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south sea bubble
Transcript of south sea bubble
WHAT IS MORE?
Many people implusively bought shares without realizing the high tax rates
Later on, this caused many to be in serious debt,
since the bull price fell to the bulk
This situation created such economic crisis for some
that it resulted in a South Sea Bubble
South Sea Bubble
I can compute the orbit of heavenly body movement,
but can't compute
HE SAID ABORT IT:
At length corruption, like a general flood,
Did deluge all, and avarice creeping on,
Spread, like a low-born mist, and hid the sun.
Statesmen and patriots plied alike the stocks,
Peeress and butler shared alike the box;
And judges jobbed, and bishops bit the town,
And mighty dukes packed cards for
half-a-crown: Britain was sunk in lucre's
- Alexander Pope.
Economic bubble: trade in high volumes at prices that are considered at inflated volumes
People bought shares that were overpriced
High tax rates
Why did it happen?
Since the prices of shares from the South Sea Company was at its peak, people bought shares even if they were overpriced
Since demand increased, the price increased unreasonably overtime
Large portions of money was borrowed, since few was able to afford the high prices
High Tax Rates
Description of event
The South Sea Company: Bank of England
Traded in South America
The company would buy and hold government debt
Pay dividends on stock from the interests
received on the bonds
High demand caused the stock
prices to rise higher and higher
People bought shares knowing that they were over priced
People panicked when event was
known and sold all shares
Complete crash avoided thanks to
important economic position of British
Empire and government’s help in
stabilizing the banking industry
British government outlawed
issuing of stock certificates
Parliament passed “The Bubble Act”
which forbid the setting up of
a company without a Royal Charter
Problem of providing liquid government
debt was not solved until introduction
of consoles (consolidated English government
debt with no due date) a generation later
OH,SOMETHING I 'M NOT