NYSE Euronext (NYX): This Is What Hyperinflation Really Looks Like

The prior day’s trading had resulted in a deep 6.9% decline in the Dow Jones Industrial Average (Dow Jones Indices:.DJI) on massive (by 1914 standards) volume of 1.3 million shares. Despite the drop, the bankers that guided the NYSE were largely united in their opposition to a closure — until the morning of July 31, when the governors learned that London’s exchange was shuttered and that the Germans had mobilized on their borders with France and Belgium. The primary reason given was a defense of American gold stores. As The New York Times put it, “So long as Europe continued to sell here heavily, finding no other market in which to sell, it would be in a position to draw gold from us on a larger scale than could comfortably be provided.” In a gold-standard world, the depletion of national gold reserves can have catastrophic consequences. The Times went on to recount the scene following the closure announcement:

On the floor of the NYSE Euronext (NYSE:NYX), where hundreds of brokers were excitedly trying to shape their affairs for the expected crash at the opening, the announcement that the Governors had voted to close provoked a wild outburst of cheering. Men who had feared that the next hour would bring disaster to their firms ran about embracing one another, and the general feeling was one of great relief.

The only comparable closure in American market history was that which took place during the worst days of the Panic of 1873. The NYSE closed on Sept. 20 of that year following the failure of a major brokerage firm, and it did not open again for 10 days. The closure of 1914 proved to be much longer, however. It was not until Nov. 28 of that year that the NYSE reopened, and even then it would only allow limited trading in bonds. The market finally allowed trading in stocks on Dec. 12, with full and unrestricted trading allowed again on Dec. 14. The market shutdown was so prolonged that the Dow uses this period as a break between calculation methodologies. All values reported following the market’s reopening begin with 20 stocks, but all values before the shutdown use the 12 stocks that comprised the index in 1914.

The article This Is What Hyperinflation Really Looks Like originally appeared on Fool.com and is written by Alex Planes.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more insight into markets, history, and technology.The Motley Fool recommends NYSE Euronext (NYSE:NYX).

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