The government’s method of stimulating the economy was a bit blunt, but its strength was its simplicity and effectiveness. The moment the Austrian government announced its “Loop Railway Line” plan, the market reacted immediately. On April 26, 1894, the Vienna stock market opened with the infrastructure sector leading the rally, starting 7% higher. It briefly broke the 20% mark before closing with a sector gain of 11.6%. Related sectors like steel, cement, engineering equipment, and banking all rebounded. As a result, the main market index rebounded by 3.62%, its biggest bounce since the stock market crash began. But that was the end of it. Ever since the crash, the Vienna market index had been on a downward trend, falling by as much as 74.3% from its peak. Even with this rebound, the index was only at 30% of its all-time high. Given how miserably the main market had performed, it was easy to see how far public confidence had collapsed. There was no helping it, a freely developing stock market was simply that capricious. Relatively speaking, the infrastructure and steel sectors were still doing well. As mature industries, their market ceiling was clear, and their valuations weren’t high to begin with. With the large-scale post-war reconstruction projects supporting them, they couldn’t fall too far. After this wave of rebounds, they had basically recovered to three-quarters of their peak market value and could be considered to have emerged from the crisis. The real disaster zone of the crash was the emerging technology sector. Without any revenue to support them, their valuations were propped up by nothing but a “good story.” Once that bubble was pricked, they crashed so hard they were unrecognizable. Luckily, Franz had put on a front. Otherwise, he wouldn’t dare to show his face in public. Technological progress required a price, and relying on individual effort alone was far too slow. To accelerate the empire’s technological development, Franz had resolutely chosen to let companies go public to raise funds. Scientific research was a matter of luck, so one project often had multiple research groups working on it. Milking the same project was far too inefficient and obviously couldn’t meet the demand. But that didn’t stop Franz. After all, the internet didn’t exist yet, so telling the same story multiple times was no problem at all. From Vienna to London, every major financial market in Europe had a technology company from the royal consortium listed on its stock exchange. If the overseas markets had been more mature, the five continents would have been their pasture. Although he was milking the investors a bit too severely, compared to his peers, Franz was absolutely a conscientious entrepreneur. Unlike the winner-takes-all high-tech world of later eras, this was just the beginning. Anyone who managed to clear a single level could become a “great enterprise.” The only minor issue was the slightly low success rate. In the last thirty years, the royal consortium had invested in over two thousand listed tech companies. A quarter of them had already gone bankrupt, another 70% were still struggling, and only the final 5%were doing very well. The data alone showed how risky these high-tech projects were. There was no helping it, Franz had been a poor student in his previous life. Often, projects were launched from a flash of inspiration in the Emperor’s mind. He certainly didn’t have the specific technical knowledge. Most of the time, he didn’t even have the scientific theory and all he had was a functional concept. For example: a refrigerator for preserving food, an air conditioner for cooling and heating, a television for playing videos, and the elusive, incomprehensible computer... Regardless of how far ahead of their time these “high-tech” projects were, Franz simply put forward the demand. Then, the scientists would evaluate the concepts. If they couldn’t find a starting point or didn’t know how to proceed, the project would be packaged and listed on the stock market to raise funds. After all, the stories were good ones. A machine to preserve food was something every family needed. A machine that could regulate a room’s temperature also had enormous market potential. As for whether they could be built and when? That was a matter for “sacred scientific research.” As long as the concept was theoretically possible and the story was compelling enough for investors to believe in, that was all that mattered. The final result was obvious: the more cutting-edge a project was, the more miserably it failed. Only a tiny minority of lucky companies managed to stand out. And a large portion of those lucky ones succeeded by going off-course, relying on some incidental byproduct they developed. For example: they failed to build a refrigerator but broke through with cold storage technology instead; they couldn’t create a television but invented the movie projector; and they never saw a working air conditioner, but they did improve fan technology… The lucky ones were always a minority. The vast majority of companies made no breakthroughs in their main technology and their side ventures didn’t take off either. All they could do was rely on constant financing to get by. Before the stock market crash, things were manageable. With