South Sea Company Bubble

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South Sea Company Bubble It was the time when England prospered, a time of success and abundance for the British people; that was England back in the eighteenth century. It was during this time that a certain company took on the role of taking over the national debt, which resulted in a boom with their stocks. This company called, South Sea Company was an English Joint Stock company formed in 1711, by Robert Harley, Earl of Oxford. It was granted monopoly to trade with South America and a 6% annuity in return for converting £10 million of government war debt that was accumulated during the War of Spanish Succession into its own shares, this became known as the South Sea Bill, passed by the House of Lords. Because of its background, people started investing and share prices rose to ten times their value. The company was expected to deliver huge profits due to the silver and gold mines of Peru and Mexico and the belief that it would be those minerals that would be used as a form of payment to goods sold to them. Rumours and speculation quickly rose with one being that a fund of £70 million was available from Parliament and the King to support the stock. All these speculation resulted in high stock prices. But rumours are rarely ever true. In reality, Philip V of Spain never had any intention of granting the England free trade rights in Latin America. Their negotiation results were a disappointment but the confidence for the company remained strong. Harley then published news saying Spain would allow shipments even though such things were not true. It was in 1717 that the King pulled attention to the state of public finances and suggested that the national debt be reduced. In answer to this, the South Sea Company and the Bank of England made propositions, the former to raise its capital by £12 million and lend the government £2 million at a 5% interest,

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