The Encilhamento was a economic bubble
Economic bubble
An economic bubble is "trade in high volumes at prices that are considerably at variance with intrinsic values"...

 that boomed between late 1880s and early 1890s in Brazil
Brazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people...

, having burst during the provisional government of Deodoro da Fonseca
Deodoro da Fonseca
Marshal Manuel Deodoro da Fonseca became the first president of the Republic of Brazil after heading a military coup that deposed Emperor Pedro II and proclaimed the Republic in 1889, disestablishing the Empire of Brazil.- Biography :...

 (1889-1891), then becoming a financial crisis
Financial crisis
The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these...

. Respectively, the then secretaries of Finance
Financial secretary
Financial secretary is an administrative and executive government position within the governance of a State, corporation, private or public organization, small group or other body with financial assets....

, Viscount of Ouro Preto and Rui Barbosa, on the grounds of encouraging the country industrialization, adopted a policy based on free credits to industrial investments guaranteed by abundant monetary issuance. The way this policy of economic incentives was generated and managed, unbridled general speculation
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...

, rose the inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

 and encouraged fraudulent IPOs
Initial public offering
An initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...


The name

The word "encilhamento", literally "saddling-up", the act of girthing or mounting a horse, was a borrowed term from horse racing
Horse racing
Horse racing is an equestrian sport that has a long history. Archaeological records indicate that horse racing occurred in ancient Babylon, Syria, and Egypt. Both chariot and mounted horse racing were events in the ancient Greek Olympics by 648 BC...

 and used to name the speculative movement due its analogy related to the belief of trying to take advantage of the get-rich-quickly opportunities whenever they unfold, in an analogy based on the Brazilian popular saying "A unmounted saddled horse doesn't come twice."


Throughout the 19th century the maturation of technological innovations, especially the development of rail transport
Rail transport
Rail transport is a means of conveyance of passengers and goods by way of wheeled vehicles running on rail tracks. In contrast to road transport, where vehicles merely run on a prepared surface, rail vehicles are also directionally guided by the tracks they run on...

, gas lighting
Gas lighting
Gas lighting is production of artificial light from combustion of a gaseous fuel, including hydrogen, methane, carbon monoxide, propane, butane, acetylene, ethylene, or natural gas. Before electricity became sufficiently widespread and economical to allow for general public use, gas was the most...

 and steamships, among others, all linked to the process industrialization, created opportunities for large speculative movements, leading to an acceleration of the flow of capital
Financial capital
Financial capital can refer to money used by entrepreneurs and businesses to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, investment banking, etc....

 in the world.

And despite a considerable native capital volume have been released with the prohibition of the slave trade
Atlantic slave trade
The Atlantic slave trade, also known as the trans-atlantic slave trade, refers to the trade in slaves that took place across the Atlantic ocean from the sixteenth through to the nineteenth centuries...

 in 1850, at the same time when Baron of Maua laid the modern banking system in Brazil; decades later at beginning of the Republic, the Brazilian economy was still tied through, among other things, by a restrictive economic legislation that mainly due respectively to the 1850 "Land Law" and the "Barriers Act" of 1860, inhibited the access to land ownership by former slaves and immigrants in a time where agriculture was predominant economically in the country, and tied for decades the development of Brazilian financial markets, with them having become at that time, a kind of "notary oligopoly"
An oligopoly is a market form in which a market or industry is dominated by a small number of sellers . The word is derived, by analogy with "monopoly", from the Greek ὀλίγοι "few" + πόλειν "to sell". Because there are few sellers, each oligopolist is likely to be aware of the actions of the others...

 under the control of few families.

Proposed changes in land legislation for example, was one of the reasons why large landowners and former slaveholders supported the establishment of the republic. In this political environment, economic and social under the pretext of promoting the process of industrialization of the country, occurred the Encilhamento.

Leading figures

  • Big Rentier
    A rentier is an entity that receives income derived from economic rents, which can include anything from the income derived from intellectual property to real estate. Associated terms include* Rentier capitalism* Rentier state...

    s: holders of the native "big money", who go after the best rate of return
    Rate of return
    In finance, rate of return , also known as return on investment , rate of profit or sometimes just return, is the ratio of money gained or lost on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or...

     for their capital. In Brazil of late 19th century, were predominantly big landowners, former slave dealers and owners, merchants, businessmen and tradesmen (especially those involved with Coffee
    Coffee is a brewed beverage with a dark,init brooo acidic flavor prepared from the roasted seeds of the coffee plant, colloquially called coffee beans. The beans are found in coffee cherries, which grow on trees cultivated in over 70 countries, primarily in equatorial Latin America, Southeast Asia,...

     and Cotton
    Cotton is a soft, fluffy staple fiber that grows in a boll, or protective capsule, around the seeds of cotton plants of the genus Gossypium. The fiber is almost pure cellulose. The botanical purpose of cotton fiber is to aid in seed dispersal....

     exports), senior civil servants, politicians and lawyers with influence in formulation and implementation of public policies
    Public policy
    Public policy as government action is generally the principled guide to action taken by the administrative or executive branches of the state with regard to a class of issues in a manner consistent with law and institutional customs. In general, the foundation is the pertinent national and...