the few success stories providing encouragement, investors were relatively forgiving of high-tech companies. Even many financial groups were conned into jumping into the hole. After all, the high-tech companies created by the royal consortium were genuinely engaged in research. Their financial books were all in perfect order. Besides not making any money, they were truly “conscientious companies.” But after the stock market crash, their true colors were instantly exposed. Everyone suddenly realized what kind of companies they had actually invested in. What were these companies that had poured in huge amounts of money for years, even decades, without turning a profit or only maintaining a tiny one? They were nothing but junk. If that were the only problem, it might have been forgivable, as they held a series of patents that might one day become useful. But the valuations of these companies were absurdly high, with P/E ratios in the hundreds. It was nothing but a massive bubble. In fact, the fact that these companies weren’t losing money was a result of deliberate manipulation by the royal consortium. Using other front companies, they ensured these firms had a source of revenue from their byproducts. Only when the deficits became too massive to hide, or when the research team was truly incompetent, would a company be abandoned and allowed to go bankrupt. One month a patent would be announced, and a few months later, a technological breakthrough. A stream of good news constantly stimulated market confidence. The companies’ funding grew, and their market values swelled. If the stock market crash hadn’t happened, this game of hot potato could have continued indefinitely. Until one day, a technology was finally perfected, and a new story could begin. Unfortunately, there was no “what-if” in reality. The bubble had now burst, and these companies, with no revenue to support them, had naturally collapsed into a total mess. A “halving” then another “halving” was a fate reserved only for the top 5%. For the tech sector as a whole, the price plunge was at least 80%, with some individual stocks dropping by as much as 99.9%. If calculated by market value, Franz’s paper wealth had evaporated by at least eight billion guilders after the crash, more than the combined annual financial revenue of every country in the world. Having created the bubble himself, he naturally had to swallow the bitter pill. Of course, that was only what it looked like on the surface. A deeper investigation would reveal that the major shareholders of these companies had begun selling off their shares as soon as the European War broke out. The major shareholders were still major shareholders as the shares they sold were only a small portion of their holdings. Yet, that small portion was now enough to buy the entire company. Even after making a fortune, Franz couldn’t be happy. In the past, he was plucking wool from others, using their money for research, so he didn’t mind burning through it. The situation is different now. With the market unable to provide financing, these formerly high-flying tech companies were on the verge of bankruptcy, about to become his own burdens. Franz faced only two options: either bail them out with his own money, or bite the bullet and discard these “financial black holes.” Neither choice was good. “Bailing them out” sounded simple, but doing it would be a tearful affair. This wasn’t one or two companies, it was over a thousand of them. Even with Franz’s vast fortune, he couldn’t afford such a wasteful expenditure. On the other hand, “biting the bullet” would result in no short-term losses, but all his previous efforts would have been for nothing. And after this lesson, it would be much harder to spin stories and pluck wool in the future. There was no helping it since the crash came so fast that as the biggest shareholder, there was no way he could get out unscathed. The most tragic part was that in this crash, Franz, not having completely lost his conscience, had deliberately not shorted his own companies. A single misstep had created eternal regret. Having missed out on billions, Franz suddenly felt like a pauper. After much deliberation, Franz reluctantly said, “Minister of the Palace, have someone carefully screen the companies. Those with severe losses and no viable products should be put through bankruptcy and reorganization. The remaining companies must cut costs, slash research budgets, and focus as much as possible on developing profitable byproducts. The Royal Consortium will discreetly provide some assistance to these companies to the best of its ability. The principle is to prioritize saving our domestic enterprises, any overseas companies that need to be discarded should be abandoned if necessary. Also, send people to the secondary market to gradually buy up shares of high-quality domestic companies. We are not far from rock bottom. The rebound is coming soon.” The stock market, with its bubbles squeezed out, was a complete mess. Compared to the dozens or even hundreds of times earnings valuations before the crash, the current valuations of just a few times earnings looked much more pleasing to the eye. After biting the bullet and cutting off a portion of the most severely indebted companies, Franz’s heart