Chapter 155: Cook Bank

With the development of industrialization in various countries, the economic ties between nations around the world will become increasingly close.

This has also led to a rather serious problem: the outbreak of an economic crisis will not affect a single country alone, but will expand its impact to the entire world.

Although the economic crisis did not have a very serious direct impact on Spain, it still affected Spain's import and export trade.

On May 14, 1873, Prime Minister Primo specifically convened a cabinet meeting to address the potential impact of the economic crisis on Spain.

Carlo was also quite concerned about this economic crisis; he listened to the entire meeting and offered several suggestions of his own for guarding against the impact of the economic crisis.

At the meeting, Minister of Finance Ewald Bartel frowned and said with a worried look: "Your Majesty, Mr. Prime Minister. Since the outbreak of the Vienna economic crisis, our import and export trade has been seriously affected.

As the economic crisis gradually affects other European countries, it may deal a more serious blow to our import and export trade.

Since the outbreak of the economic crisis, our daily volume of import and export goods has been continuously decreasing. If the economic crisis continues, it is estimated that the total volume of import and export trade will fall by at least 30% this year."

Why would the economic crisis affect Spain's import and export trade?

The actual reason is that the economic crisis has affected the economic environment of various European countries, leading to a large number of factories and enterprises being on the verge of bankruptcy or going bankrupt directly.

The public has consequently lost their jobs and naturally will not have such strong purchasing power.

In a situation where other countries' economies are in chaos, even if Spain's industrial production has not been greatly affected, the goods will certainly not sell.

By the same token, in a situation where other countries' economies are relatively chaotic and factories and enterprises are going bankrupt in large numbers, even if Spain wants to import in large quantities, it must depend on whether other countries have the capacity to produce them.

The contraction of imports and exports during an economic crisis is inevitable; unless one waits for the economic conditions of other countries to gradually improve, one can only silently endure the impact on the economy caused by the massive reduction in imports and exports.

"Does this not mean that our economy may face negative growth this year?" Carlo asked aloud.

Since the Spanish reforms, the economy has seen positive growth every year. Moreover, the growth rate has been extremely fast, which is also the reason why the Spanish government feels at ease using a large amount of the fiscal budget every year for various infrastructure projects.

As long as the economy maintains a good growth rate, government investment will not only not be a loss, but will instead turn into more tax revenue returned to the government.

If negative economic growth occurs due to the economic crisis, government tax revenue will also decrease. But those projects that have already started cannot be easily stopped, which also means that the government's finances this year may face a significant deficit.

"Yes, Your Majesty." Ewald Bartel nodded and replied: "With import and export trade being affected, it is difficult for our economy to continue to maintain positive growth."

Carlo nodded expressionlessly, though he felt quite relaxed inside.

The negative economic growth caused by the reduction in import and export trade can be salvaged, and the method of salvation is also very simple: to increase the intensity of infrastructure construction, thereby expanding the demand for domestic products.

At the same time, large-scale infrastructure construction can also provide more job positions, which also has a good stimulating effect on the Spanish economy.

The only downside to doing this is that the government needs to use a large amount of funds, and the current Spanish government is not lacking in funds.

Although the value of that treasure is only over 900 million pesetas, the value of gold is not calculated that way. If gold is used to issue currency, it can issue currency several times its own value.

In other words, the Spanish government can rely on these 80-plus tons of gold to issue currency equivalent to the value of several hundred tons of gold.

At this moment, Prime Minister Primo also stood up at a very appropriate time to introduce to Carlo the plan that the cabinet government had already prepared: "Your Majesty, in order to cope with this economic crisis, the government expects to increase investment in public infrastructure again over the next two years to create more job positions and stimulate the improvement of the Spanish economy.

In terms of infrastructure, our investment will mainly focus on three areas: the improvement of road traffic, small-scale water conservancy projects in villages and towns, and slum renovation projects.

In order to protect some of our affected enterprises, the government will launch short-term tax exemption policies for certain enterprises and encourage Spaniards to purchase Spanish-made products in large quantities, expand our domestic demand, and reduce the impact of the decrease in exports."

Previously, the renovation of slums was also limited by finances, the scale had always been small, and it was concentrated in Madrid.

Since the government is no longer short of money now, and there is enough time during the economic crisis to engage in infrastructure construction, it is natural to vigorously promote the renovation of slums.

