miners and smelter workers lost their jobs. The unemployment rate in Colorado hovered around 10% for much of the decade.
Luckily for us, bank deposits today are insured by the government, so there are no bank runs. The Feds are also intervening with a mind-boggling injection of liquidity (aka cash).
In the case of Colorado, the Panic of 1893 was a direct assault on major state industries. If you weren’t a miner, there was a good chance you worked for a smelter or the railroad or tilled the ground to make a living.
This time, some local economists believe we may escape the worst of the national pain, even though real estate foreclosure rates in this state have remained in the top ten highest in the nation. Colorado has been positioning itself as a center for renewable energy, and the mining and oil and gas industries are helping to buffer the impact on the state. Here in Broomfield, we are poised to benefit greatly from the upcoming ConocoPhillips project.