    . They basically kept their financial resources treasured in the country, with the most sophisticated investing in foreign financial market
    Financial market
    In economics, a financial market is a mechanism that allows people and entities to buy and sell financial securities , commodities , and other fungible items of value at low transaction costs and at prices that reflect supply and demand.Both general markets and...

    s, mainly in the Parisian Bourse
    Paris Bourse
    The Paris Bourse is the historical Paris stock exchange, known as Euronext Paris from 2000 onwards.-History and functioning:...

    , City of London
    London Stock Exchange
    The London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...

     and Wall Street
    Wall Street
    Wall Street refers to the financial district of New York City, named after and centered on the eight-block-long street running from Broadway to South Street on the East River in Lower Manhattan. Over time, the term has become a metonym for the financial markets of the United States as a whole, or...

  • Financier
    Financier is a term for a person who handles typically large sums of money, usually involving money lending, financing projects, large-scale investing, or large-scale money management. The term is French, and derives from finance or payment...

    s: institutional traders
    Trader (finance)
    A trader is someone in finance who buys and sells financial instruments such as stocks, bonds, commodities and derivatives. A broker who simply fills buy or sell orders is not a trader, as they are merely executing instructions given to them. According to the Wall Street Journal in 2004, a managing...

     and investment bankers working for the big money, having contact with big business, having learned new forms of financial engineering. In Brazil of that time, the most illustrious figure was the Counselor Mayrink;
  • Economist
    An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...

    A politician, political leader, or political figure is an individual who is involved in influencing public policy and decision making...

    s: They are the makers of economic policies
    Political economy
    Political economy originally was the term for studying production, buying, and selling, and their relations with law, custom, and government, as well as with the distribution of national income and wealth, including through the budget process. Political economy originated in moral philosophy...

    , usually are also the middlemen of the rentiers, financiers' interests, eventually acting as junior partners of them, providing rhetoric
    Rhetoric is the art of discourse, an art that aims to improve the facility of speakers or writers who attempt to inform, persuade, or motivate particular audiences in specific situations. As a subject of formal study and a productive civic practice, rhetoric has played a central role in the Western...

     to the public opinion
    Public opinion
    Public opinion is the aggregate of individual attitudes or beliefs held by the adult population. Public opinion can also be defined as the complex collection of opinions of many different people and the sum of all their views....

     and the technical means to implement a regulatory model that serve their interests. Of them, Rui Barbosa was the prominent figure of that time in Brazil;
  • Haute Finance: The big world financial capital, which from the mid 19th century were already organized to influence in the life of nations in order to create the "ideal" environment" for their business. From that time, highlight the British banks led by Rothschild
    Rothschild banking family of England
    The Rothschild banking family of England was founded in 1798 by Nathan Mayer von Rothschild who first settled in Manchester but then moved to London. Nathan was sent there from his home in Frankfurt by his father, Mayer Amschel Rothschild...



The 1st step of encilhamento took place during the end Monarchy under the command of Viscount of Ouro Preto, the last finance secretary of that period, when it was regulated a new Banking Act, in November 1888. A rise in the Rio de Janeiro Stock Exchange
Rio de Janeiro Stock Exchange
The Rio de Janeiro Stock Exchange is Brazil's second largest exchange after the Bovespa stock exchange in São Paulo, and the oldest of Brazilian stock exchanges in activity...

, that had already boomed in 1886 accelerated with the abolition of slavery
Lei Áurea
The Lei Áurea , adopted on May 13, 1888, was the law that abolished slavery in Brazil.It was preceded by the Rio Branco Law of September 28, 1871 , which freed all children born to slave parents, and by the Saraiva-Cotegipe Law , of September 28, 1885, that freed slaves when they reached the age of...

 2 years later, having reheated again with the measures implemented by the new banking law (that reversed the 1860 "Barriers Act"), and in 1889 the proposed changes for the Land and Real State laws. Along with the increase in market liquidity
Market liquidity
In business, economics or investment, market liquidity is an asset's ability to be sold without causing a significant movement in the price and with minimum loss of value...

