【经济泡沫1/4】一朵花换一栋楼？疯狂的荷兰郁金香和长春君子兰 - YouTube

Hi all, I am Mr Li Yongle

A student told me that one of his classmates started “speculating” in sneakers

by buying a pair of sneakers at a normal price

which can increase by dozens of times within a month.

"Is a pari of sneakers really worth that much?" He asked.

In fact, there are only two possible reasons

if the price of a product rises by several times

within a very short period of time.

One is because of hyperinflation.

And the other one is due to economic bubbles.

In the case of the spike in the price of the sneakers, the reason is the latter.

I will introduce to you the bubbles that history has witnessed

with four videos.

And hopefully, after watching these four videos,

you will have a clearer understanding

when facing various bubbles in the future.

First of all, let’s talk about

the first economic bubble in our history,

—the tulip mania

What comes to your mind when we mention tulip?

Netherlands. Right?

This is because Netherlands abounds with tulip

and its tulip is popular all over the world.

However, this very tulip has once made the dutch suffer from heavy economic losses.

Why is this so?

The dutch tulip mania

happened 300 years ago.

Let’s first talk about the circumstances of which this happened.

It was during the The Netherlands War of Independence

between Netherlands and Spain,

in which Netherlands won,

which thus became an independent nation

and hence safeguarded its national sovereignty.

After independence, of course the dutch would have to seek economic profits,

hence they began to develop sea trade.

Under this circumstances,

was then founded by a government-directed amalgamation of several rival Dutch trading companies.

This company had made a lot of profit

and became extremely affluent.

So the dutch was rather wealthy during that period of time.

It was so wealthy to the extent that

even an ordinary craftsman

could support a whole family of four with only his own wage.

So we can see how rich this country was.

With political independence and a robust economy，

the Dutch started to pursue for a materialistic life

and luxuries were what they desired,

especially for the aristocrats and the rich,

who needed some luxuries to show off their wealth.

So what are these luxuries?

Of course there were gold and jewellery alike,

but there was another thing that they needed — tulip.

Tulip originated from the Central Asia,

which was far from the West Europe.

So how did tulip reach the West Europe?

This is because Turkey

was a very powerful country during that period,

which occupied lots of lands

And also Constantinople

which was conquered and collapsed in 1453.

Turkey then had access to Western Europe after the conquest of Constantinople.

Subsequently, Turkey introduced tulip

Into West Europe,

and hence France.

The French deemed wearing tulip as a status symbol.

Ladies from the upper class always

wore a tulip when they attended banquets.

As a result,

tulips rapidly became a coveted luxury item,

and a social fad

among the emerging classes of wealthy merchants,

driving up their price.

But there were many other ways that could be

and were used to show off,

so why was it the tulip that created such a mania?

In order to understand that we must look at the flower’s nature,

that is, It took many years to breed.

It takes around

five to seven years for a seed to grow into a flower.

Of course you don’t have to grow the flower from its seed,

you can make a few clones that the flower blossoms

And use them as flowering bulbs, which blossoms

in much shorter breeding period of only one year.

However, tulip only blossoms for a week and then perishes,

and because tulip was just introduced to Netherlands,

It was very rare in Netherlands.

A scarce supply, a high demand and a long breeding period,

these all contributed to the

Dutch tulip bubble,

which eventually happened 94 00:03:33,400 --> 00:03:34,979 在1634年的时候 in 1634.

In 1634, the tulip farmers from the Netherlands gathered together

and they decided to

form a union,

so that this union could then manage the trade of tulips.

however, there is a condition to join this union,

that is, the farmers were not allowed to trade tulips privately.

For every tulip each farmer traded,

a certain amount of commission is required to be given to the union.

But the commission was

actually not very high.

The trade always

took place in hubs

So when people were

gathering in various hubs

to trade tulips,

some of them realised that

the price was fluctuating.

They then thought to themselves, “so if I bought tulip when it was at a lower price,

and sold it when the price rises, I could then earn some profits, right?”

After discovering this hidden business opportunity,

speculators began to enter the market and the prices of tulips rose steadily.

The peak of this tulip mania

was in 1636.

On December 1636,

All of the tulip clones,

which were the main products on the market,

were all sold out.

However, what if some people still wanted to buy more tulips?

That’s when somebody stepped out and suggested “Don’t worry.

there will be more tulips next year

so I could dig out the clones.”

However, the clones were not mature yet

so obviously they couldn’t dig them out.

To solve this, they then invented the earliest futures contract,

which was for trading tulips.

Hence, what they actually traded was the tulip that would only be harvested in April, 1637.

