-Caveat Lector- <A HREF="http://www.ctrl.org/"> </A> -Cui Bono?- from: http://www.pei-intl.com/Research/PANICS/PANICS.HTM Click Here: <A HREF="http://www.pei-intl.com/Research/PANICS/PANICS.HTM">The Great Financial Panics in History</A> ----- The Great Financial Panics in History by Martin A. Armstrong Historical Outline by Date | Western Civilization ------------------------------------------------------------------------ This research facility is currently under construction. The full text of the research into the The Great Financial Panics in History will be added to this site as time goes on. Below is an index to this vast database by event. Click on the topic of interest to view the contents. Historical Outline by Date ------------------------------------------------------------------------ * Introduction * Panic 53BC AD - Roman Republic * Panic 3rd Cent AD - Rome * Monetary Crisis 1092 Byzantium * Panic of 1683 - Rye House Plot * Panic of 1720 - South Sea Bubble Western Civilization ------------------------------------------------------------------------ * Panic of 1791 * Panic of 1837 * Panic of 1857 * Panic of 1869 * Panic of 1873 * Panic of 1893 * Panic of 1907 * Panic of 1920 * Panic of 1929 * Panic of 1931 * Panic of 1937 * Panic of 1966 * Panic of 1971 * Panic of 1980 * Panic of 1987 * Panic of 1989 * Panic of 1998 ===== The Anatomy of Crisis by Martin A. Armstrong ------------------------------------------------------------------------ Throughout time, the economy of mankind has swung back and forth between some fantastic periods of prosperity and deep dark depressions. It is our failure to understand this mechanism that often drives the politics of the world also between two extremes of totalitarian regimes and communism to periods of enlightenment and democracy. What is most misunderstood is that the economic swings between two extremes are the source of progress itself. For example, the devastation of OPEC, which forced crude oil prices sharply high during the 1970s, sparked a steep recession and a 40% decline in the stock market while it unleashed a new wave of innovation to find alternative energy sources. Despite the Industrial Revolution, 40% of the civil work force was still employed in agriculture in 1929. As horrible as the Great Depression was with unemployment rising to 25%, this economic disaster forced labour off the farm and into the manufacturing-base where it began to acquire different skills. By 1980, agricultural employment fell to merely 3% of the total civil work force as innovation brought higher productivity and machines to the farmland in America. It was the Panic of 1907 that lead to the creation of the Federal Reserve and a central banking system in the wake a massive bank failures due to cash drains that headed west to settle insurance claims. Senate investigations lead to a better understanding of regional disparities within any economy and thus a 12 branch Federal Reserves system was established to smooth the regional cash flows problems that resulted in temporary shortages of cash causing bank failures. Each and every Panic in history has created some innovation within the economy as well as the political world. Those who believe that we must eliminate all economy downturns fail to understand that such downturns are the very engine of progress. Trying to create utopia runs the risk of reducing innovation and progress within society as a whole. Human nature is simply content to keep things as they are as long as life is good. Only when the economy declines do we find society demanding change, which in turn sparks innovation and progress. It is vital that we understand this natural mechanism that drives the economy of mankind. We must avoid at all costs attempts to create perpetual utopia for it is as unattainable as the quest to end the aging process. Financial panics are an important component of the economy driving what is more commonly referred to as the business cycle. We must realize that recessions and depressions are NOT some disease that can be eradicated by another new law. Like viruses that mutate to defeat man's latest antibiotics, the economy is always evolving in its own strange way. Labour unions try to prevent evolution most often by opposing innovation that would result in what they see as a loss of jobs. However, what labour fails to understand is that it cannot stand in the way of progress and innovation. The shipping unions of New York City tried to ban container shipping because it took fewer workers to unload the cargo. The end result: ports emerged in New Jersey and elsewhere and NY ports are no more. Labour must understand that it cannot oppose innovation but only embrace it or risk total elimination. Labour must strive to keep up with changing technology so that its skills suddenly do not become obsolete over the span of a few decades. The ultimate survival of the individual within the economy depends upon his willingness to increase his personal knowledge and skills. Like an old car, labour's value depreciates within the economy whenever it remains stagnant. Jobs that are mainly physical labour are the most vulnerable to progress and the first to suffer. There have been numerous panics since the dawn of organized economic activity. Even though we pride ourselves as being the most intelligent species on this planet, the scope of our knowledge as a society leaves a lot to be desired. Merely reviewing the financial panics in history lends credence to the old adage that history repeats. But this same adage can also be restated as "man never learns from his past mistakes." In the heat of panic, society seeks the cause. We try to reduce everything to a single one-line explanation so we can quickly pass a new law to eradicate this experience from posterity. But as time moves