mchenry-crisis.org Chapter 336 found clues to future economic collapse.
Chapter 336 found clues to future economic collapse.
Chapter 336 found clues to future economic collapse.
The next day was Sunday, and Larry and Matthew agreed not to get up early, so they both slept in to relieve their fatigue.
After a simple lunch, the two strolled around downtown Chicago.
At this time, Chicago was a city rising from the ashes, full of contradictions and vitality. It bore the deep imprint of the fire, yet brimmed with the vibrant energy of the Gilded Age.
On the evening of October 8, 1871, a cow kicked over the oil lamp that its owner, Kate, had placed in the barn, igniting the hay in the barn.
The fire started amidst unusually dry weather and strong winds. Because most of Chicago's buildings were made of wood, coupled with the severely outdated firefighting systems at the time, the fire quickly spread and became a raging inferno.
大火迅速吞噬了半个芝加哥城，火灾烈焰持续了30个小时。8平方公里的区域被烧毁，2/3的城市被夷为平地。约300人死在火中，10万人无家可归。
Since a large number of migrant workers were not included in the statistics at the time, the actual number of casualties should be much higher.
After the fire was extinguished, reconstruction work began immediately. At this time, the United States was in the early stages of industrialization, a country with abundant resources. People were eager to rebuild their homes, and capital saw the opportunities that reconstruction would bring.
Trains loaded with food, clothing, and building materials quickly arrived in Chicago, and farmers' markets even reopened on the ruins.
It was this fire in Chicago that led to the subsequent demolition and reconstruction. Chicago also gave birth to some of the world's most cutting-edge and largest-scale modern buildings.
People replanned the city, designed brand-new buildings, and created the world's first steel-structured skyscraper.
By this time, Chicago had developed into a modern metropolis with a population of 150 million.
The Chicago School of modern architecture rose rapidly after the fire, and William Jenney was the founder of the Chicago School of architecture, known as the father of the skyscraper.
His greatest contribution was designing and building the Family Insurance Company Building in Chicago in 1885.
Louis Sullivan was both Gianni's protégé and his traitor.
It's somewhat like the relationship between Yue Buqun and Linghu Chong.
Comparatively speaking, Sullivan made a greater contribution to the architectural art and theory of the Chicago School, especially his famous quote, "Form follows function." This statement may seem unremarkable now, but at the time it represented a break between modern architecture and past retro decorative styles.
Larry and Matthew strolled through the streets of Chicago, where the most striking feature of the architecture was its modernity. It was completely different from the Victorian style of Boston, or the diverse mix of old and new buildings with vastly different styles that could be found every other street in New York.
Despite their modern architecture, New York's diverse and chaotic buildings do not exude sophistication; instead, they reflect the utilitarianism of the Gilded Age.
Chicago, however, is different. Due to its more uniform style and relatively new buildings, the architecture here is much more comfortable.
Of course, Chicago's prosperity stems primarily from its irreplaceable geographical location.
It is a city of trains, where 24 railway lines converge. Chicago Union Station is shrouded in train whistles and white fog all day long.
Larry saw thousands of travelers, workers and goods gathering and dispersing in the train station square, a bustling rhythm driven by steam and steel that seemed never to stop.
On the other hand, it is also a city of water transport.
After the Illinois-Michigan Canal opened, it connected Lake Michigan and the Mississippi River, making Chicago a hub connecting the North Atlantic and the Gulf of Mexico.
What the two saw at the dock was a scene of ships gathering and loading and unloading operations continuing day and night.
Why did Chicago become the world's largest futures exchange at that time? Because it was the best distribution center for agricultural products. Convenient water and rail transport allowed goods to be distributed throughout the United States.
In addition, Chicago is making intensive preparations for the World's Fair this year. A faint sense of excitement permeates the city, with huge construction sites constantly bringing in building materials and recruiting workers, all foreshadowing a grand celebration about to unfold.
With the preparation for the World Expo and the expansion of the city, a large number of positions such as clerks, salespersons, and waitresses were created, which made Chicago an opportunity for single women to work independently and enter the service industry. Female employees also became a new sight on the city streets.
This is yet another way in which Chicago differs from other American cities —
In short, it was a vibrant city, and Larry could almost feel its pulse.
At 6 p.m., the two arrived at the University of Chicago. This was a brand-new institution of higher learning, established in 1890.
It was founded in 1960 with donations from oil tycoon Rockefeller.
The University of Chicago, located near Lake Michigan, is a brand-new English Gothic-style university modeled after Oxford University.
At this time, the University of Chicago was still undergoing final renovations and had not yet officially opened for classes. Its first president was William Harper, and the faculty and staff were mostly in place.
Because of the huge financial support from the Rockefeller family from the very beginning, the president of the University of Chicago recruited a group of outstanding scholars from around the world. At the same time, the University of Chicago was also one of the first institutions of higher learning in the United States to admit female students and employ female faculty.