Transforming those dilapidated slum houses into high-rise buildings will not only effectively improve the urban appearance of Spain but also allow these poor people to have a better living environment.

In fact, this economic crisis is not entirely bad for Spain; the benefits are also visible everywhere.

For example, during the economic crisis, the scale of industrial and agricultural production in various countries is constantly declining, and the prices of various industrial manufactured goods are falling again and again.

Spain can completely purchase large quantities of mechanical equipment in various European countries at extremely low prices, and can even purchase corresponding means of production and technology.

Some small and medium-sized factories are already facing the crisis of bankruptcy; being able to sell technology and equipment in exchange for a portion of funds is naturally better than the entire factory and enterprise going bankrupt.

As for the harm of selling technology and equipment to the factories and enterprises, that is no longer something they can consider. After all, if the enterprise goes bankrupt, they will have nothing anyway; it is better to exchange equipment and means of production for some funds to allow the enterprise's finances to circulate.

After determining the policy for preventing this economic crisis within Spain, the topic of discussion quickly turned to what products should be purchased by taking advantage of such a good opportunity.

What the cabinet officials discussed most was actually the production equipment and technical data of factories in various countries, including advanced steel smelting technology, production data and production lines for military weapons, the chemical technology in which Spain is relatively weak, and some mechanical equipment, etc.

These are of extremely important help to Spain's industry and are also the things that the previous Spain lacked the most.

Although there was aid from Italy and the Austro-Hungarian Empire, some relatively advanced technology and production data are not so easy to purchase.

Either the price is too expensive, or it is simply confidential technology that certain enterprises do not open to outsiders; one cannot buy it even if one wants to.

Right now, this economic crisis is a good opportunity. Production equipment and technical data that were previously expensive are basically dirt cheap now.

The money that could previously only buy one set of data can now buy several sets of data, and one can even get a piece of mechanical equipment thrown in for free.

Those confidential technologies that were originally not to be disclosed by small and medium-sized enterprises are now products that can be taken away just by naming a price. Precisely because of this, Spain must not miss this good opportunity for a big shopping spree.

This economic crisis is bound to affect European and American countries, which also means that Spain can take its funds and unscrupulously select production equipment and technical data in these countries.

According to later data, during this economic crisis, the number of enterprises that went bankrupt and closed down in countries around the world totaled nearly 10, 00 each year, and a total of more than 50, 00 enterprises went bankrupt during the entire economic crisis (1873-1879).

Although many of these 50, 00 enterprises were those relatively ordinary factories that did not have any relatively advanced production equipment or technical data.

But there were also a small number of factories that possessed strong scientific research capabilities; the equipment and data in their hands are what Spain currently lacks the most.

However, the "buy, buy, buy" actions in European and American countries still need to undergo some disguise. If one were to purchase bankrupt enterprises and factories in large quantities in various countries in the name of the Spanish government, it would inevitably attract the attention of these countries.

Even if it were to provoke public anger, it would be more than the loss is worth for Spain.

The purchasing personnel heading to various European countries will disguise themselves with various identities, but their goals are all the same: to select bankrupt enterprises worth acquiring, or to purchase production equipment and technical data from those enterprises on the verge of bankruptcy.

In the economic crisis, one country played the role of the unlucky one.

Which country is it? Of course, it is the United States, which relied heavily on foreign investment.

European countries were plagued by the economic crisis, and their first reaction was naturally to withdraw their investments in the United States, or at the very least, to immediately terminate investments.

And the Americans themselves needed a large amount of foreign investment to maintain their crazy construction; after foreign capital began to withdraw, the economic environment of the United States collapsed instantly.

What's more, the economic environment of the United States itself had relatively large problems.

It was mentioned before that the railways built by the United States in this recent period were more than the sum of those in the United Kingdom and Germany combined.

And this also gave birth to a problem, which is that a large number of railway companies were born in the United States, and these railway companies were constantly seeking loans to build railways.

Among the many bankers in the United States, the Cook family is definitely one of the more famous private bankers.

Perhaps Cook himself did not know that one of his investments directly led to the beginning of the American economic crisis and also led to the American industrial production facing a devastating blow.

For Cook himself, this investment was very ordinary.

The object he cooperated with was the Northern Pacific Railway Company; this railway company also had quite a reputation in the United States, had built many sections of railway, and had achieved relatively good results.