onward, the next boom always comes to an end followed by yet another financial panic. Although the degree of such panics differs from time to time, as is the case with all boom periods, the root causes are merely a minor variation of a standard set of circumstances. The particular focus might also shift from real estate on one panic to stocks or commodities on the next. It will even shift on a global basis depending upon where capital has concentrated, such as the case in Japan in 1989, the US in 1987 or gold in 1980. To understand the nature of panics requires a global and broad perspective. It is a common threat which runs through each panic and its cause is simply due to an over-concentration of capital into one sector or one nation that leads to an over-valuation. The study offered here takes that view and in the conclusion we hope that you see the common threat which ties all such panics together as a natural occurrence which mankind must come to respect as a law of economics. ===== Great Monetary Crisis of 53 BC ------------------------------------------------------------------------ The economic history of mankind has always been a story of boom and bust. Throughout time, we find crisis after crisis in the recorded pages of history. The slogans of revolution or revolt have far too often been merely a disguise for economic motives by the state, king, minister or emperor. The true story of Caesar and his clash with the Roman Senate led by Pompey is far from the noble story of purely defending the Republic against the ambitions of a ruthless dictator. For all the criticisims, Caesar by his actions was a man of the people from the days of doing battle against the dictator Sulla right up until his death by the hands of the questionable noble Senators of Rome. It is not hard to understand the economic conditions that prevailed during the Civil War and the rise to power of Julius Caesar. Imagine how corrupt our modern day democracies have become with political pay-offs, self-interest, intentional deadlocks and endless debates. The Senate of Rome was not much different from the current houses of government in our modern era. The same human emotions of power and greed that corrupt our present seystem also infected the politics of the Roman Republic as it approached its final hour in 44 BC. Unfortunately, Shakespeare may have done more to distort the truth about Caesar than any historian. While Shakespeare was merely trying to create art, comtemporary historians were trying to glorify the virtues of the Senate by slandering the nature and intentions of Caesar. But of all the rulers who either inherited power or stole it in the still of the night, no other leader has ever displayed such determination for justice and fairness. Caesar was no ambitious man purely for the sake of glory as one might argue about Nero or Caligula. Caesar sought true reform that would benefit the people first and the Senate of Rome last. In our modern arogance, we tend to feel so superior to thise generations that have gone before us. We have cars, trains, planes, medicine and we have even landed on the Moon. Surely, with all these accomplishments, little remains in common with the past. However, when the subject turns to economics, very little progress has taken place in 6,000 years. Banking still functions very much the same today as it did in the days of Julius Caesar - minus credit cards and electronic wire transfers. Interest rates still flucuate according to supply and demand today as they did in Caesar's day. Real estate booms and busts still plague our modern economy as they did thousands of years ago. Indeed, to understand Caesar the man, we must also understand the monetary crisis that he and the people of Rome faced at the critical moment in time, which ultimately dealt the final death blow to the Republic while providing the spark of life to the Imperial era that followed. The events that led to Caesar's death are deeply entwined with not merely political intrigue, but with the cold hard human emotion of greed. When we think of the Roman Empire, few realize that there was a banking system and interest rates just as we have today. It was very much the abuse of credit by the state that severely weakened the Roman Empire and ultimately contributed to its collapse. It was the Dark Age that followed in which a period where credit and banking all but disappeared from western European culture. The monetary crisis that emerged at the time of the Civil War was very much a debt crisis that had been caused by yet another period of excessive credit and corruption. There are many ancient historians who have recorded the facts as they were or sometimes slanted with a few personal biases here and there. During Caesar's time, interest rates were far more volatile than they have been since the Great Depression. The elections of 53 BC illustrate that fact. The elections of 53 BC effectively degenerated into a bidding war between the various factions. Under the pretense of helping candidates with their expenses, the bottom line was simple bribery. We know from various contemporary authors of the time, that the bribery was so intense, that interest rates jumped from 4% to 8% during those elections. This bidding war was so serious, that the Senate of Rome was forced to act. Pompey professed to be shocked at the entire affair which was highly unlikely given his part in the dealings. The Senate was forced to announce prosecutions against all concerned, and the offices of Consul were given to other parties following a confession by one candidate, Memmius. Political contribution scandals are still taking place today as they did thousands of years ago. Credit and debt had played a key role in many of the political events in man's history. Following the Civil War in which Pompey was defeated