The Importance of Money in the Development of the Stock Market

Categories: Importance Of Money In Life Money Management

Essay, Pages 2 (477 words)

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In the stock market, the stockholder will buy and sell a small part of the company by calculating the future profit. Sometimes, it results in the financial bubble, and the bubbles are usually following this pattern. First, there is a shift in the economic environment and it makes the profit appear. Second, euphoria which is an overtrading created by the buyers. Third, Mania which is the bubble itself. Fourth, Distress is when the stockholder knows that they will not get the expected profit, and lastly, Revulsion is when the buyers try to sell their stocks to others at whatever price.

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John Law is the one who invented the stock market bubble. He learned about the dynamic of the stock market In Amsterdam at the time when VOC had monopolizing the trade of spice herb from the East Indies. VOC was a very high profitable government company with the newest concept of management and ownership. With this financial innovation, law attempt to combine the monopoly of an organization with issuing the notes from an institution such as the Bank of England.

Paris was a country with enormous public debt from the war. This country was later become the place for John Law to try his idea of the stocks market in 1716.

Under John Law encouragement, a private bank was built which the Bank issued a record paid in gold for 20 years in 1716. With this concept, France revived its economy and handle the royal debt delegating its management to Banque Royale, which is a trading company.

John Law was later evolved in the Mississippi delta company, which then become the first central bank in Paris. There, He allowed ample monetary expansion, and with the promises of high profit in the future, more stockholders become interesting in it. By printing more money in the bank, the share price rise, and John Law successfully created his stock market bubble. However, later inflation is rose, and the share of the company fell. This put John Law under prison punishment, and then he fled away from France. The economy of France back to worse, and it discouraged the development of the stock market. In 1929, the worst stock market crisis happened. In the US, the number of Unemployment soared, and 10.000 banks were bankrupt. Even though it is still unclear what the cause of this huge problem, it is clear that it was influenced by the unpredictability of the people. Enron is one of the companies that promising huge returns with no risk where the stock prices had risen to five times. However, both profit statements and market prices were fraudulently and they also hide their loss from the public. Thus, when this news came out, some of the top managers of Enron company were put into jail, and thousands of stockholders lost all their savings.