The South Sea Bubble ¹ The South Sea Bubble is the name given to a speculation in 1720 and associated with the South Sea Company in London. People bought shares in the company expecting to make a huge profit, but the boom in shares collapsed and many investors lost all money.
The South Sea Company was founded in 1711 to trade with Spanish America The company's stock offered a guaranteed interest of 6% and it sold well. Unfortunately, however, Spain allowed the company to send only one ship a year to trade in the area.
The first voyage in 1717 was a success. Then King George I became governor of the company in 1719. This created confidence in the business, and soon it was paying 100% interest.
In 1720, there was a boom in the South Sea Company's shares because it agreed to take over the country's national debt. It expected to get back its money by increased trade and a rise in the value of its shares.
The shares did, in fact, rise dramatically. The stock of the company, which had been around £128 in January 1720, reached £1,000 in August.
However, by September the market had collapsed, and the price fell back to £124. Finally, with the support of the Government, the shares levelled off at around £140,
The South Sea Bubble had burst and it led to an economic depression in the country.
