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The History of Money and Financial Markets By Ken and Brett Nelson [email protected] [email protected] Banking Crises – 18th Century Crisis of 1763, started in Amsterdam, begun by the collapse of Leendert Pieter de Neufville, spread to Germany and Scandinavia Crisis of 1772–1773 in London and Amsterdam, begun by the collapse of the bankers Neal, James, Fordyce and Down. Panic of 1792, New York Panic of 1796–1797, Britain and United States Banking Crises – 19th Century Panic of 1819, a U.S. recession with bank failures; culmination of U.S.'s first boom-to-bust economic cycle Panic of 1825, a pervasive British recession in which many banks failed, nearly including the Bank of England Panic of 1837, a U.S. recession with bank failures, followed by a 5-year depression Panic of 1847, United Kingdom Panic of 1857, a U.S. recession with bank failures Panic of 1866, Europe Panic of 1873, a U.S. recession with bank failures, followed by a 4-year depression Panic of 1884, United States and Europe Panic of 1890, mainly affecting the United Kingdom and Argentina Panic of 1893, a U.S. recession with bank failures Australian banking crisis of 1893 Banking Crises – 20th Century Panic of 1907, a U.S. economic recession with bank failures Showa Financial Crisis, a 1927 Japanese financial panic that resulted in mass bank failures across the Empire of Japan. Great Depression, the worst systemic banking crisis of the 20th century Secondary Banking Crisis of 1975-1977 in the UK Japanese Asset Bubble (1986–2003) Savings and Loan Crisis of the 1980s and 1990s in the U.S. Finnish Banking Crisis 1990 Swedish Banking Crisis 1990 – Failure of Swedish Model Venezuela Banking Crisis of 1994 Chinese Currency Crisis of 1994 1997 Asian Financial Crisis 1998 collapse of Long Term Capital Management 1998 Russian Financial Crisis Argentine Economic Crisis 1998-2002 Ecuador Banking Crisis 1998-1999 Banking Crises – 21st Century •2002 Uruguay Banking Crisis •Late 2000’s Financial Crisis, including: •Subprime Mortgage in the U.S. starting in 2007 •2009 United Kingdom Banking Crisis •2008-2009 Belgian Financial crisis •2008-2012 Icelandic Financial Crisis •2008-2009 Russian Financial Crisis •2008-2009 Ukrainian Financial Crisis •2008-2012 Spanish Financial Crisis •2008-2012 Spanish Financial Crisis •2008 – 2011 Irish Financial Crisis •Venezuelan Banking Crisis 2008-2009 Countries on the rise. Countries that have doubled their share of world GDP from 1913 to 1990: Japan 2.62% to 8.57% Korea 0.34% to 1.38% Malaysia 0.10% to 0.33% Singapore 0.02% to 0.06% Taiwan 0.09% to 0.74% Brazil 0.70% to 2.74% Colombia 0.23% to 0.59% Mexico 0.95% to 1.91% Venezuela 0.12% to 0.59% Countries in decline: Countries that have seen their share of world GDP fall significantly from 1913 to 1990 India 7.47% to 4.05% Myanmar 0.31% to 0.11% Austria: 0.86% to 0.48% Belgium 1.18% to 0.63% France 5.29% to 3.79% Germany 8.68% to 4.67% Countries in decline: Countries that have seen their share of world GDP fall significantly from 1913 to 1990 Hungary 0.60% to 0.25% Poland 1.70% to 0.72% Romania 0.80% to 0.30% Russia 8.50% to 4.25% United Kingdom 8.22% to 3.49% Uruguay 0.14% to 0.07% Economic Changes in Regions: Share of World GDP 1913 to 1990 Africa 1.18% to 2.38% Asia 22.01% to 26.17% Europe 44.53% to 28.11% Latin America 3.74% to 7.83% US 18.93% to 21.41% Sovereign Defaults Greece announced they’re issuing more government bonds last week…. The offering was oversubscribed sevenfold! Sovereign Defaults 1300 - 1799 Austria: 1796 England:1340, 1472, 1594, 1594 France: 1558. 