pappabearbooks Chapter 127 The Economic Crisis That Occurred Two Years Early and the Creation of Currency
Chapter 127 The Economic Crisis That Occurred Two Years Early and the Creation of Currency
Chapter 127 The Economic Crisis That Occurred Two Years Early and the Creation of Currency
No one objected; all the directors raised their hands.
Without even a moment's hesitation.
Everyone tacitly avoided mentioning that recalling loans could lead to the bankruptcy of many companies. After all, even the banks themselves could go bankrupt because of this, so who would care about others?
The telegram was sent that afternoon, conveying the headquarters' message to branches in cities across the eastern United States.
Milwaukee, Wisconsin.
The headquarters of the La Crosse Milwaukee Railroad is located here, with shimmering waters and a gentle breeze outside the window.
The CEO was holding a coffee and reviewing the construction budget for the next quarter when there was a knock on the door.
"Please come in."
The man who arrived was the Milwaukee branch manager of Ohio Life Insurance. He was dressed in a smart black coat, smiling, and speaking politely.
"We need to recover all loans from your company."
"Why? The repayment date is still two years away!"
The company president was sweating profusely, desperately trying to persuade the branch manager in front of him not to withdraw the loan so soon.
The branch manager simply maintained a polite smile, gave a final repayment date within a week, and left the office.
"Damn it, damn it, damn it!"
The CEO slammed the coffee cup on the table to the floor, shards of porcelain flying everywhere. He was panting heavily, his eyes filled with fear.
What does it mean to recall a loan?
This means work has stopped.
What does a work stoppage mean?
This means all the initial investment will be wasted, and the laid rails will become a pile of scrap metal. The company will go bankrupt and be auctioned off, and the unpaid workers will rush in and kill him!
"No, absolutely not!"
The president gritted his teeth, summoned a few trusted confidants, and hurriedly left to try his luck at negotiating loans with other banks in Milwaukee.
This scene was playing out simultaneously in many cities.
Fondilack Railway, Minnesota Northwest Railway, Chicago Northwest Railway, Toledo Wabash Railway —
The storm of early loan recalls swept through all the railroad companies in the Great Lakes region of the United States.
Regardless of size, all railway companies were thrown into a panic by this sudden withdrawal of loans.
As a capital-intensive industry, the first thing these companies did upon receiving loans was to convert them into railway tracks, bridges, tunnels, and trains. The little cash remaining was specifically used to pay salaries.
Pay me back? Where would I get the money to pay you back?
Some railway companies choose to mortgage their railways and trains to other banks to borrow new money and repay the old money as soon as possible.
Unable to borrow money from banks, railway companies began selling off assets such as stocks and bonds at any cost, hoping to quickly recover funds to repay bank loans.
Some railway companies managed to raise funds after selling off most of their shares, at the cost of their stock prices plummeting by half. The rest, even with their stock prices hitting rock bottom, still couldn't raise the money.
A wave of bankruptcies has begun.
Within a week, seven railway companies in the east declared bankruptcy.
The land market followed closely behind.
Speculators who bought large tracts of land in the west, waiting for prices to rise after the railway was built, suddenly found that railway companies were going bankrupt one after another, and those that were not bankrupt announced the suspension of construction on unfinished railways.
Upon receiving the news, the banks immediately decided to recall their loans to them.
But the speculators' capital was all in the land, in the wilderness where it would be worthless without the railroads.
People tried to sell the land, but the market was full of sellers and there wasn't a single buyer. Offers dropped from ten dollars an acre to five dollars, to two dollars, to fifty cents.
Still, no one is buying.
A land speculator from Ohio stood in front of a bank counter in New York, placed a thick stack of land deeds on the table, and asked if he could use the deeds to pay off a debt.
The bank employee glanced at it and politely pushed the land deed back.
"I'm sorry, sir. We do not accept land."
"But you made me use the land as collateral in the first place!"
"That was back then, sir."
Bankruptcy, bankruptcy, bankruptcy —
First the railways, then the land, and public panic gradually escalated.
The panic reached its peak when Ohio Life Insurance and Trust declared bankruptcy due to massive bad debts and insolvency.
Panicked Americans rushed to banks, frantically withdrawing deposits and selling stocks and bonds, triggering a widespread bank run and sell-off.
In response to the bank run, banks unloaded their gold and cash reserves and began frantically recalling loans. As a result, more companies went bankrupt, and more insolvent banks declared bankruptcy.
