The Taste of the Crash (2)
There is an old saying that when a man is down on his luck, nothing he does will go right.
It is much like Murphy’s Law; once things start to unravel, misfortune has a strange way of piling up. This economic panic was exactly that.
Of all things, the Sepoy Mutiny had to break out in India.
Of all things, the Second Opium War had to erupt.
British capitalists, forced to tighten their belts, began to pull out in droves, but that was still manageable. However, the nightmare of September 12th arrived.
The steamship SS Central America, carrying 30,000 pounds of gold bullion, sank in a hurricane, resulting in over 400 deaths.
Just when insurance companies and railroad firms were collapsing in a chain reaction, the very gold meant to serve as the reserve funds for New York banks had all sunk to the bottom of the ocean.
Lamenting how such a thing could happen in this world wouldn't fix the disaster that had already occurred. First, the government and the ruling party poured all their efforts into calming the enraged public.
"The stock market appears to have entered a temporary adjustment phase, and our economy remains fundamentally healthy."
"Direct support is unnecessary; the government will maintain its current policy direction while only tweaking minor details, so citizens, please rest assured!"
But people had eyes and brains of their own; they couldn't possibly be unaware of how serious the situation was. The opposition party, the Republican Party, was the first to tear into Buchanan like a pack of wolves.
"This is a failure brought on by the Democratic Party’s arrogant economic policies! The cause of this panic is obviously the government’s low-tariff policy! It means cheap foreign goods are flooding into our country, making life difficult for honest citizens! We must implement protective tariffs!"
"Why does the Democratic Party refuse to budge on their low-tariff policy? Unless they’ve been taking hefty bribes from European nations, why on earth should we be buying their goods at such low prices!"
Opposition Party Form 1: Tearing into the Ruling Party.
It was an extremely basic tactic, but in times of economic crisis, there is no way to block such a solid fundamental move. However, even when exposed to such a storm of attacks, Buchanan just took the beating like a punching bag, showing no particular reaction.
The economic stance of the Buchanan administration was laissez-faire, which was considered the truth, the bible, and the absolute law of economics at the time. If the government intervened artificially, the distortions would only grow, so doing nothing was the best policy.
I’m not being sarcastic or exaggerating; the believers in laissez-faire at the time genuinely believed that.
"Ah... the reason for this economic turmoil is the speculation and overconsumption of the people, and supporting banks that are experiencing risks will only create bigger problems..."
"Cut the bullshit!"
"Are they actually insane? Just last month, they said there were no problems with the economy!"
The economic crisis, which had been triggered in August, showed no signs of resolving as it entered September; instead, it only deepened by the day, and the capitalists of the North had to admit the reality that this crisis would not end in a month or two.
Then, what of the South, where this terrifying economic panic had arrived?
There was no movement whatsoever. It wasn't a figure of speech; surprisingly, there was no change in the market price.
The planters, who had been nervous that the aftermath of the recession starting in the North might sweep through the South, cheered with joy. They had even braced themselves for some degree of price decline, but as September arrived, a strange phenomenon occurred where the market price actually rose slightly.
Demand for cotton was heavily supported by Europe, and since cotton was nearly a necessity in this era, the American economic recession had no impact on its price.
The planters, who had been disheartened by the stock market crash, immediately regained their spirit.
To be honest, even I didn't know it would be to this extent. Even though we are the same United States, the North is wailing and dying, while the South is so peaceful that it’s like, 'What happened?' The sense of dissonance here was enormous.
At the same time, I could see why this panic became one of the major factors of the Civil War.
People who were devastated just a while ago watching their stocks crash were suddenly full of vigor. In reality, all the stocks they held had been cut in half, but since the most important assets to planters were, after all, their slaves and farms, this reaction wasn't entirely incomprehensible.
However, starting to mistake their own weight class was clearly one of the danger signals.
Just listening to the conversations coming out of the horse racing club, don't you understand the flow of consciousness of our Dixie brothers quite well? These people were now clearly convinced that the Southern cotton economy was superior to Northern industry.
Looking at the flow of the Civil War, there were many parts I didn't understand—what on earth did the South believe in to attack the North? But having actually experienced it, there were quite a few factors that made it plausible.