The University of Chicago later became known for producing numerous Nobel laureates. Larry recalls that Yang Zhenning and Li Zhengdao both received their Ph.D.s in physics from the University of Chicago.
Larry gazed at the towering University of Chicago buildings, secretly resolving to get more involved in the affairs of higher education institutions in the future. This would not only earn him a good reputation but also allow him to recruit a large number of outstanding talents.
Monday, October 6.
At 9 a.m., Larry and Matthew stood in front of the Chicago Stock Exchange, their eyes sweeping over the building designed by Louis Sullivan himself.
The red brick facade and terracotta reliefs gleamed warmly in the summer sun, each window like a note from the industrial age. Larry looked at the building and still maintained that Sullivan's design truly surpassed his own aesthetic.
Larry glanced at the building, then turned to Matthew and said, "Let's go. This building is nice, but we're going somewhere else."
"Isn't this it?" Matthew asked in surprise.
"No, this is the Chicago Stock Exchange building. They want to replicate the New York Stock Exchange here—"
Larry pointed to another building not far away, "That's the face of Chicago, the Chicago Board of Trade building."
Founded in 1848, the Chicago Mercantile Exchange (CME) has become the world's largest agricultural futures market thanks to the United States' strong agricultural production capacity.
The main commodity traded is wheat, as well as other derivative commodities such as corn and oats.
The two arrived at the Chicago Board of Trade, a building even more imposing than the stock exchange, with steel structures supporting a massive trading floor beneath Greek-style colonnades.
Outside the exchange, a group of speculators in suits and farmers in straw hats gathered, their expressions varied, but their eyes all gleamed with a desire for money.
Before arriving, Larry had inquired about the procedures from the hotel staff, so he went straight to the guard post at the entrance.
"We need a transaction receipt!"
The guard glanced at the two men and handed them a piece of cardboard. "Five dollars each. The holder can observe and find clients in the lobby, but cannot participate in the transaction."
Larry paid the money, received the vouchers, and stepped into this vastly different financial battlefield with Matthew.
The sight inside the hall made Larry and Matthew hold their breath. A clock tower stood in the center of the trading hall, chiming every hour to signal the start of trading.
The wall was engraved with an inscription about fair trade, and the hall was filled with deafening shouts of prices. People used every means to force the other party to accept their prices, which was far from fair.
Larry stood outside the crowd, his brow furrowed. He'd never wanted to join the throng when it got too big. Before him, hundreds of traders moved among the wooden trading tables, holding up price lists and shouting, "Winter wheat, $1.12, buy!"
"I have ten warehouse receipts, and I want physical delivery!"
Every minute, the trading prices of major instruments are updated on the cardboard display in the center of the trading floor. The price figures change accordingly.
The shouts continued, and following these prices was the restlessness of people's hearts.
Matthew was also here for the first time, and he was clearly a little uncomfortable because the place felt like a noisy stable. "Look around, you see speculators here, they're wearing suits; and quite a few ranchers, do you see their straw hats? The former rely mainly on information, the latter on intuition," Larry said with a smile.
Matthew frowned and nodded. "I see—but the problem is, shouldn't the farm owners have the advantage? They have the real grain."
"Not necessarily. Food is a very special commodity. Although it is also an economic relationship that depends on supply and demand, food cannot be replenished immediately after each season's production, unlike industrial products. So sometimes the price will skyrocket, and sometimes it will continue to fall—it's too easy for speculators to manipulate farmers."
Larry spoke while glancing at the price chart. After staring at the wheat prices for a while, Larry frowned slightly. "Are wheat prices so high? Why?"
Back in New York, Larry had looked at wheat futures prices at Lehman Brothers and was puzzled by the strength of wheat futures at the time.
Seeing firsthand the massive crowds continuing to drive up wheat prices is truly incredible.
Matthew had a sudden idea. He lowered his voice and said to Larry, "I'll go buy a price newsletter so we can make a candlestick chart of wheat prices when we get back."
"Great idea!" Larry exclaimed with a smile.
Matthew squeezed through the crowd to the service counter to buy a price quote.
Larry, meanwhile, was trying to find a speculator's agent in the crowd who seemed to have a strong desire to express himself.
After a while, an agent with a face full of annoyance walked over, muttering curses under his breath as he went.
This is the person I've been waiting for!
Larry smiled and gently stepped in front of him. "Hello sir, would you like to ask if you accept the commission?"
The agent paused, startled, and stopped in his tracks. "—Yes, I handle both spot delivery and futures transactions. What do you want to do?"
"Wheat! My father's warehouse urgently needs to stockpile a batch of wheat."
The man nodded and said, "Oh, yes! You see, prices have been rising lately. The railway workers' strike is having a bigger and bigger impact."
"I'd like to ask you now if I also need to pay a consultation fee?" Larry pretended to be a newbie and pulled out five dollars, waving them in front of the agent.
Five dollars is equivalent to a day's wages for an agent. The agent is not allowed to charge any consultation fees.