1624, 1648, 1661, 1701, 1715. 1770, 1788 Germany (Prussia): 1683 Portugal: 1560 Spain: 1557, 1575, 1596, 1607, 1627, 1647 Newfoundland 1928 – 1933 Fish process fall 48%. Fishery industry fails. Newsprint prices fall 35%. Total exports fall by 27%. 1931 – Welfare spending increases dramatically. Debt service difficulties begin. The government has to borrow to service its debts. February 1933 – The British government appoints a commission to examine the future of Newfoundland Dec 1933 – The Loan Act passed giving up sovereignty to Canada to avoid default. Government Bond default led to loss of Sovereignty. Newfoundland Year Total Public Debt Ratio of Debt to Revenue Interest Payments / Revenues 1928 79.9 8.4 0.4 1929 85.5 8.6 0.39 1930 87.6 7.6 0.36 1931 87.6 9.0 0.44 1932 90.1 11.4 0.59 1933 Ave ratio of defaults 98.5 12.6 4.2 1.58 Sovereign Defaults 1800 - 1824 Austria – Hungary: 1802, 1805, 1811, 1816 France: 1812 Germany – Hesse: 1814 Germany – Prussia: 1807, 1813 Germany – Westphalia: 1812 Netherlands: 1814 Spain: 1809, 1820 Sweden: 1812 Sovereign Defaults 1825-1849 Greece: 1826, 1843 El Salvador: 1828 Portugal: 1828, 1837, 1841, 1845 Guatemala: 1828 Russia: 1839 Honduras: 1828 Spain: 1831, 1834 Mexico: 1827, 1833, 1844 Argentina: 1827 Nicaragua: 1828 Chile: 1826 Peru: 1826 Colombia: 1826 Venezuela: 1826,1848 Costa Rica: 1828 Ecuador: 1826 Sovereign Defaults 1850-1874 Tunisia: 1867 Ecuador: 1868 Austria-Hungary: 1868 Honduras: 1873 Germany – Schleswig-Holstein: 1850 Mexico: 1866 Greece: 1860 Paraguay: 1874 Portugal: 1852 Venezuela: 1860,1865 Spain: 1851,1867,1872 Columbia: 1850, 1873 Costa Rica: 1874 Dominican Republic: 1872 Sovereign Defaults 1875-1899 Egypt: 1876 Dominican Republic: 1892, 1897, 1899 Greece: 1893 Ecuador: 1894 Portugal: 1890 El Salvador: 1898 Russia: 1885 Guatemala: 1876,1894,1899 Spain: 1882 Mexico: 1898 Turkey: 1876 Nicaragua: 1894 Argentina: 1890 Paraguay: 1892 Bolivia: 1875 Peru: 1876 Brazil: 1898 Uruguay: 1876, 1891 Chile: 1880 Venezuela: 1892, 1898 Colombia: 1880 Costa Rica: 1895 Percentage of Time a County was in Default. 1800-2008 Venezuela: 38.4% Costa Rica: 38.2% Hungary: 37.1% Colombia: 36.2% Guatemala: 34.4% Poland: 32.6% Argentina: 32.5% Percentage of Time a County was in Default. 1800-2008. The Big Defaulters Honduras 64% Ecuador 58.2% Greece: 50.6% Nicaragua: 45.2% Mexico: 44.6% Peru: 40.3% Russia: 39.1% Independence The Spanish colonies in Central and South America gained their Independence from 1811 to 1830. There was a large need and demand for their government bonds. 1811: Paraguay and Uruguay 1816: Argentina 1818: Chile 1819: Colombia 1821: Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua 1822: Brazil, Poyais 1825: Bolivia 1830: Venezuela Poyais? “General Sir” Gregor MacGregor had fought as a mercenary in Simon Bolivar’s army. He returned to the United Kingdom and said that he was the “Prince of Poyais” He claimed that the Capital City of Saint Joseph had, “broad boulevards, colonnaded buildings, and a splendid domed cathedral. He convinced many Scots to help settle Poyais and said that those who did would be able to build sawmills and gold mines to exploit the natural resources. In 1822, he convinced London Bankers to underwrite a government bond offering at 6% interest (the same rate that Argentina, Chile, Colombia, and Peru were paying. Poyais He disappeared with all the money When they settlers arrived, they found nothing but jungle. US Defaults January 1790: Interest rates maintained at 6%, but payment of interest was deferred for 10 years. This happened in a period of very high inflation. 