“From 1833 to 1837, the nation's money supply (specie plus bank notes and deposits) increased by 78 percent, or nearly 20 percent annually. The new money sparked a cotton boom in the South, a canal boom in the Middle West, and a land and real estate boom everywhere.
By early 1837, interest rates began to rise as cotton planters and canal contractors sought to borrow more capital to sustain their struggling projects.
In the spring, a sudden contraction in British credit and a fall in the demand for cotton paralyzed the American economy. Large mercantile houses in New Orleans and New York failed. Interest rates skyrocketed. Prices plummeted. Thousands were thrown out of work. In May, the banks suspended specie payments. The money supply fell by 17 percent.”
President Martin Van Buren blamed the crisis on "excessive issues of bank paper and an "undue expansion of credit.”
The Bank of the United States, whose president, Nicholas Biddle, was determined to restart the boom by borrowing funds in Europe and using it to buy cotton. The money supply increased by 8 percent in 1838 sparking a mini-boom. It did not last long.
Panic again struck in the fall of 1839. There was another run on the banks… Cotton prices again fell, as did the price of stocks and real estate. Many banks failed entirely, including the powerful Bank of the United States. States defaulted on their bonds, and canal companies and other firms went bankrupt."
- H.A. Scott Trask, adjunct scholar of the Mises Institute, October 2003