Sunday Spectacle CIV

When American States Defaulted...

Land values soared. States splurged on new programs. Then it all went bust, bringing down banks and state governments with them. This wasn't America in 2011, it was America in 1841, when a now-forgotten depression pushed eight states and a desolate territory called Florida into the unthinkable: They defaulted on debts.
This was an incredible step, even then. Fledgling U.S. states like Indiana and Illinois were still building credibility on global debt markets. They rightly feared "a prejudice so deep and wide" that they could never sell bonds in Europe again, said one banker.

...

When the defaults began in January 1841, investors dumped state bonds, pushing yields above 12% in early 1841, and to nearly 30% by 1842. The consequences of those defaults would last for decades: Among historians, the rule of thumb is that U.S. states would pay interest rates one percentage point higher than Canadian issuers the rest of the 19th century. To this day, Mississippi hasn't paid back some of those bonds, even after a 100-year English bid to collect.

The defaults weren't crippling. U.S. states went back into the public markets in the railroad boom of the 1850s, most of them armed with stronger safeguards for creditors and new constitutions.
(source: "When States Default: 2011, Meet 1841" by Dennis K. Berman for The Wall Street Journal. January 4, 2011)

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