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GFD Blog

The Grand Junction Canal Co.: Three Bubbles for the Price of One

The Company of Proprietors of the Grand Junction Canal was incorporated by Special Act of Parliament on April 30, 1793 to build a canal from Braunston to the River Thames. The stock for the canal went through three bubbles, in the 1790s, the 1810s and the 1820s, before settling down once the railroads were built, providing competition to the canal.

Unfortunately, there is almost no data for the Canal Mania of the 1790s. The number of canals authorized by Act of Parliament in 1790 was one, but by 1793 twenty were authorized. The capital authorized in 1790 was £90,000, but had risen to ...

Google and Priceline at $1000? Small Change, Buddy.

With Google and Priceline surpassing $1000 (much less Berkshire Hathaway A shares trading at $175,000), people are amazed that stocks can trade at such high levels without being overvalued or losing liquidity, but in reality, compared with the past, most stocks are cheap nowadays. In fact, the further you go back in time, the higher was the price of average stocks to most investors. In terms of purchasing power, stocks are as cheap and as liquid as they have ever been.

Not only was the average price of stocks 200 years higher than they are today, but they were higher in terms of pers ...

Was the Financial Crisis of 33 AD the First Case of Quantitative Easing?

Although many people have hailed Ben Bernanke’s response to the current financial crisis for going outside of the box and using unorthodox policies to avoid a financial collapse, in reality, similar policies were used by Tiberius during the Financial Crisis of 33 AD, almost 2000 years ago.

Tiberius ruled the Roman Empire from 14 AD to 37 AD. He was frugal in his expenditures, and consequently, he never raised taxes during his reign. When Cappadocia became a province, Tiberius was even able to lower Roman taxes. His frugality also allowed him to be liberal in helping the provinces whe ...

The Land Co. of Florida and the Florida Real Estate Bubble

The Florida Land Bubble of the 1920s has been hailed as a precursor both to the Stock Market Bubble of the late 1920s and the real estate bubble of the 2000s. Unlike the stock market crash of 1929 or the real estate bubble of the 2000s, there is insufficient evidence for the price fluctuations, so most of the data are anecdotal.

One of the stories, possibly apocryphal, that illustrates the impact of the Florida land boom was this story. An elderly man in Pinellas County was committed to a sanitarium by his sons for spending his life savings of $1,700 on a piece of Pinellas property. W ...

How the United States Avoided Default with Only Hours to Spare – in 1895

Once again, the government has cut a deal to avoid defaulting on its debt by raising the debt ceiling. The chance of the United States defaulting on its debt has been avoided, at least until January 15, 2014.

The reason for these dramatic battles over the debt ceiling is that originally, each bond issue by the government had to be approved by Congress. When the United States entered World War I, instead of requiring that the government approve each and every bond issue, the government changed tack and set a general debt limit, enabling the government to issue new bonds at will up to ...

The Mississippi Bubble, or How the French Eliminated All Their Government Debt (So Why Can’t Bernanke?)

The government is running a large deficit and it can’t cover its expenses. The government debt exceeds the GDP of the country. The central bank’s balance sheet is exploding as the government buys its own debt. Sound familiar? This was France in 1719.

Everyone has heard of the South Sea Bubble, but few have heard of the French version, the Mississippi Bubble, which happened one year before. Not only was the Mississippi Bubble bigger than the South Sea Bubble, but it was more successful. It completely wiped out the French government’s debt obligations at the expense of those who fe ...

The Great Stock Exchange Forgery – Who Committed the Perfect Crime?

Most stamp collectors are aware of the Great Stock Exchange Forgery that occurred in London in 1872 and 1873, even though most Americans who do not collect stamps are not.

In 1870, the telegraph system of the United Kingdom was nationalized and run by the Post Office. This was useful to people on the stock exchange because without a ticker tape, traders used the telegraph to send stock quotes to customers throughout the United Kingdom.

If someone wanted to send a stock quote, they would go to the telegraph office at the Stock Exchange, write down the information, purchase a st ...

Have the Financial Markets Given a Once-in-a-Generation Signal?

One of the principal decisions investors have to make is how to allocate their assets between stocks and bonds. Although stocks generally provide a higher rate of return than bonds, stocks are also more volatile, and investors run the risk that when they need to take money out of their portfolio, stocks might be in a bear market, reducing the amount of money available to them.

One of the indicators we look at to determine the optimal allocation between financial assets, is the relative returns between stocks and bonds, and in particular, the 10-year and 20-year rates of return for stoc ...

The Bank War

A previous blogged discussed the founding and dissolution of the First Bank of the United States (BUS) which existed from 1791 to 1811. After the First BUS recharter was defeated, the United States suffered defeat in the War of 1812, and suffered from a lack of fiscal order and an unregulated currency. As industrial and commercial interests expanded after the War of 1812, politicians advocated for the creation of a second Bank of the United States to promote the economy.After the war, there was sufficient support to overcome the oppositio ...

Complete Histories – Northern Pacific – The Most Famous Stock Corner in History

The Northern Pacific Railway was a transcontinental railroad that operated across the northern tier of the western United States from Minnesota to the Pacific Coast. The goal was to connect the Great Lakes with the Puget Sound. Along with the Southern Pacific and the Union Pacific (originally the Central Pacific, but renamed during the Civil War), it was to be the northernmost of three transcontinental railroads.The Northern Pacific Railway was approved by Congress in 1864 and given nearly 40 million acres (160,000 km2) of land grants, which it used to raise money in Europe for construction. C ...