, there was the introduction of modern financial mechanisms, enhancing the financial leverage
Leverage (finance)
In finance, leverage is a general term for any technique to multiply gains and losses. Common ways to attain leverage are borrowing money, buying fixed assets and using derivatives. Important examples are:* A public corporation may leverage its equity by borrowing money...

 possibilities. The reduction in the issuance of government bond
Government bond
A government bond is a bond issued by a national government denominated in the country's own currency. Bonds are debt investments whereby an investor loans a certain amount of money, for a certain amount of time, with a certain interest rate, to a company or country...

s has also opened space for the expansion of stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...

s issues. All this, slowly led to an increase in speculation and inflation in general, embracing all economic sectors, from the currencies
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...

 to real estate
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...

, creating minor bubbles into a big one.

In this environment, the Viscount of Ouro Preto decided to create a institution to act as regulatory agency for the financial market, a private central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...

 in the European manner, a reserve bank, a monetary authority of liquidity. The fact that Rui Barbosa had been a great opponent of such system, accredited him to be appointed as finance secretary in the republic. Ironically, when took office, soon after the proclamation of the Republic
Proclamation of the Republic (Brazil)
The Proclamation of the Republic was an episode in the history of Brazil, occurred on November 15, 1889, which established the Republican regime in Brazil, overthrowing the constitutional monarchy of the Empire of Brazil and ending the reign of Emperor Dom Pedro II.The proclamation of the Republic...

, he put into practice all that he had criticized. In January 1890 he enacts a new banking law, inspired by the ideas of the counselor Mayrinck, his banker and personal friend, who he appointed as head of the new Central Bank, without even consulting the president, signing the bill late at night in a scandal that would be the first of a series until his departure from the secretary.

This however didn't stop the enacting of the new law, despite the protest and opposition from secretaries like Demetrio Ribeiro and Campos Sales
Manuel Ferraz de Campos Sales
Dr. Manuel Ferraz de Campos Sales was a Brazilian lawyer, coffee farmer and politician; provincial deputy three times, general-deputy once, minister of justice, senator and governor of São Paulo . Elected president of Brazil and served between 1898 and 1902. In his term, there were austere...

, who predicting the consequences of measures, got a central bank to São Paulo
São Paulo (state)
São Paulo is a state in Brazil. It is the major industrial and economic powerhouse of the Brazilian economy. Named after Saint Paul, São Paulo has the largest population, industrial complex, and economic production in the country. It is the richest state in Brazil...


The unregulated speculation rose as direct reflection of the new law and although had reached all major sectors of the economy, especially over currency trading where it picked its highest volume; was in the rogue trading on IPOs, despite its legality, that occurred the main political disaster of the process, due the leniency of the new banking law that allowed authorized issuers act freely, without any supervision or official punishment. A example of such issues occurred not only when a company went to the IPO without any economic fundament to support it, but also whenever it needed more money, just issued new subscriptions. The investor who wouldn't answer to the new offerings, lost the rights to the old ones and all the money paid previously.

Since the new law tied to trade rights to their nominal values, there was no official oscillation of stock prices, and consequently, no way to negocitate them directly in the Stock Exchange in order to both minimize losses or maximize profits
Profit maximization
In economics, profit maximization is the process by which a firm determines the price and output level that returns the greatest profit. There are several approaches to this problem...

. That restriction led to a deadlock for new issues, preventing the legitimate business take off out of the process and causing a total loss to many inexperienced investors.

Instead of help to promote growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...

 and structural change
Structural change
Structural change of an economy refers to a long-term widespread change of the fundamental structure, rather than microscale or short-term output and employment. For example, a subsistence economy is transformed into a manufacturing economy, or a regulated mixed economy is liberalized...

 in the economy, the process led to one of the worst inflation outbreaks of the country's history, while the Brazilian economy suffered violent "collapse". The Encilhamento Last Straw
Straw that broke the camel's back
The idiom the straw that broke the camel's back is from an Arabic proverb about how a camel wearing shoes is loaded beyond its capacity to move or stand. This is a reference to any process by which cataclysmic failure is achieved by a seemingly inconsequential addition...

 came with the financial shock wave caused by the default
Default (finance)
In finance, default occurs when a debtor has not met his or her legal obligations according to the debt contract, e.g. has not made a scheduled payment, or has violated a loan covenant of the debt contract. A default is the failure to pay back a loan. Default may occur if the debtor is either...

 of Argentine government bonds following the 1st collapse of the Bank Baring Brothers
Barings Bank
Barings Bank was the oldest merchant bank in London until its collapse in 1995 after one of the bank's employees, Nick Leeson, lost £827 million due to speculative investing, primarily in futures contracts, at the bank's Singapore office.-History:-1762–1890:Barings Bank was founded in 1762 as the...

 in the ending of 1890, and although the burst has been initiated then, it occurred in a slowly way, until 1892.
On January 20, 1891, Rui Barbosa stepped down as finance secretary to head 2 companies that were created during the Encilhamento and which he had partnership with the Counselor Mayrink. General Deodoro da Fonseca resign on 23 November of that year, during the 1st naval revolt, under imminent threat of deposition by the Republicans, represented by Vice President Marechal Floriano Peixoto, which assumes "naturally" the presidency.