An economic crisis has begun!
"So, because of your eight million dollars, the US economy was brought to a head two years earlier than expected?"
Inside a mansion in San Francisco's Chinatown.
Zeng Tai sat in a mahogany chair by the window, holding a cup of tea. He looked at Daqi and his group, who had been teleported back, his mouth slightly agape, clearly surprised.
In the previous life, the economic crisis in the United States did not begin until 1857, and the trigger was the bankruptcy of Ohio Life Insurance and Trust Company.
Little did they expect that in this life, the fuse that ignited the bankruptcy would be lit by Dutch and his companions themselves.
"My lord, not only did you not expect this, but we didn't expect it either."
Dutch shrugged and laughed, "Just like the proverb says, a horseshoe nail can destroy an empire. Chain reactions are such strange things."
Hosea said, "After the economic crisis, banks collapsed, factories shut down, and workers lost their jobs. Americans probably don't care about us anymore."
"No, Hosea, you're mistaken."
Guilliman strode in and said in a deep voice, "The logic of history tells us that severe economic turmoil is often the most powerful catalyst for political conflict, and also a catalyst for war."
"The Anglo-Dutch Wars, the Napoleonic Wars, the American Revolutionary War, the War of 1812, and the ongoing Crimean War are all derivatives of this logic."
Zeng Tai recalled the outbreak of World War I and World War II and nodded in agreement.
"Guilliman is right. The Americans will be in a state of chaos in the early stages of the economic crisis, but in order to divert attention from other problems, they will definitely turn their attention to us."
Dutch also said, "My lord is right. Don't forget, American newspapers are already spreading the Yellow Peril theory. They will definitely try to shift the crisis through war."
"The Yellow Peril theory."
Zeng Tai squinted as he read the phrase coined decades later by Tsarist Russian politician Bakunin: "They really dare to say that."
On the other side, Jian Yuan grinned: "It seems that when the Mongols conquered the west, Genghis Khan and his descendants did indeed leave a considerable shadow on Europe. Centuries have passed, and they haven't forgotten it yet."
"However, these white people have misunderstood one thing: we are not the Huns, Turks, or Mongols. They are the fathers of white people, and we are their grandfathers!"
Zeng Tai said calmly, "Since that's what they think, it wouldn't be right for us not to do something."
"Continue the advance eastward and northward, and take Nevada, Arizona, Oregon, and Washington in the north."
"Let them see what the real Yellow Peril is!"
After chatting for a while, Dutch and the others left, leaving only Guilliman behind with a slightly serious expression: "My lord, we should consider the matter of currency."
As dusk fell, Guilliman turned on the lights in the room and said, "We now control California, from San Francisco to Sacramento, from San Jose to Los Angeles. We have more territory, more population, but we still use dollars."
"While there are no major problems with using the US dollar under the gold standard, at most we would lose some seigniorage, as the economy expands further in the future, we will be unable to use currency to regulate the economy, and our economic sovereignty will be eroded."
Zeng Tai asked, "So you mean we're going to mint our own metal coins?"
Guilliman shook his head and said, "No, my lord, I suggest we go further and issue paper money directly!"
"Huh?!" Zeng Tai was taken aback. "Is it really that radical to just issue paper money?"
"Paper money?" a voice came from the doorway.
Su Song strode in and looked at Guilliman: "You're going to issue paper money?"
"Yes," Guilliman said.
"Pure paper money?"
"Pure paper money".
Su Song shook his head and turned to Zeng Tai: "My lord, I cannot agree with Guilliman's proposal. The implementation of pure paper money is too difficult, especially for the Han people."
Zeng Tailai became interested: "How so?"
Su Song explained: "In the third year of the Xianfeng reign, in order to deal with the Taiping Rebellion, the Qing government began to issue official banknotes denominated in silver and Daqing Baochao denominated in copper coins."
"But less than two years after its issuance, the market value of the Baochao (宝钞) had plummeted to 20 percent of its face value. A 1,000-wen Baochao could only buy 200 wen worth of goods on the market."
"The Qing government printed money at an alarming rate, but only issued it without accepting any, which had long since eroded people's trust in paper money."
When Zeng Tai heard the words "precious paper money," he already had a premonition.
After all, the Ming Dynasty's paper money set a fine example, but he never expected that the Qing Dynasty could surpass it.