by Caesar, one such monetary crisis threatened the entire political system of Rome. If one were to take an objective view of Caesar and read between the lines of contemporary writers, it is not difficult to see the frustration that Caesar must have felt with the situation. Many of the leading Senators were in fact the moneylenders themselves clearly in a position of conflicting interests. Many Senators sought governorships through which they became unspeakably wealthy. Thus to be a Senator during the later Republic, was indeed a gateway to the rish and famous. The monetary crisis following the Civil War period was not unlike that of the Great Depression of the 1930s. The chief problem seems to have been a shortage of cash. An enormous quantity of coin was taken to pay the rival armies in the conflict, and because of general insecurity among the populace, hoarding had withheld vast sums of cash from general circulation and banks. Consequently, money had become so scarce, there was simply not enough cash available to repay the outstanding levels of debt. Creditors were frantically trying to recover their loans, but the borrower, quite unable to satisfy them, were obliged to forfeit their mortgaged property and all allotments as well. However, this only created additional hardships through the collapse of economic activity. Because creditors were not interested in real estate properties by and large due to the shortage of cash, real estate values plummeted as was the case during the 1930s. Meanwhile, the savage and unfair laws written by the Senate against debtors applied creating a growing sense of unfairness among the populace. This is the backdrop to the real story of Caesar's assassination. Given the biased position of many Senators as moneylenders, it is unlikely that they would have handled the situation in a fair manner. Perhaps in such situations a dictator was indeed necessary and this may have played a large part in the role of Caesar during this period. Caesar proposed some interesting solutions. He forbade the hoarding of cash not unlike Franklin Roosevelt in 1933. However, at the same time, Caesar obliged creditors to accept land and movable goods in repayment. An interesting touch, which may have cost Caesar his life, was how the valuations of such property were to be used to settle the debt disputes. Consider for one moment, that the loans taken before the debt crisis struck were based upon land values at their peak. Given the collapse in the free markets and the rise in value of cash, creditors then seek to collect full value of their loans in currency, which is actually worth substantially more in purchasing power during a depression. The common denominator during all financial panics is the demand for cash and liquidity. This crisis during the late Republic is no different with respect to liquidity. Caesar realized that the differential between pre-crash values and money compared to post-crash depreciated values and the rise in purchasing power of cash unjustly benefits creditors at the expense of debtors. For example, a house worth $100,000 before the crash becomes worth $50,000 in the post-crash era. Therefore, if the creditor were to collect $100,000 on the old loan, he has doubled his money from a purchasing power perspective. Caesar's unique solution is something that deserves close study. Caesar demanded that creditors not merely be obliged to accept real estate and movable objects in repayment, he also decreed that the valuations on such property would be established at pre-crash levels. He established state valuers to place official values on all property. These special state valuers were appointed by the city praetor. Caesar in addition decreed that all interest previously paid by debtors to their creditors should be deducted from the principle of the loan in question. Given the fact that interest prior to the election of 53 had stood at 4% and in post election years 8%, the interest rate at the peak of speculation prior to the crash stood at 12%. One can easily see, therefore, that the interest abatement was indeed a major concession that would not have sat well with the moneylenders. The exact timing of these events is not certain. But we know that these events took place between the years 49 and 44 BC - the last 5 years during Caesar's life. We know that Marc Antony and Dolabella were buying up the properties of political exiles and casualties of the Civil War believing that Caesar would outright abolish all debts. In fact, Antony even purchased the palace and salves of the fallen Pompey the Great at auction assuming he would never have to pay. Unforthunately for Antony, Caesar did not simply wipe the slate clean and their purchases needed to be settled. Clearly, the measures taken by Caesar warrant investigation. The economy was stabilized. It is difficult to determine the long-term effects due to the assassination of Caesar and the outbreak of war as Antony and Octavian pursued Brutus and his compatriots. Nevertheless, the measures of Caesar stand alone within the solutions to monetary crisis situation throughout time. Obviously, demanding debts incurred prior to a crash be settle at the same face value after the crash is the very essence of monetary crisis irrespective of the time period we discuss. Caesar's actions in this case do not suggest that he was a ruthless dictator. Nor does the evidence support internal corruption within his admimistration given that Marc Anthony was forced to honor his debts as well. It is obvious that the actions or Caesar were in fact for the benefit of the people at the expense of a corrupt Senate of Rome. ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, All My Relations. Omnia Bona Bonis, Adieu, Adios, Aloha. Amen. 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