Perhaps some of you may not know what is a futures contract,

so let’s now talk about it.

Imagine there are two people, A and B.

A is a tulip farmer,

and he has planted tulip clones in his farm.

However, since it is not the time for the clones to mature,

he can’t pull them out.

But at the same time he is also anxious to sell the clones

so that he can earn money.

And now there is B,

who has money

and wants to buy tulip.

But now there is nobody he can buy the tulips from

and there is no tulips available on sale.

So what should they do?

They then negotiate with each other and decide that

they can sign a contract

based on the actual values of the tulip,

And then A will pass the tulip to B the next year.

For example, now the price of tulip is 1000 dollars,

B can then pay a certain amount of deposit to A first,

let’s say, ten dollars.

After receiving 10 dollars ,

A will then draft a contract

Which states that in April next year,

B can buy the tulip

at 990 dollars.

This also means that in the next year,

If B reckons that the tulip is not worth the price,

B doesn’t have to buy the tulip,

so B will just lose ten dollars.

However, if B thinks otherwise,

B can then spend 990 dollars

to add up to 1000 dollars

to buy the tulip.

After paying 10 dollars as deposit,

B will then become the contract holder.

After getting the contract, does B have to keep the contract

until it is due?

Of course B will not think this way.

B will think, can I sell this contract again?

Let’s say one day, the price of tulips has risen to 2,000 dollars.

B will say, “

I don't have to wait until the contract is due to get the tulip,

I can already earn profits now.

Then now B can announce in the market”

I now have contact

Which states I can buy the tulip

At 990 dollars.”

Then another person C may ask,

“What is the price now?”

Now the price is 2000 dollars,

Since the contract states the tulip is

Only 990 dollars,

The contract then becomes valuable.

How much is it worth?

1010 dollars,

Right?

C can then purchase the contract from B

With 1010 dollars.

After receiving the contract,

C can then pay 990 dollars

to purchase the tulip when it is due.

So C will spend 2000 dollars in total, right?

Why is he willing to spend 2,000 dollars to buy such a piece of paper?

This is because C thinks that it can

Rise to 3000 dollars or maybe 4000 dollars.

This is how futures contracts work.

I may miss out some of the details,

But you get the general idea.

So now let’s look at B

How much money does B spend initially?

It is only 10 dollars.

And how much money does he earn?

It is 1010 dollars.

How many times has the value of tulip increased? 100 times. Right?

He earns 1000 dollars with only 10 dollars,

Does he not earn 100 times?

Does he care

Whether C will be able to get the tulip in the end?

Not at all.

He only cares whether he can sell out this contract.

let’s now look at C

After getting the contract,

Will he also hold it until it is due to purchase the tulip?

Nope.

Do you think it is really worth it to buy a tulip with 2000 dollars?

He will think that one day when the price rises to 3000 dollars,

I am gonna sell out this contract,

So that I can also earn 1000 dollars, right?

So the speculation in futures contracts party was out of control.

A lot of people not just used cash to speculate in the market,

They could also borrow loans,

So the money they had did not necessarily have to be their own,

They might borrow money from a lot of people, right?

This created an infinite cycle,

And all the debts were quite chaotic and and confusing .

At the same time,

cows, sheep or even houses

Were mortgaged by many people

In order to buy the tulip

Or the futures contracts.

This is how the tulip mania was like.

In 1637, this mania reached its climax.

At the start of 1637,

In January,

The price of tulip bulbs was already very high.

How high?

For example,

there was a better breed called Augustus

Which cost

About 6290 Dutch guilder.

How much is that?

I mentioned that an ordinary Dutch craftsman

Could support a family of four with his income in one year.

So how much was his annual income?

It was around 150 Dutch guilder per year.

Which means the price of one tulip,

was equivalent to 40 years’ salary of an ordinary craftsman.

With this amount of money, one could buy a luxury private estate in the port of Amsterdam.

Which was the busiest port in the world at that time,

And was comparable to our current Fifth Avenue in New York.

How much money do you need to buy a luxury villa on Fifth Avenue in New York?

Around tens of millions of dollars.

One tulip was already worth tens of millions of dollars,

At that time.

However, no matter how insanely large a bubble can be, it will still burst one day.

Now let’s see how this bubble burst.

In February, 1637,

Someone started to realise that the due date for the contract is close,

Which is in April, 1637.

It was already the February of 1637,

Once the contract was due in April,

They would have to spend thousands of dollars on a tulip, right?

However, this tulip did not really mean that much to them

So they were anxious to look for potential contract buyers.

What did this lead to? The drop in the price of tulip.

