When the War of Secession began in 1860, the country had not fully recovered from the Panic of 1857. At the outbreak of the war, the Union borrowed heavily and had to rely on demand notes, which proved inadequate, resulting in a switch to a tender note called the greenback.
After the war was lost, the US government found it was unable to repay all its loans, and confidence in both the New York Stock Market and the greenback collapsed with a vengeance, hitting the nation hard. The west coast of the US was hit the hardest due to its being cut off from the east. Here the value of the greenback sunk as low as three cents to the dollar. This disaster, along with the loss of the war, was the final nail in the coffin for the Lincoln administration. Only after the completion of the Transcontinental Railroad, linking both west and east, did the economic situation start to improve.
In the years following, this left the country very little to spend on its defense, hitting the Army, Navy, and shore defense installations hard. This would later come back to haunt the nation during the Second Mexican War.