...With the government running big surpluses in the prosperous late 1880s and early 1890s, the effect of this monetary policy was masked. But when the crash of 1893 rolled in, bringing deep depression, the trickle of gold out of the Treasury became a flood. By early 1895 bets were being taken on Wall Street as to exactly when the Treasury would run out of gold and default. Two bond issues were sold to replenish the Treasury's gold supply, but the gold just cycled out again. Congress, with many free-coinage-of-silver members, refused to authorize another issue. That's when the deeply alarmed Morgan traveled to Washington in early February.
President Grover Cleveland at first refused to see him, but Morgan replied, in his best imperial manner, “I have come down to see the president, and I am going to stay here until I see him.” Cleveland saw him the next morning.
Cleveland, his attorney general, and the secretary of the Treasury all still hoped that they could persuade Congress to float another bond issue and thus avoid the embarrassment of having the gold standard rescued by the very symbol of Wall Street. A telephone call from New York informed them that the New York Subtreasury had only $9 million worth of gold left in its vaults. Morgan informed them that he knew of $12 million in drafts that might be presented at any moment. Cleveland's back was up against the wall.
“What suggestions have you to make, Mr. Morgan?” he asked.
Whereupon Morgan made an extraordinary offer: he and the Rothschilds, the two most powerful forces in international banking at that time, would purchase 3.5 million ounces of gold in Europe in exchange for 30-year gold bonds. (Morgan had uncovered a forgotten Civil War-era statute that allowed the Treasury to issue bonds in exchange for coin.) He also guaranteed that the gold would not flow back out of the Treasury, at least for a while...
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