1841-1842: 9 States defaulted on their debt. 3 States repudiated 100% of their debt. 1873-1874: 10 States defaulted on their debt. West Virginia didn’t settle their debt until 1919. 1933: US did not honor the gold clause. We refused to pay Panama the gold annuity that was negotiated in 1903. The dispute was settled in 1936. Hyperinflation Angola: May 1996 – 84.1% Argentina: 1989 - 3,079.5% (other source says 12,000%), March 1990 – 197% Armenia: January 1992 – 73.1%, November 1993 – 438% Austria: August 1922 – 129%, Full year 1922 – 1,426% Azerbaijan: January 1992 – 118% Belarus: June 1992 159%, August 1994 - 53.4% Bolivia: February 1985 – 183% Hyperinflation Bosnia Herzegovina: June 1992 – 322% Brazil: 1987 – 228.3%, – 2,947.7% Bulgaria: Feb 1997 - 123% Chile: Full Year 1973 – 700%, October 1973: 87.6%, China: June 1945 – 302%, April 1948 – 5,070% Estonia: January 1992 – 87.2% France: August 1796 – 304% March 1990 82.4%, Full Year 1990 Hyperinflation Georgia: March 1992: 198%, September 1994: 211% Greece: 1922 - 54.2%, 1923 - 72.6%, November 1944 – 13,800% Italy: 1917 - 43.8%, 1920 - 56.2% Japan: 1944 -26.6%, 1945 – 568.1% Kazakhstan: January 1992 – 141%, November 1993 – 55.5% Kyrgyzstan: January 1992: 157% Serbian Krajina (Reincorporated into Croatia in 1995). In 1992, the highest denomination was 50,000 dinara. In 1993, the highest denomination was 50,000,000,000 dinara. Hyperinflation Nicaragua: 50,000,000,000 1988 Cordobas was worth 1 1991 Cordoba Peru: September 1988 – 114%, August 1990 – 397% Philippines: January 1944 – 60% Poland: 1921 – 988,223%, Nov 1923 – 275%, January 1990: 77.3% Srpska (Breakaway region of Bosnia): January 1994: 297,000,000% Russia / Soviet Union: 1922 – 213%, 1992 – 2,520% Taiwan: August 1945: 399%, February 1947 – 50.8%, October 1948 – 399% Hyperinflation Tajikistan: January 1992: 201%, November 65.2% Turkey: 1990 – 60.3%, 1994 – 106.3% Turkmenistan: November 1993 – 429%, January 1996 – 62.5% Ukraine: Jan 1992: 252% Uzbekistan: Jan 1992: 118% Yugoslavia: January 1994: 313,000,000,000% Zaire: 1992 – 114%, 1993: 250%, 1998: 78.5% HyperInflation Germany: 1920 - 66.5%, 1923 - 22,220,194,522%. In 1923, the Weimar Republic was issuing 2 trillion mark banknotes, and 50 billion mark postage stamps. One US dollar was worth 4 trillion German Marks. Hungary: July 1946 – 41.9 quadrillion percent for the month. Prices doubled every 15 hours. The Hungarian National Bank issued the largest denomination bank note ever: 100 quintillion pengo. 100,000,000,000,000,000,000 pengo. Zimbabwe Hyperinflation At Independence in 1980, 1 Zimbabwe dollar was worth $1.25 US dollars. In 1998, President Robert Mugabe began a land redistribution program, taking land from white farmers and giving to black farmers (and cronies). Zimbabwe turned from a food exporter to importer and capital fled. In 2004, inflation reached 624%. In 2006, 1,730%. In June 2007, 11,000%. In July 2007 inflation reachd 2,200,000%. As of July 2008, one US dollar was worth 688 billion Zimbabwe dollars. On August 1st 2008, the Zimbabwe dollar was revalued. One new Zimbambe dollar for each 30,000,000,000 old Zimbabwe dollars. Inflation peaked in November 2008 at 89,700,000,000,000,000,000,000%. Prices doubled every 24.7 hours.
