Monday, January 25, 2010

Brief Financial Notes Based on 1875-1907 (2)

An unprecedented surplus has accumulated in the Treasury of the United States. It exists because taxes and tariffs inaugurated to meet the nation's enormous need for funds during the Civil War have been imposed during the 17 years since the war. As a consequence, Government borrowing, which can be an important outlet for private investments, has been reduced, and idle resources and rising unemployment threaten the economy. In his message to Congress on Dec. 4, President Arthur states that "either the surplus must lie idle in the (Federal) Treasury or the Government will be forced to buy at market rates its bonds not then redeemable, and which under such circumstances cannot fail to command an enormous premium, or the swollen revenues will be devoted to extravagant expenditures, which, as experience has taught, is ever the bane of an overflowing treasury."

The President's fears are realized; swollen Federal funds begin to be tapped for "pork-barrel" bills, providing funds for wasteful and often useless projects. The surplus leads to increasing demands for a reduction in tariffs. The President appoints a commission to study the tariffs. Opposition to President Arthur's no-spending, tariff-reduction policies become loud and persistent. President Arthur also attempts to lessen the magnitude of the spoils system, but encounters stiff opposition from his own party. The Democrats gain control of the House of Representatives in the midterm elections.

The severe reaction of 1883 was followed by the panic of May, 1884 in which half a dozen Stock Exchange Houses failed and two important banks were compelled to close its doors.

The period from 1886-1888 inclusive was chiefly marked by the large issues of securities to provide funds for the very extensive railway building then in progress. There were several excited markets on the Stock Exchange, though the tendency at the close of the period was toward depression of values, largely because of the enormous creation of new securities.

The year 1890 was again marked by great activity and rising prices on the Stock Exchange. This "boom" was checked by the Baring panic of November,1890, in London, which was reflected by a prompt recall of English capital from the United States, and by a New York Stock Exchange panic, in the course of which two or three broker houses failed. From then until the outbreak of the more serious panic of 1893 a shrinkage in business was the chief characteristic of the New York Stock Exchange's history.

The panic of 1893 was in many respects one of the most dramatic episodes in the Stock Exchange history. There was at one time, during July of that year, talk of repeating the expedient of 1873 and closing the Exchange. This turned out to be unnecessary, as foreign capital came to the market's relief in the moment of emergency. The following year, 1894 was a period of great depression, when the volume of Stock Exchange business fell to the lowest point since 1878. Recovery followed in 1895, when foreign capital was again commanded in connection with the international syndicate to float the United States Government's bond issue and protect the Treasury gold reserve. A panic of smaller proportions swept over the Stock Exchange at the close of this year, in connection with the collapse of the protective operations and the international clash between America and Great Britain over Venezuela. The two ensuing years were chiefly characterized by the reorganization of the great number of important railways which had failed during 1893 and 1894, and whose new securities, largely increased in quantity, were placed through the medium of the Stock Exchange in 1896 and 1897.

The financial revival which began at the close of the last-named year introduced a new epoch in the history of the New York Stock Exchange-an epoch in all respects the most remarkable of its history. Supply of American capital available for investment purposes seemed suddenly to have become unlimited-largely because of the country's immensely profitable harvests at a time of European famine, but also on account of a wholly unprecedented increase in our general export trade, in manufactures as well as in agricultural products, which gave to our markets a command over foreign capital which they had never before possessed. This increase in capital was made use of by promoters of all kinds of enterprises, and their shares found active reception on the Stock Exchange. A highly excited movement for the rise at the opening of 1899 converged chiefly on shares of industrial companies organized to buy up independent plants. Checked by the excess of the speculators and by an industrial reaction during the Presidential contest of 1900, this movement was renewed with immense force at the opening of 1901.

Source: " A Compilation of the Messages and Papers of the Presidents 1789-1897" By: James D. Richardson....A Representative from the State of Tennessee. Publisher: by Authority of Congress..1899. Ten Volumes total. Copyright: 1897 by James D. Richardson; New International Encyclopedia, Dodd, Mead and Co.-NY, Copyright: 1902-1905 21 Volumes; The Bicentennial Almanac, Thomas Nelson, Inc. publishers, New York. Copyright 1975. The History of New York State, Lewis Publishing Co.- New York, 1927.

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