Encilhamento

The Encilhamento was an economic bubble that boomed in the late 1880s and early 1890s in Brazil, bursting during the provisional government of Deodoro da Fonseca (1889–1891) leading to financial crisis. Two Finance Ministers, first, the Viscount of Ouro Preto and then Rui Barbosa, adopted a policy of unrestricted credit for industrial investments, backed by an abundant issuance of money in order to encourage Brazil's industrialization. This policy of economic incentives created unbridled speculation, increased inflation, and encouraged fraudulent initial public offerings (IPOs) and takeovers.

The word "encilhamento", literally "saddling-up", the act of girthing or mounting a horse, was a term borrowed from horse racing used to refer to the speculative movement due its analogy related to the belief of trying to take advantage of get-rich-quickly opportunities whenever they unfold, in an analogy based on the popular Brazilian saying "An unmounted saddled horse doesn't appear twice."

Throughout the 19th century the maturation of technological innovations, especially the development of rail transport, gas lighting 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 in the world.
And despite a considerable native capital volume have been released with the prohibition of the slave trade 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" 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.

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