Specie CircularJackson's "experiment" was underway. Deposits were beginning to be placed in state banks known as "pet banks." The federal government began to see an annual surplus of about $10 million and, for the first time in the history of the United States, no federal debt existed. The Bank, however, still held control over state banks with the ability to ease or tighten credit and Biddle himself, still had an ace in his deck and, most likely knowing it was his last card, he played it. He had the Bank contract its loans which caused a national panic. Taney saw this as evidence that it was right to remove the deposits from the Bank, calling the institution a "monster." Biddle merely saw the action as the Bank fighting for its survival. On October 7, he held a meeting with the board of directors where he gained their approval to cease loans throughout the entire banking system.
It is, however, important to note that not all of the directors approved of this course of action. The resulting financial panic was Biddle's way of trying to twist Jackson's arm and get him to restore the deposits to the Bank. This turned out to be fruitless as Jackson realized that in creating the panic, Biddle had alienated most of his supporters. The financial stranglehold that Biddle set came at a bad time because business was beginning to expand which meant that credit was needed. The Bank had insisted that state banks make payments in specie, or gold and silver bank notes, and the state banks soon began to overextend their credit by issuing specie which exceeded its worth in gold and silver that the banks had in their vaults.
This resulted in massive inflation and the treasury was filled with worthless bank notes which made it clear that Jackson was not in control of his "pet banks." The flood of paper money was growing out of control and land speculation in particular was a major concern as fraud was increasing in land sales. Jackson quickly responded by issuing his "Specie Circular" in July of 1836. The "Specie Circular" was a decree that only gold and silver could be accepted in purchasing public lands. Many in Jackson's Cabinet objected because they saw a danger in it. The danger was that Congress may have seen it as a further abuse of executive power by Jackson and may have tried to supersede it. Jackson went forth with the "Specie Circular" and on July 11, 1836, Taney issued the decree. Objections by opponents such as Henry Clay were silenced because many believed that such criticisms were merely an attempt to create another panic. Soon, the minting of a new dollar was announced and the democrats cried out that it was Andrew Jackson who had restored "real money" to the nation.