Right now, the railroad stocks and grains the North boasts about are collapsing in a chain reaction, and stocks are halved, but cotton is secure. Because of this, the Southern planters were turning their delusion—that the world had already reorganized into a structure where it could not survive without their cotton—into an established fact.
Those who discovered the truth that the world would never be able to abandon the South shouted "Eureka" and raised their glasses in a toast. They are laughing while their stocks are falling!
As someone who knows the many tragedies that will unfold in the future, I could only let out a dry laugh, but what can I do? They are so high-spirited, I have no choice but to let them enjoy it to their heart's content for now.
October 1857.
As the economic crisis worsened, New York banks finally declared insolvency. Simply put, it means that even if you take your banknotes to the bank to withdraw gold or silver, the bank will tell you, 'Why is this your money?'
And as expected of the 19th century, where the international economy was intricately intertwined, this ripple effect reached Europe. The Borough Bank of Liverpool in England went bankrupt, firms around Glasgow began to collapse in a chain reaction, and the interest rate of the Bank of England soared to 10%.
France was better off than England, but the interest rate, which had been 3%, skyrocketed to 7% in an instant, and Sweden, which had a high dependence on British trade, also saw companies go bankrupt out of the blue.
At this point, isn't it America's privilege to warn the loosened European capital markets by cutting its own flesh? Considering that this crisis is just a taste and that major punches like the Great Depression or the Lehman Brothers crisis remain, I feel sorry for Europe.
Anyway, as the situation became increasingly serious, the South, which had been shouting "Long live cotton, cotton is God, we are invincible," could not avoid being swept up in this.
The price of cotton itself hadn't changed, but because New York banks had fallen into a state of insolvency, they faced the absurd situation of not being able to receive payments immediately.
The price of cotton hasn't changed, and the entire production has been sold, but there is no cash immediately available. This absurd situation became a reality because the income structure of planters was completely different from that of ordinary businessmen.
Planters always had to pay in advance for the cotton seeds to be planted the following year, the food and clothing to be provided to the slaves, and the costs for replacing old farm equipment once the year's farming was over. So, usually, they would receive money in advance from banks or middlemen, pay for those things, and then use the money from selling the cotton to pay back the borrowed money, using the remaining money for investments or parties.
However, since the banks were unable to provide money, the cash flow suddenly became completely blocked.
An absurd situation where the cotton price is the same and sales are smooth, but the banks that should be providing the money have gone bust. If they make a mistake, they might have to drastically reduce the scale of farming next year because they can't buy cotton seeds.
As soon as that fear began to spread, I, who had been waiting for the opportunity, stepped to the forefront once again.
Since I converted everything I could into cash in July, when the US economic indicators hit their peak, I am, without a doubt, the richest man in America right now. What I’m aiming for here is only one thing: the stocks of blue-chip railroad companies that are guaranteed to recover once the panic ends.
And the pockets of our Dixie friends, who are suffering from a lack of cash, were piled high with railroad stocks that had become a nuisance because they wouldn't sell.
The reason for those three is that no matter how much the railroad bubble has burst, they are golden routes that can never go bankrupt. If those three railroads go bankrupt because they aren't profitable, it means the North has finished, but as everyone knows, the North is going to continue to do well in the future.
In the first place, if the North had gone bankrupt due to this panic, the North would have lost the Civil War. Since they will return to their place no later than before the Civil War begins, if I buy them up now, I will be able to see tremendous profits.
Of course, the planters of Mississippi flocked to me, shedding tears of joy.
I bought the New York Central stocks and Pennsylvania railroad stocks at exactly half their peak price. I bought the Illinois Central stocks, which had the biggest bubble, at a whopping one-third of the price, yet the planters grabbed my hands and wouldn't let go, thanking me.
Even...
Even our governor, whose term is ending soon, secretly asked me to sell the Illinois Central stocks he was holding.
Yeah, actually, I have plenty of cash. How much money would it take to buy up some stocks that have already become worthless? I scattered my cash generously and scraped up the blue-chip stocks that had become toxic inventory.
Thanks to that, the governor, who could continue his election campaign, and the club planters, whose blocked cash flow was cleared so they could farm next year, were all happy. Everyone, young and old, laughed and sang songs, so laughter never ceased around us.
I try so hard for everyone's happiness.