SEEDS OF BANKRUPTCY - JUMP ON THE CYCLE

The repercussions following on from the Franco-Prussian War and the Treaty of Frankfurt 1871 (see blog Seeds of Resentment 15-9-11) not only resulted in continuing vindictiveness between various countries, but three days after France made its final reparation payment in gold to Germany, on the 18^th September 1873, the banking firm of Jay Cooke and Company filed for bankruptcy. Thus the economic disasters of 1873 in Europe led to the Panic of 1873 worldwide. A variety of things occurred to bring this about.

Bismark

In 1871, having extracted the large indemnity in gold from France, Otto von Bismark, Minister President of the Kingdom of Prussia and 1^st Chancellor of the German Empire, ceased minting silver thaler coins. Various financial failures followed on. On the 9^th May, 1873, the Vienna Stock Exchange crashed. It was known as Black Friday. The exchange was no longer able ‘to sustain false expansion, insolvency, and dishonest manipulations’.  How familiar does that sound.

Black Friday
9th May 1873, Vienna

This decision of the German Empire to cease minting silver coins in 1871 caused a drop in demand and downward pressure on the value of silver; this had a knock-on effect in the USA, where much of the supply was then mined. As a result, the Coinage Act of 1873 was introduced and this changed the United States silver policy. Before the Act, the United States had backed its currency with both gold and silver, and it minted both types of coins. The Act moved the United States to a de facto gold standard, which meant it would no longer buy silver at a statutory price or convert silver from the public into silver coins (though it would still mint silver dollars for export in the form of Trade Dollars).

The Act had the immediate effect of depressing silver prices. This hurt Western mining interests, who labeled the Act "The Crime of '73." The coinage law also reduced the domestic money supply, which raised interest rates, thereby hurting farmers and anyone else who normally carried heavy debt loads. The resulting outcry raised serious questions about how long the new policy would last. This perception of instability in United States monetary policy caused investors to shy away from long-term obligations, particularly long-term bonds. The problem was compounded by the railroad boom, which was in its later stages at the time.

The American economy was in crisis.  In September 1873, Jay Cooke & Co., a major component of the United States banking establishment, found itself unable to market several million dollars in Northern Pacific Railway bonds. Cooke’s firm, like many others, was invested heavily in the railroads. At a time when investment banks were anxious for more capital for their enterprises, President Ulysses S. Grant’s monetary policy of contracting the money supply (again, also thereby raising interest rates) made matters worse for those in debt. While businesses were expanding, the money they needed to finance that growth was becoming scarcer.

Cooke and other entrepreneurs had planned to build the nation's second transcontinental railroad, called the Northern Pacific Railway. Cooke's firm provided the financing; but, just as Cooke was about to swing a $300 million government loan in September 1873, reports circulated that his firm's credit had become nearly worthless. On the 18^th September 1873, the firm declared bankruptcy.

Cooke

Clews

The failure of the Jay Cooke bank, followed quickly by that of Henry Clews, set off a chain reaction of bank failures and temporarily closed the New York stock market. Factories began to lay off workers as the United States slipped into depression. The effects of the panic were quickly felt in New York, and more slowly in Chicago; Virginia City, Nevada; and San Francisco.

The New York Stock Exchange closed for ten days starting 20^th September 20. Of the country's 364 railroads, 89 went bankrupt.  A total of 18,000 businesses failed between 1873 and 1875. Unemployment reached 14% by 1876. Construction work halted, wages were cut, real estate values fell and corporate profits vanished.

All that was 138 years ago. Much of what happened on the stock exchanges round the world seems to be happening again. The exchanges are no longer able ‘to sustain false expansion, insolvency, and dishonest manipulations’.  
I don't know if this view of Mike Maloney is correct or not, but he is just another pundit selling his book.
"Gold and Silver are just in their cycle" he says, or is he just reflecting an already existing cycle that has been going on for the last 138 years and before that. Is he just a part of the dishonest manipulations of the exchanges, or just trying to make a buck or two on the back of the cycle?