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wonderpup

The Credit Crunch Of 1294.

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We have identified a ‘credit crunch’ in 1294, which shares remarkable parallels with today’s difficulties – the main cause being a lack of liquidity in the money market. In the 1280s, there had been a glut of easy money as merchant societies managed large sums of clerical taxes raised for the Pope, enabling them to lend money to kings and each other.

In the early 1290s, the Pope called in much of his money and the French king levied a huge tax on the Italian merchants in France. The final straw was the unexpected outbreak of war between England and France in 1294.

Edward I called on his bankers to raise the money needed to fund his armies. Unfortunately for the Ricciardi, they were unprepared for this eventuality as their assets were tied up in loans and trade. In normal times, the Ricciardi would have sought to raise short-term loans from their fellow merchants but in 1294, like today, the wholesale money markets were frozen.

Worse still, the Anglo-French war had cut communications between England and Italy, undermining the merchants’ ability to transfer credit or update their account books. The resultant uncertainty, combined with the fear that Edward would default on his debts, meant that merchant societies were unwilling to lend to each other.

http://www.historyextra.com/feature/credit-crunch-what-can-we-learn-history

So a sudden loss of liquidity combined with opacity in the accounting system leads to a credit crunch- who knew? :lol:

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