Perhaps it was precisely because of the good reputation of the Northern Pacific Railway Company in the past that when Cook agreed to help the railway company underwrite bonds, he actually did not think too much and agreed to underwrite 100 million US dollars in railway bonds.

The value of the US dollar is not low; it is much higher than the franc and the peseta.

The value of 100 million francs in bonds is equivalent to more than 500 million pesetas, which is the Spanish government's annual fiscal revenue.

Such large-scale bond sales are not so easy, not to mention that when the bonds were sold at that time, they were facing the war between the Prussians and the French.

During wartime, not many people were willing to use real gold and silver to buy bonds that were just pieces of paper. The result was also obvious: the sales of the bonds were not satisfactory, and the construction of the railway was difficult to maintain.

If the railway could not continue to be built, it would be a huge blow to both the Northern Pacific Railway Company and Cook's bank.

In order to save the railway company, Cook could only issue short-term loans to it.

Although the interest on the short-term loans was very high, it could at least ensure that the Northern Pacific Railway Company's railway continued to be built. As long as the railway construction was completed, the railway company could at least recover a portion of the funds and continuously obtain income by relying on the operation of the railway.

But things often did not go as beautifully as expected. After the outbreak of the Vienna economic crisis, European capital quickly withdrew its investment in the United States.

Cook's bank was also seriously affected, and the pressure on funds doubled.

As luck would have it, the Northern Pacific Railway Company also encountered trouble at this time. The railway company could not only not repay the principal and interest of the short-term loans on time, but instead needed Cook to invest more funds to continue to maintain it.

It was very clear that Cook had no money at this time.

And the railway company, lacking capital investment, quite simply announced its bankruptcy.

Accompanied by the successive bankruptcies of the Northern Pacific Railway Company and Cook's bank, coupled with the panic caused to Americans by the European economic crisis, it soon caused fluctuations in the US stock market.

The bankruptcy of Cook's bank caused panic among Americans. People rushed to the bank, just wanting to withdraw their money from their bank accounts as early as possible.

But where would there be so much money in the bank's accounts?

The previous era of prosperity was not just the prosperity of construction companies and railway companies, but also the prosperity of the banking industry.

These banks obtained high income through large-scale lending, and there were still a large number of bank loans that had not been recovered.

Banks did not have enough funds available for exchange and naturally had to face a serious bankruptcy crisis. This wave quickly affected a large number of banks, and at the same time, many investment companies and railway companies were also affected.

From the beginning of the bankruptcy of Cook's bank and the Northern Pacific Railway Company in early June to the official closure of the New York Stock Exchange, it only took two and a half weeks, but these two and a half weeks were a devastating blow to the US economy.

In these two and a half weeks, at least hundreds of banks went bankrupt one after another, including relatively large chain banks.

Investment companies were even more miserable; at least hundreds of investment companies announced bankruptcy due to the collapse of their capital chains.

The bankruptcy of banks and investment companies quickly affected railway companies. Many railway companies that had to rely on loans and bonds to survive simply could not continue in such an economic environment, and the wave of bankruptcy rose again.

For the United States, this was just the beginning of the disaster.

Like other European countries, the United States at this time also had not established a supreme bank to control finance and bonds, and even the issuance of bonds was done by authorizing private banks to act as agents.

Because there was no supreme bank, the US government simply could not save American enterprises by providing money supply and relief to companies on the verge of bankruptcy, and in the end, it could only helplessly sit and watch the economic crisis intensify in the United States.

And precisely because the bonds were handled by private banks, the massive bankruptcy of these private banks was not a good thing for Americans.

Not only did their deposits disappear along with the bank's bankruptcy, but even the bonds they had originally purchased vanished into thin air.

After all, the banks were gone; where else could they go to redeem the bonds they had purchased?

For the United States, a country that is developing savagely, the impact caused by the economic crisis is more serious than in European countries.

The speed of industrial and economic growth in the United States during this period was indeed far higher than that of European countries, which also proved that the comprehensive potential of the United States was higher than that of European countries.

But it was very clear that the development speed of the United States was relatively savage growth, lacking government control.

Two and a half weeks were enough to make the United States face the bankruptcy of nearly a thousand enterprises, among which there was no lack of medium and large-scale enterprises and factories.

This also meant that in a short period of time, more than 100, 00 American citizens had suddenly become unemployed, and 100, 00 families had seen their incomes plummet.

(End of chapter)