The agent's lips moved, but he ultimately took the money, smiling as he said, "Yes! It's an old rule at the Chicago Board of Trade—so, sir, what would you like to know?"
"My father was worried that wheat prices would continue to rise, so he told me to stock up on a batch of wheat —"
Larry pointed to the price chart and asked, "Prices weren't this outrageous a month ago. What's going on? Why has the price of wheat been rising so much?"
"To be precise, the price of spring wheat is rising!" the agent said with a smile. "Spring wheat is harvested in September..."
"The price is said to be doing quite well right now—last year's winter wheat was only harvested in May, and its price wasn't high then."
"Is that what I'm wondering about? Good growth means a good harvest, and a good harvest should mean a low price—" Larry asked, frowning.
The agent shook his head. "The wheat from May had just been shipped out when the railway workers' strike occurred—you know, it involves vicious competition between several railway companies. The workers weren't making any money, so naturally they went on strike."
Why engage in cutthroat competition?
"Current capacity far exceeds demand!" Having received his payment, the agent no longer found Larry's questioning troublesome and continued, "There are too many overlapping routes! Many railway lines are not being able to fully utilize their capacity! After the winter wheat harvest, railway companies will have a large amount of idle capacity. Idle capacity leads to price wars, and after that, they want to cut wages for railway workers—which, of course, they won't accept, so they strike. It's an old trick—"
Larry nodded. "Yeah, I've heard everyone knows railroads are profitable, so they built a lot of redundant lines. Now the profit margin in the railroad industry is very small —"
Larry's words resonated with the other party, and the agent nodded emphatically, saying, "Yes! Let me tell you, this is not the most serious thing. The Great Northern Railway will be completed next year—what does that mean?"
The Great Northern Railroad was the last transcontinental railway line to be completed, and its completion sent a strong market signal that the railroad construction frenzy had ended. American railroad capacity would continue to be abundant.
(American Railroad)
"The Great Northern Railway? Is it scheduled for completion next year?"
"Yes! You can check the stock exchange across the street. Great Northern Railway bonds are being sold off continuously. There are rumors that after the Great Northern Railway is completed, it will face insufficient revenue to repay its debts—" the agent said mysteriously. "Not only are the railway workers on strike, but it's said that the construction workers haven't received their wages for two months—"
Larry's eyes widened upon hearing this news, and he quickly asked, "Is it really that exaggerated?"
The agent said firmly, "Of course! The facts speak for themselves: the Great Northern Railway is the last major railway trunk line. Currently, it's a single track, and there's already an overcapacity problem. Once the secondary line is fully completed next year, hey, even a blind man can see the future clearly."
Larry took a deep breath, thinking that this matter needed careful investigation. Was the Great Northern Railway facing such a severe crisis? This wasn't just about rising wheat futures prices; it was a harbinger of a systemic crisis.
At this time, railways were the largest customer of heavy industries such as steel, coal, and machinery manufacturing. A halt in railway infrastructure construction meant a sharp decrease in orders, which could lead to a recession in these industries.
Capitalists won't keep idle employees, so large-scale layoffs will inevitably follow. If this is a foreseeable future, then the economic fundamentals will be severely compromised.
The problem was that the Great Northern Railway, which was not yet completed, was already insolvent—which made the crisis come sooner and even more severe than expected!
In short, the completion of the Great Northern Railway was bound to lead to a devastating crisis. This was not entirely due to problems with the railway company itself, but rather because it heralded the end of an era of large-scale infrastructure construction.
The excessive speculation and debt-driven railroad bubble is coming to an end. If this is compounded by a financial crisis of insolvency, the crisis will spread to the entire US economy.
Don't tell me, really don't tell me!
I initially just wanted to know if the bucking trend in wheat prices would present a good opportunity to short sell. But as I kept asking questions, it led me to a much more explosive clue about a full-blown crisis.
This is interesting.
Larry thought for a few seconds and asked, "So, sir, if I want it in stock, who should I contact?"
The agent clutched the $5 in his hand, thought for a moment, and decided to get down to business. "Sir, I suggest you go to the South Wharf in Chicago. There are many grain warehouses there. Go and look for a farm produce company called Cargill. Its owner is William Wallace Cargill."
Unlike other hoarders, Mr. Cargill genuinely established numerous purchasing warehouses in South Dakota. They had a large stockpile of goods, but due to transportation constraints, they couldn't deliver them to Chicago.
Larry paused, thinking, "Cargill? Is that the Cargill that later became one of the world's four largest grain traders?" He didn't know much about the background. Could it be that this company started around this time?
Larry quickly followed up, "Which Cargill are you referring to?"
The agent stated earnestly, "That Cargill company in Minneapolis, Minnesota, built dozens of grain silos along the Milwaukee railroad line in Minnesota, South Dakota, and North Dakota—"
William Cargill not only owns grain, but also flour mills and other industrial facilities. Go there; a few years ago, they were building granaries like crazy in the Dakota Territory, racking up a debt of $30—they're desperate to recoup their investment, so wheat prices will definitely be very low.”
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