It took the Ming Dynasty at least eleven years to achieve an 80% devaluation, while the Qing Dynasty accomplished it in just two years.
What a pair of smiling tigers, two black sharks!
Su Song concluded, "The common people aren't stupid. Once they've been fooled, they won't fall for it again. If we issue paper money now, they'll all oppose it. What will you do then? Hold a gun to their heads and force them to use it?"
"Why not? Didn't those people who took over the paper money in the third year of the Xianfeng Emperor's reign know that it was just a piece of paper?"
Su Song was slightly taken aback.
"Of course they knew, but they accepted it anyway."
Guilliman answered his own question, "It's not because I trusted the Qing government, but because the Qing government had the power. Those who refused to accept the paper money would be dragged to the yamen and flogged, their shops would be sealed off, and their goods would be confiscated."
"Our military strength is more abundant than that of the Qing Dynasty. Once they use it, people will naturally accept it over time."
He paused, took a sip of tea, and continued, "The Qing Dynasty's paper money is indeed a negative example, but that's not the paper money's fault; it's the fault of the people who issued it."
"Moreover, the paper money I'm talking about isn't purely based on credit. We have California's gold, Nevada's silver, and the Santa Clara Valley's grain, all of which can serve as anchors for paper money, anchoring its value."
"You make a good point."
Su Song nodded and said, "But I still maintain that if we don't address the issue of people's hearts, no matter how reasonable the reasoning is, it's useless. The Han people have suffered from the loss caused by paper money, and your method takes too long. Using force to coerce them will only backfire."
Both of them looked at Zeng Tai at the same time, their meaning was clear.
You are the lord, you have the final say.
Zeng Tai leaned back in his chair and couldn't help but scratch his head.
After careful consideration, he slowly said, "What you both said makes sense."
"Su Song, you're worried about credit; Guilliman, you're talking about need. If credit isn't enough, issuing paper money is like drinking poison to quench thirst."
Without paper money, relying solely on gold and silver is like drawing a line in the sand.
He raised his eyes and looked at the two people.
"Let's do it this way: let's go down both paths at the same time, issuing both metal coins and paper money simultaneously."
"Gold and silver coins serve as the main currency, while paper money serves as a supplementary currency, pegged to gold reserves. People can use metal coins if they prefer, or paper money if they prefer."
"You mean to implement a bimetallic standard?"
Guilliman cautioned, "My lord, this system has its limitations. The market price ratio of gold to silver fluctuates constantly due to supply and demand, but the government-mandated gold-silver exchange rate is fixed, which creates significant arbitrage opportunities."
Speculators would ship cheap metals abroad to exchange for expensive metals, then ship them back to exchange for cheaper metals, repeating this cycle until the official reserves were depleted.
Zeng Tai said, "Let's use it like this for now, and then we can gradually move towards fiat currency in the future."
"As for the speculators you mentioned, we'll just fleece them one by one."
Su Song frowned slightly: "How will the issuance of paper money be controlled? Who will manage it?"
"Establish a national bank."
Zeng Taidao: "The National Bank is responsible for the issuance and redemption of currency. Reserves are kept in the vault, audited regularly, and the accounts are made public."
He looked up at Su Song: "As for supervision, Su Song, you take on that role."
Su Song was taken aback: "Me?"
"right."
Su Song remained silent for a moment, then slowly nodded: "Since my lord says so, I have no objection."
Guilliman asked, "And what about the design of the banknotes? What designs will they have? What will they say?"
Zeng Tai thought for a moment and said, "Print my portrait on the front and the Xinghan Hall flag on the back, with Chinese characters on the text."
Guilliman nodded, took out a small notebook from his pocket, and began to take notes.
Su Song then said, "My lord, I have an idea that can promote the use of paper money."
"explain."
Su Songdao said, "Regarding taxes, there are discounts for paying taxes in paper money. For example, if you pay $100 in tax in paper money, you only pay $95. If you pay in gold or silver, $100 is $100. Gradually, people will be more willing to use paper money."
Guilliman's eyes lit up: "That's a good idea. Once they get used to it, the discounts can be gradually phased out."
Zeng Tai nodded: "Okay, let's do it this way."
He stretched out his arm and pulled the two of them to finish their meal, when suddenly his expression changed.
Hongwu's voice, long forgotten, rang in Zeng Tai's mind, his tone urgent.
"My lord, something has happened!"
The Yellow River has breached its banks!
'