Venice’s failed war against Constantinople led to the first bond market
Thread
Unofficial Hacker News client; not affiliated with Y Combinator.
Venice’s failed war against Constantinople led to the first bond market
Unofficial Hacker News client; not affiliated with Y Combinator.
mono442 · · focus · HN ↗
nostrademons · · focus · HN ↗
mono442 · · focus · HN ↗
Ekaros · · focus · HN ↗
mono442 · · focus · HN ↗
smallmancontrov · · focus · HN ↗
If the Federal Reserve prints reserves (unlocked money) to buy bonds (locked money) and keeps doing this as they mature so that WALCL goes up and to the right, that's money printing.
andsoitis · · focus · HN ↗
> No.
Money itself is essentially a hierarchy of IOUs.
In a modern banking system most money is created alongside debt.
Bank lending creates deposits rather than banks simply lending out pre-existing deposits.
Not all money originates through private bank debt. Central banks create base money (currency and bank reserves) and can create reserves when acquiring assets.
nostrademons · · focus · HN ↗
Seignoriage (the practice of the government directly issuing currency to fund its government expenditures) has been around for about 2500 years and predates the invention of the bond market described in this article by roughly 1500 years.
weakened_malloc · · focus · HN ↗
badpun · · focus · HN ↗
smallmancontrov · · focus · HN ↗
Congress (and, increasingly, the executive) can't simply choose to print and spend. They can choose to spend in excess of revenue, but to do this they must sell treasuries, they must borrow and spend, but the bond market is allowed to say "no." We are seeing this in real time as interest rates rise. In contrast, if the politicians want to print and spend they have to beg/pressure/persuade the Federal Reserve to run the money printer and buy the treasuries.
Whether this is good or bad depends on your politics. I like separation of powers. I'm not keen on the idea of handing congress/executive the power of the printer, people in the US are very sanguine about how that can go. I'm also not keen on destroying the money printer, because the events of 100 years ago showed us what deflationary shocks look like (even worse than the inflationary shocks) and unlike my goldbug relatives and crypto-pilled friends I payed attention. The mechanism of having an independent body that guards the printer is the best compromise I have heard, so personally I'm glad it's the one we have.
Challenge: propose something better.
dmix · · focus · HN ↗
It's a useful safety latch where you break the glass in emergencies. Except the glass gets broken once and used like a day-to-day gas pedal after that. Which has been well reported shift in monetary policy since 2008, and again after COVID, where QE is just regular business. There's a serious lack of reduction following the crisis and a lack of long term preparation for future shocks. While markets get inflated and other foreign competitors do it too, which creates perverse incentives to maintain it.
I'm strongly in favour of separation of power, but the separation is much weaker in practice. Mostly due to as you said, politics. It still requires a culture of fiscal responsibility at multiple levels which is rare these days.
Maybe a serious debt crisis and high inflation might help remind politicians of why that culture is needed.
roenxi · · focus · HN ↗
This comes up a lot, but it seems to be a just-so story. People seem not to have a justification for why deflation is the major factor instead of any other economic lever and every time one of these terrible deflationary events happen the country involved tends to end up a really nice place to live. The big example of the US in the 1930s led to an economy that conquered most of the known world in short order and reigned pre-eminent for 60 years. It doesn't appear to have held them back.
The inflationary shocks have a bad track record and be associated [0] with impoverished backwaters and collapsed states. Even then it isn't as obvious that the inflation is the cause as much as that the government of the time didn't have any better ideas than printing money to try and solve their problems, which obviously isn't going to work.
> Challenge: propose something better.
This seems easy to do; the money could be handed out per-capital instead of disappearing into asset markets.
[0] <a href="https://en.wikipedia.org/wiki/Hyperinflation#Notable_hyperinflationary_periods" rel="nofollow">https://en.wikipedia.org/wiki/Hyperinflation#Notable_hyperin...
klrefg · · focus · HN ↗
> People seem not to have a justification for why deflation
They obviously do. Because it disproportionately disadvantages debtors, makes investment much riskier and rewards rentiers, therefore reducing the economic productivity.
> one of these terrible deflationary events happen the country involved tends to end up a really nice place to live
Yeah, I think you need some additional arguments and data to establish that there is a causal link between these two. Same could be said about the economic booms in the US after WW1 and WW2 (to an extent the Civil War as well).
smallmancontrov · · focus · HN ↗
smallmancontrov · · focus · HN ↗
...by confiscating the gold, devaluing the USD from $20/oz to $35/oz, and taking on a lot of debt. Hoover's policy and FDR's policy lie in stark contrast. As do their results. This example points in the opposite direction that you think it does.
Germany is another common go-to example, the Weimar inflation of the early 20s proceeded under almost full employment and settled down once the root causes were addressed with people a little worse for the wear. The deflationary shock of the late 20s, on the other hand, propelled the Nazis into power, and the secret debt that they used to rev the economy was structured in a way that could only be repaid with a war of conquest, which they started, killed a lot of people, and lost.
The root problem is too much debt. Inflation and deflation are just how to deal with it. They both suck, but an inflating economy has jobs while a deflating economy doesn't. In both cases, many innocents will be unfairly liquidated, but in the inflating economy you can get a job, scramble, and make do, while in a deflating economy there are no jobs, so you watch your bank account count down to 0. Of course, the people who get there first don't curl up and die in a corner, they choose to fight like cornered animals and things get nasty.
roenxi · · focus · HN ↗
These things are only useful if interacting with a strong industrial economy. If the economy is in a bad place then it won't help - there are a lot of countries that have confiscated, devalued, taken on lots of debt then sunk because their economy isn't any good. Pretty much any country that runs in to economic trouble tries some combination of them at some point.