So after the price dropped,

Those who lent money to others to buy the tulip started being worry.

They would think “Now that the price has tumbled,

What if I can’t have my money back? So they started to collect their debts.

Once they started collecting debts,

Of course the borrowers would want to get rid of

Their contracts as soon as possible right?

This again led to a more drastic fall of the price,

Creating a vicious cycle.

Eventually, the price of tulip plummeted drastically

Dropped to what extend?

For example, the Augustus I mentioned earlier on,

Which was worth 6290 Dutch gilder,

In the end its price also plunged to its lowest point.

So how much was it worth?

Only 0.1 gilder.

Its price fell to 1/60000 of its original price.

This shows that the larger a bubble

The greater the loss when it finally bursts.

And then when it was

In April, 1637

There were no more buyers that were willing to purchase the contract,

And the price of tulip plunged to its lowest,

This is when the Dutch government finally implemented a new law

To abolish all of the tulip contracts.

Of course this was opposed vehemently by a lot of people,

So a year after, this contract was revised

Such that people were allowed to fulfil the contract by

Paying 3.5% of the original price for the contract.

For example if the original contract stated it required 10000 dollars to buy the tulip,

They only need to pay 350 dollars to fulfil the contract,

So the loss was minimised.

if there were still people who hadn’t delivered their contract,

And they were still holding the contract,

In the end they would only suffer from a loss of 3.5% of the original price of the contract,

However those who had delivered would loss 96.5% of the original price of the contract.

And even though those who hadn’t delivered only suffered from a loss of 3.5% of the original price of the contract,

their last contact partner would had to bear these losses.

So in the end, everybody suffered from terrible loss,

And a lot of people went bankruptcy overnight

And had to have their houses mortgaged

To buy a bunch of tulip in return.

What could these tulips be used for?

Nothing. Right?

Hence,

The tulip mania,

Was the first economic bubble recorded.

So what exactly is an economic bubble?

An economic bubble means, due to people’s crave for fortune,

there is usually a bandwagon effect when investors are speculating the market,

Meaning if they see others buying, they will follow;

And if they see others selling, they also follow.

In the process, they may lose their rationality

And the final burst of bubble renders many go bankrupt overnight.

After the tulip mania,

The Dutch was distressed at the sight of tulip,

For decades.

However, after meticulous cultivation,

They finally cultivated the best tulip breed in the world.

This tulip mania is well-documented in history

As it is the first time people speculated in merchandise.

After this bubble,

More bubbles appeared.

And without exception,

every bubble rendered many bankrupt，

Let’s now talk about the bubble that happened in China

A few decades ago,

The clivia bubble in Changchun.

Some of the older generation might

Remember this event,

Which took place in the early 1980s,

When the Chinese economic reform just began.

The concept of market was still foreign to many people,

And hence as a result, the calivia mania broke out.

Clivia is originally not native to China,

It originated from South Africa

And was brought by colonists to Japan.

When Japan occupied Manchuria,

It was brought to the Chinese imperial Emperor Fuyi as a gift by the Japanese monarch.

After receiving the clivia ,

Fuyi started to grow it

Within his palace in Changchun.

And after his rule was overthrown,

This flower started to appear in ordinary people’s houses in Changchun.

Hence ,people started growing clivia,

And named it “Jun Zi lan” in Chinese,

where “jun zi” refers to people of noble characters and virtues, and “lan” means flower.

Its unique name in Chinese attracted many Chinese consumers and also due to its scarce supply,

Its price was relatively higher than other flowers.

In 1982,

The government noticed the high price of clivia,

And hence enforced a limitation on its price,

Which was not allowed to exceed

200 yuan (Chinese currency).

(equivalent to 28 American dollars)

Some people might say that,

200 yuan for a flower is not that expensive.

however, that was in 1982,

Where an ordinary worker only earned a dozen yuan a month,

In other words, 200 yuan is equivalent to more than one year’s salary of a worker,

That price was actually very high.

However, when the government thought that

the limitation on price would cause the price of Clivia to fall back,

The flower suppliers initiated an exhibition

In 1982,

Called “Save the panda” clivia exhibition.

They claimed that the panda in china is in desperate need of salvation,

And they needed people to donate.

As a result, they came up with the idea of organising the exhibition

To display their clivia to the public,

Who would have to purchase tickets to enter.

The money collected would then be donated for the “Save the Panda” project.

So how much was donated?

The ticket at the time was 0.5 yuan but rose to 1 yuan after receiving a positive response from the public.

In the end, they earned 17000 yuan

And handed over all the money to the government.