The success of the new stage of economic development, that in theory intended Encilhamento, depended on to be able to create an enabling environment both regarding the relocation of domestic savings, as foreign investments.

However, due to the extraordinary powers conferred to monetary authorities
Monetary authority
Monetary authority is a generic term in finance and economics for the entity which controls the money supply of a given currency, and has the right to set interest rates, and other parameters which control the cost and availability of money...

, the private interests in Encilhamento just overlapping the public interest
Public interest
The public interest refers to the "common well-being" or "general welfare." The public interest is central to policy debates, politics, democracy and the nature of government itself...

. So, instead of a slow and steady promotion of development, economic growth, distribution of wealth
Distribution of wealth
The distribution of wealth is a comparison of the wealth of various members or groups in a society. It differs from the distribution of income in that it looks at the distribution of ownership of the assets in a society, rather than the current income of members of that society.-Definition of...

, financial literacy
Financial literacy
Financial literacy is the ability to understand finance. More specifically, it refers to the set of skills and knowledge that allows an individual to make informed and effective decisions through their understanding of finances...

 & confidence; what occurred was an increase in concentration of wealth
Concentration of wealth
"Concentration of wealth" often refers to:*Wealth condensationRelated:*Distribution of wealth*Income disparity*Economic inequality*Income inequality metrics*International inequality...

, overvaluation of profiteering at the expense of productive activity, widespread of bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....

, as well as of the ignorance and distrust about how politics and markets works, in addition to the geometric increase of debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...

 and economic stagnation.

So, are pointed out 3 main reasons for the failure of this speculative movement as a lever for development:
  • Lack of a broader statesman to coordinate, correct and adjust the process in its progress;
  • The choice of politicians and financiers who led the process, as their personal interests overlapped the country one;
  • The fascination with "get-rich-quick schemes"
    Get-rich-quick scheme
    A get-rich-quick scheme is a plan to acquire high rates of return for a small investment. The term "get rich quick" has been used to describe shady investments since at least the early 1900s....

    , both by the monetary authorities of that time, who worked to benefit themselves, as well as by the crowd of average amateurs who acted more like daydream
    A daydream is a visionary fantasy, especially one of happy, pleasant thoughts, hopes or ambitions, imagined as coming to pass, and experienced while awake. There are many types of daydreams, and there is no consistent definition amongst psychologists. The general public also uses the term for a...

    ing gamblers rather than sober speculators, hurting themselves by let being manipulated, helping to inflate a financial bubble, participating of the process without having the least vocation, knowledge and experience required to don't neglect legal details and use personal trading strategies
    Trading strategy
    In finance, a trading strategy is a predefined set of rules for making trading decisions.Traders, investment firms and fund managers use a trading strategy to help make wiser investment decisions and help eliminate the emotional aspect of trading. A trading strategy is governed by a set of rules...

     with proper risk management
    Enterprise Risk Management
    Enterprise risk management in business includes the methods and processes used by organizations to manage risks and seize opportunities related to the achievement of their objectives...

    , which would have prevented countless bankruptcies and its harmful consequences.

Following the effects of the bust
Boom and bust
A credit boom-bust cycle is an episode characterized by a sustained increase in several economics indicators followed by a sharp and rapid contraction. Commonly the boom is driven by a rapid expansion of credit to the private sector accompanied with rising prices of commodities and stock market index...

, came the usual period of "witch hunt" that lasted until 1895, when especially during the tenure of Floriano Peixoto, some Encilhamento prominent figures had for example their assets frozen, seized, beyond have been prosecuted publicly and administratively. Among these, was Rui Barbosa, who had to go into exile in Europe.

Also, the legislation concerning the financial markets in Brazil, in a vain attempt to control their volatility
Volatility (finance)
In finance, volatility is a measure for variation of price of a financial instrument over time. Historic volatility is derived from time series of past market prices...

, at a time when the concept of Antifragility was unknown, suffered violent setback to the time of the "Barriers Act", having only get rid of it, 70 years later in 1965.

Although the bubble burst has happened between 1890–92, their economic and political effects were made throughout the decade, with only in the end of the Campos Sales administration, with Rodrigues Alves in charge of the Brazilian economy, been decreased, but at a high social cost, due to the economic policy
Economic policy
Economic policy refers to the actions that governments take in the economic field. It covers the systems for setting interest rates and government budget as well as the labor market, national ownership, and many other areas of government interventions into the economy.Such policies are often...

taken in accordance with requests of the big international capital.
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