What actually matters is formation of new businesses and capital. Monetary inflation doesn't help with that in any meaningful way; it's basically just another tax because it reallocates resources from the productive economy to whoever is getting first dibs on the free money.
> The deflationary shock of the late 20s, on the other hand, propelled the Nazis into power...
Yeah, that's unconvincing. It's well established that the people with power in the German economy couldn't bring about general prosperity (arguably because they'd lost a war, arguably because they just weren't very competent). They let a hyperinflation happen, that's quite compelling to show they failed to inspire any confidence. Decades of pain and mismanagement and then the clear lesson we can learn from all that is if they'd printed even more money they'd get a good result? The evidence is too thin to support the conclusion, and contrary to the fact that they tried exactly that tactic with terrible results.
> The root problem is too much debt. Inflation and deflation are just how to deal with it. They both suck, but an inflating economy has jobs while a deflating economy doesn't.
So don't do either? Just forgive the debts directly.
Inflation and deflation don't theoretically have any effect on debt, the people lending the money can charge a real interest rate and account for inflation. Unless the government intervenes which makes the argument for the indirect inflation solution a bit moot because the regulators directly controlling the debts anyway. And if it's supposed to be an overly complex debt forgiveness scheme it doesn't work. The US has the largest debts in history under an inflationary monetary scheme.
smallmancontrov · · focus · HN ↗
I'm disappointed to see that you aren't engaging with the core observation that Germany's inflationary and deflationary episodes were separated by the better part of a decade. That's why they are ripe for compare+contrast. You can't learn anything by bungling them together. You could do with a review here too.
> What actually matters is formation of new businesses and capital. Monetary inflation doesn't help
Except by funding those businesses, which wouldn't happen in a deflating economy. Or a recently defaulted economy. Obviously, this isn't sufficient for success -- but it is necessary for success.
> Just forgive the debts directly.
History is no stranger to hard default. There's a reason why nobody who can choose soft default (inflation) chooses hard default.
We've been operating under an inflationary monetary regime for a century, it is very easy for recency bias to convince you that the grass is greener on the other side. So easy that it happens by default, unless you counteract the default by intentionally seeking out century+ old accounts of deflation both on the ground and on the macro level.
roenxi · · focus · HN ↗
I never said anything about FDR.
> I'm disappointed to see that you aren't engaging with the core observation that Germany's inflationary and deflationary episodes were separated by the better part of a decade.
There isn't much there to engage with. It is difficult for inflationary and deflationary episodes to happen concurrently. It seems quite reasonable to say that politics lags the economy by 10-20 years; that is what we've been watching play out in Europe and the US in the present era - there is a substantial lag between problems developing before it leads to political revolt. It takes a long time for malinvestment to become an obvious downstream problem.
Besides, the Nazis had an economy capable of gut punching the British and French empires then ripping through a chunk of the Soviets before anyone could stop them. If you want to associate that sort of result with deflation then I don't think it hurts the case it is associated with positive economic results. Just a shame that the productive strength was used to build a war machine instead of a better society. Although I will reiterate it probably wasn't the inflation or deflation that mattered.
> Except by funding those businesses, which wouldn't happen in a deflating economy.
It would. The real return is the same as it's always been. It isn't like a deflating economy has less real resources and opportunities. If the businesses aren't making enough returns to justify starting them then they shouldn't be started - it is silly to just start businesses for the sake of it; the unspoken assumption is that they are businesses capable of generating some sort of return.
---
I'm pretty sure people are just making stuff up. There seems to be no argument or evidence given the wild claims that upper class welfare is a good idea and the mathematical evidence is that this is just another tax. I only see "whatever makes sense has been tried before; didn't work. We don't need to provide evidence or an actual explanation beyond that pithy observation, it's just obvious read history". Which is outstandingly weird because usually when economics gets challenged there is a good theoretical argument and a lot of practical case studies up to and including the present.
This seems to be the only topic where the debate was settled a century ago and there isn't any need to justify it, despite that fact that exponential money printing is obviously crazy in theory and practice. And the practical evidence is that deflation is more likely than not associated with better economic outcomes than inflation.
goalieca · · focus · HN ↗
smallmancontrov · · focus · HN ↗
Obviously, there are rocks on both sides of these rapids. Hiring a group of experts to read the room and do their best to navigate the middle is still the least bad proposal I have heard.
goalieca · · focus · HN ↗
nelox · · focus · HN ↗
FabHK · · focus · HN ↗
If at all, the statement might hold for "government bond markets with fiat currencies are unnecessary", not for corporate, supras, securitised (asset backed, mortgage backed), etc.
whatever1 · · focus · HN ↗
pyuser583 · · focus · HN ↗
FDIC doesn’t insure past 250k. Smart move is to buy short term bonds, right?
Or do you think I should keep 10 million in currency?
kasey_junk · · focus · HN ↗
Whether you want to do that vs bonds is a risk, liquidity and yield decision.
mytailorisrich · · focus · HN ↗
ericmay · · focus · HN ↗