Of course, the government was pleased

after receiving such a great amount of money

And hence in 1984,

The government changed its mind

And said it would stop limiting the price of clivia

as it was meaningless,

And they were going to develop “Window Economy.”

What is “Window Economy”?

That is to say,

every household shall put a few pots of Clivia on their window sill

to develop economy.

At the same time, this Clivia was also designated

as the municipal flower of Changchun City

So there were a lot of people at that time who bought Clivia.

And some people even embezzled public funds

To buy clivia.

There have been many strange things.

For example, there was a prosecutor at the Anshan Procuratorate,

Who, along with three of his friends,

Fully armed himself to rob a pot of clivia.

What’s more, it was also reported that

A man killed his own sister just for the clivia.

There were many criminal cases at the time.

In 1985, this mania reached its peak.

To what extent?

let’s take a look at two more examples.

The first example is about a Hong Kong businessman who went to visit Changchun

And was hooked on a pot of clivia.

He then asked the farmer

Whether he could purchase this calivia

Or trade with his “Crown” car.

How luxurious is the “Crown” car?

Even the provincial and ministerial leaders at that time might not own one.

So the car was indeed luxurious at that time.

Even so, the farmer was unwilling to trade.

So we can imagine how exorbitant the clivia was at that time.

Later, there was a man who sold a pot of Clivia.

To a person living in Harbin

At a price of 140,000 yuan.

140,000 yuan for a pot of flower!

According to the price of gold at that time,

With 140,000 yuan, he could buy 4000 grams of gold.

And certainly a pot of flower did not worth

4000 grams of gold.

Beijing's house price was 300 yuan a square meter at the time.

With 140,000 yuan, one could buy

Five houses in Beijing’s urban area.

So we can see how crazy this clivia mania was at that time.

Everyone was talking about

The price of clivia everywhere.

There was such a saying that it was easy to make money.

One could simply buy a pot of clivia on the street,

And could already sell it to someone else and earn money by the time he/she reached the end of street,

There was also another saying that,

One could use a pot of Clivia to trade for everything in a store.

If one held a pot of Clivia walking on Hongqi Street

The price of clivia could rise by at least three folds

Before he/she reached the end of the street.

It was that crazy.

however, of course the craziest bubble was also the fastest to burst.

In 1985,

The clivia once again attracted the attention of some people,

Who published three articles in a row on the provincial newspaper of Jilin province

To accuse the exorbitant price of clivia.

The first article was called "How long can the insanely high price of the clivia last?"

The second article was called

"How long can the insanely high price of the clivia last?(II)”

The third one was called

“One could not take advantage of the state by price ramping clivia.”

After the three articles were published,

Before long the Communist party’s newspaper

Also published an article titled

"Why can Clivia be so popular in Changchun?"

This article caused the government panic,

Who soon implemented several policy,

For instance, a 60% tax would be charged on every purchase of clivia.

So no one bought it any more.

As a result, the Clivia was no longer a luxurious merchandise,

But was always founded in rubbish dump.

This had upsetter many citizens in Changchun,

And caused many bankrupt.

According to a statistics,

The price of clivia plummeted to 1% of its original price.

yet, now a lot of people in Changchun are planting clivia,

And have cultivated the best breed of clivia.

No matter what contest it is in,

Changchun's clivia is always the winner.

This is similar to the tulip in Netherlands.

Whether it be clivia in Changchun, or tulip in Netherlands,

They are essentially a game of passing on the “flower” before the beating “drum” stops.

People who buy clivia or tulip,

Do not care how much the flower is actually worth.

All they care is to sell the flower as soon as possible,

So that they can make a great profit.

Then in order to

keep up with the increasing price,

We must ensure more and more funds will join continuously.

So if one day, no more people invest in these goods,

The price of the goods will plunge overnight,

And speculators will have no way to claim their money back.

In recent years, the price ramping of

garlic, garlic Pu'er tea, Cordyceps sinensis, Tibetan mastiff

All belong to this phenomenon.

Now that the Z- generation start to raise up the price of shoes.

I don't deny that there are some credible companies,

That can raise their stock price by dozens or even hundreds of times

In a few decades,

However, if you find out that

The price of a product skyrockets by dozens or hundreds of times

in one month or two months.

For sure, this is nothing but another bubble.

According to past experiences,

No bubble can keep expanding without bursting.

So when you confront this type of mania,

Remember to think clearly.

We must not forget the lesson

Learned from the past experiences.

In the next video, I will talk about another type of bubble,

Stock market bubble.

And we will discuss how Newton

Lost his ten years’ salaries.

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