was bleeding. He urgently needed to buy up some quality assets to replenish his fortune. Minister of the Palace Mirabellon advised, “Your Majesty, we are already in the final phase of the economic crisis. A large-scale bankruptcy and liquidation will result in enormous losses for us. It would be better to have these companies transition to new business models. When necessary, the consortium can help them manufacture a boost in performance to raise their stock prices, and then we can find an opportunity to sell them off to the next round of buyers.” In fact, this was why financial consortiums enjoyed playing the game of finance. The returns from running a physical business were slow, and the key was that they suffered immense losses during an economic crisis. In contrast, playing the financial game was much easier. An “economic crisis” was not just a “danger”, it was also an “opportunity.” For ordinary people and businesses, it was a disaster, but for financial consortiums, it was a huge opportunity. When a crisis broke out, they could do short selling. After the crisis, they could buy at the bottom. And after the crisis ended, they could turn around and sell the companies they had bought, waiting for the next crisis to do it all over again. The economic crises that hit the capitalist world every decade or so were both a form of market self-regulation and a moment for those behind the scenes to “harvest” the ripe fruit. Otherwise, how could something as massive as an economic crisis have gone unnoticed, when the signs before it broke out were so obvious? Franz shook his head and said, “I think you’ve misunderstood. This economic crisis won’t be that easy to end. Although we are nearing rock bottom, a full recovery is a long way off. My most optimistic estimate is that the empire will only be free of the Great Depression next year. As for other nations, that depends on their own situations. I estimate that a full recovery from the crisis will take at least two years. The time needed for the market to regain confidence and find a new round of buyers will be even longer. If we don’t shut down these severely indebted companies and simply keep them afloat, our losses will be even greater.” In the past, economic crises followed a predictable pattern, but this one was artificially delayed. Following the normal trajectory of capitalist development, signs of a crisis had appeared three years ago, with France as the initial flashpoint. Had the European War not broken out, the French would have been the first to explode. Perhaps sensing the severity of the impending crisis, the French government chose to start a war before the bubble burst. While the war diverted the crisis, it also created a new one. If the crisis had been allowed to break out as soon as the European War ended, it might have lasted only a year or so before passing. Unfortunately, for the sake of their own interests, the British and Austrian governments took action to delay the crisis’s outbreak. The bull market was artificially extended for over a year, the market index doubled again, and the bubble swelled to an unprecedented degree. The larger the bubble, the more destructive the fallout when it bursts. The Vienna stock market alone evaporated by three-quarters of its value, and other financial markets suffered a similar fate. The devastation was far greater than in any previous economic crisis. Hearing this news, Mirabellon’s face changed. A Great Depression lasting over two years would have a destructive power comparable to the revolutions of 1848. If the Holy Roman Empire couldn’t lead the world out of the crisis, a new wave of revolutions might once again sweep across the European continent. In some ways, the current European world was even more primed for revolution than it was in 1848. The wave of unemployment, the worsening economic situation, the complex international conflicts, and the simmering hatred between European nations all served as a breeding ground for revolutionary ideas. The French, unwilling to accept defeat; the Spanish, mired in the quagmire of the Philippine War; the Portuguese, whose monarchists and republicans were at each other’s throats; and the newly independent Italian states, whose situations remained unstable—all had the potential for revolution. As the new leader of the continent, the Holy Roman Empire appeared to be in a strong position, but in reality, it was at a crossroads. Should a revolutionary wave erupt across Europe, the Austrian government would face enormous trouble. This was especially true with the British Empire lurking in the shadows, waiting for a chance to stir up trouble, and the seemingly subdued yet ambitious Russian government. Against this backdrop, the royal consortium had to bite the bullet and cut its losses quickly. Otherwise, it might not even get the chance to do so.
*** https://postimg.cc/gallery/PwXsBkC (Maps of the current territories of the countries in this novel made by ScH)
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Thanks for the chapter! Only 164 to go!
ReplyDeleteYou can also read ahead on my ko-fi!
DeleteLatest there now is Chapter 1073
DeleteThanks for the info, I might read it on kofi when the last chapter is done.
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