The Pros And Cons Of The South Sea Bubble

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2.1.2 South Sea Bubble The South Sea bubble is one of the firs bubbles with a real stock market crash. In the 17th century the financing of the United Kingdom was a complete unorganized and chaotic mess. Different government departments were responsible for their loans and there was a lack of a clear oversight on financial expenses and income. This all changed when a chancellor proposed to straighten out these inefficiencies. The first steps in straightening out the mess was the reconsideration of the monopoly right of the Bank of England. The Bank of England had the right to manage all the country’s loans on monopoly basis. By granting other private enterprises to participate in these loans more companies started to participate in loans on behalf of the government. In 1711 the South Sea Company was founded as one of these competitors of the Bank of England. The company was promised a monopoly of all trade to the Spanish colonies in South America in exchange for taking over part of the national debt from the War of Spanish Succession earlier that century. As makes sense the value of taking on all this debt strongly depended on the outcome of the war. In 1713 the war ended with the treaty of Utrecht made an end to the Spanish Succession war and Queen Anne´s war. This treaty negatively influenced the trade opportunities for the South Sea Company because of the confirmation of Spain’s sovereignty over its new world colonies. The South Sea Company was left with limited options

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