A great post recently put out by Sovereign Man. Those who lose it all….can’t say you were not warned.
May 4, 2015
Sovereign Valley Farm, Chile
It was another time. Another era. Another superpower.
Great Britain’s was the largest economy in the world in 1873. And it showed.
The British pound dominated world trade and was the most widely used reserve currency on the planet.
And London was the undisputed epicenter of global finance.
There was more money in London, in fact, than in just about every other major financial center in the world combined.
Britain was clearly at the top of the world.
But in 1873, a financial reporter named Walter Bagehot published a book that shined a huge spotlight on some of this phony prosperity.
Bagehot was Editor-in-Chief of The Economist at the time. He was a brilliant finanical thinker, and the book, Lombard Street: A Description of the Money Market, was his masterpiece.
For example, the book describes how, even though the British banking system was the most widely used and powerful in the world, it was dangerously overleveraged:
“There was never so much borrowed money collected in the world as is now collected in London,” writes Bagehot.
He further shines a huge spotlight on the risks of illiquidity, describing how Britain’s largest banks only held a very small percentage of their customer’s funds in cash:
“[T]here is no country at present, and there never was any country before, in which the ratio of the cash reserve to the bank deposits was so small as it is now in England.”
glass of scotch