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History of the economic crises, part І

ForexZig.com September 5, 2012
Economic Crisis

Economic Crisis

What do we call a crisis?

The economic crises and capitalism go hand in hand – like drinking and a headache. Since the 17th century, when capitalism barely walked, risky speculations with tulips and the dream of rapid enrichment, turned the financial markets upside down. Our historical journey starts from there.

Tulips are guilty!

The real estate crisis in the USA in 2008 could be compared with the tulips crisis in the Netherlands from 1630′s. In the early 17th century, the tulip that came from the Middle East, turned into a symbol of the Dutch – trading with this variety of flowers flourished. In 1634, it came the real boom. A whole nation desired to get rich – quickly and easily.

The rise of a flower

In 1634, people started to trade tulips not only at the market, but also in pubs. Within three years, prices rose fifty times. Almost a half of the population of the Netherlands invested their money in tulips.

Pop!

During the auction in 1637 the expected prices were not reached, so the tulip bubble burst. The result was – let by fear and panic, people sold their wares. Within a few days, the prices decreased by 95 percent. This led to failure nearly half of the population of the Netherlands.

The gold fever

During the 18th century, the French were misled too by the dream of quick enrichment. A Scotsman led the whole nation to bankruptcy. In 1718, the banker John Law acquired the commercial monopoly of the French territory in Louisiana and Mississippi, where it was supposed to have numerous gold deposits. In order to finance the business, Law found the so-called “Mississippi Company”.

The Mississippi crisis

The shares of the company were extremely beneficial, yet the poor ones also had to participate in the promising speculation. Indeed, just for a few weeks, Lowe’s shares raised rapidly. Even, there were days when in front of his house, there were queues of people waiting to buy shares. The Scot became the richest man of his time.

A joy for a while

As soon as the first doubts about his initiative came, his plan started to fail. The speculators were panicked and the course of shares fell rapidly. In July 1720, “Mississippi Company” was already insolvent, and the majority of the French – financially devastated. John Law fled abroad and died in poverty in 1729 in Venice.

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