Venice’s failed war against Constantinople led to the first bond market
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I found City of Fortune by Roger Crowley to be a very entertaining read, the full story of the Crusade is absurd. Venice completely dedicated its entire economy to producing the Crusade’s ships for years to make this happen.
There is an alternate reality in which the Eastern Roman Empire survived until today and the entire eastern Mediterranean region looks totally different.
Venice was not a good neighbor. A plutocratic psychopath polity, doing absolutely anything for anyone and to anyone for money. Even for the standards of their time and place, they were deeply immoral.
Prior to the massacre of the Latins the relationship between the east and west was pretty good, in fact the Byzantine ruling class was quite heavily westernized and the economy dominated by Italian merchants. The French princess ruling the empire on behalf of her underage son also wasn’t exactly popular amongst the masses. The subsequent coup and massacre pretty much permanently splintered a somewhat productive alliance that allowed Christians to retake much of Asia Minor ane the Levant in the preceding century.
I don't know much about this subject, specifically, but I struggle to think of examples where, "Foreign merchants controlled the economy," turned out well, and plenty where, "They killed all the foreign merchants," was the outcome. So to see a characterization like, "Before they killed everyone, the relationship was great"... It feels like there's something missing; maybe a bit of awareness. Great for who?
>Prior to the LA riots the relationship between the stores and the customers was pretty good, in fact the property owners were quite heavily down with it and the economy dominated by Korean merchants.
>Prior to the American/Haitian/French Revolution the relationship between the landowners/monarchy and laborers/colonists was pretty good.
Yeah, probably I didn’t express it that well. I mean the ruling class was quite Latinized and had decent relations with the Crusader Kingdoms and often intermarried.
This was not at all popular amongst the masses (and more so the economy and trade being dominated by Italians and high taxes used to fund to fund all the mostly failed military campaigns). Andronikos utilized that in addition to general hatred towards the aristocracy during his coup which lead to the massacres and a permanent political shift. The Empire also lost most of the economic and political control it had over the Crusader States as after that (the Kingdom of Jerusalem was in practice a vasal state of the empire at the time and was reliant on Byzantine funding).
I don't know why neo-fascists tend to glorify the ERE/Byzantium as some last bastion of Roman culture against Islamic hordes, when in reality around that time they were practically being ruled by emperors who were previously counterfeiters, caulkers and moneylenders. Nepotism was so bad around the middle ages that emperors would make their drunk vagrant cousin twice removed admiral of the fleet just because he could.
I digress. The ultimate flex by the Venetians was Doge Enrico Dandolo pillaging Constantinople, taking a lot of artifacts including the Horses of St. Mark and the Portrait of the Four Tetrarchs, and then getting himself buried in the city he pillaged.
Or, if the Byzantine Empire can be treated as an empire in 1200, the Kingdom of Hungary or the Kingdom of Poland should be treated as an empire as well.
Now there is still a lot of danger. Iran’s strategy to attack regional countries like Iraq, Lebanon, Syria, Israel, Saudi Arabia, and others is by funding violent militias and terrorist groups and it has the potential to actually create revolutions in some of those countries or just destabilize them enough so that Iran can colonize them as it is attempting to do now. One of the primary lessons that has been learned here is the failure and inability of the global community to enforce peace or protect innocent people and instead simply expects the United States to do it.
Alongside drones and other technologies, the advent of social media and excellent propaganda by Iran/Hamas and friends were seeing many of the policy choices and cultural characteristics of western nations come under attack from decentralized forces which can inflict asymmetric harm.
You only need one viral post from Hamas to convince a bunch of people to support a group that is opposed to western liberal values (anti-LGBT, anti religious liberty, etc.), only so many drones or missiles to block shipping, or just one maniac to try and take down an airliner (suicide bombers).
Future historians may look at this time period as one in which these technologies proved to be existential challenges for incumbent powers.
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.
> 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.
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.
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.
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.
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] https://en.wikipedia.org/wiki/Hyperinflation#Notable_hyperin...
> 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).
...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.
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.
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.
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.
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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.
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.
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.
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?
Whether you want to do that vs bonds is a risk, liquidity and yield decision.
But is an interesting border case - it's in the DMZ of mostly-genai-but-with-a-human wrapper. We don't know what to do with those yet, and neither do the classifiers.
In this specific case I suppose it's probably better not to paste the output of an LLM into an HN thread, since anyone who wants to can ask one themselves. But if you wanted to rephrase what you learned in your own words, that would presumably be ok.
Fun fact: possibly the first international banking system was built by the Knights Templar almost 1000 years ago to fund the first Crusade [1]. People would make deposits with them, travel to the Holy Land, possibly redeem what were very early certificates of deposit, fight and come back. Many times they'd die along the way, or fighting while there or on the way back. So the KT got rich off of unredeemed deposits. It bears some similarities to how Swiss banks got rich from WW2 except there the lack of redemption came from a death camps not issuing death certificates to now-dead Jewish depositors.
Never underestimate financial incentives. The Knights Templar wouldn't have wanted to Crusade to end and they would've wanted to encourage as many people as possible to go.
The modern day version of this is wars for oil. Except the war isn't really about oil. It's about selling weapons. Oil dependance just induces demand for weapons. So if you ever wonder why countries don't aggressively pursue renewable energy, it's because it would directly hurt weapons manufacturers.
No one goes to war over a solar panel [2].
[1]: https://www.historyhit.com/how-did-the-knights-templar-evolv...
[2]: https://www.theenergymix.com/no-one-goes-to-war-over-a-solar...
Oil industry moves significantly (like very significantly) more money than weapons producing. It makes it pretty hard to fit this novel theory to the reality.
Let Ω be the core of a normal outcome distribution and / be the payoff hockey stick. Lenders want /``Ω and aren't even willing to accept /Ω. Average borrowers want superimposed Ω and / while bad borrowers want Ω/.
The rest is a game of information asymmetry and disinformation signaling. Each party is trying to outsmart the other even if the Ω is well above break-even. Often, lenders and borrowers are agents concealing the true game from principals.
Equity is better. There is no /, and strategy considerations are reduced.
Either debt draws vultures into business, or perhaps they're going to go in anyways and that's where they land. Various kinds of debt games were codified into law to make the vulture nests bigger.
Real estate is debt central.
If a company goes under, debt is generally higher in the asset recovery waterfall. If you own equity, you're last in line to recuperate losses. Of course not all debt is equal, but it does enable people and businesses to attempt things without needing all the cash up front.
They're particularly awful. Borrowers are counting on overlapping Ω and /. Heads they win, tails you lose. Lender agents instantly repackage them into CMOs which then get laundered by a 1-10 layer onion of balance sheets that appear decreasingly exposed. Owning these as a stockholder principal is almost unknowable until it's too late. See 2008 crisis.
They could be replaced with equity. Every month the resident purchases 1/360 of the house at current prices plus the co-investor's profit and rent portion. The unsold asset portion stays on the latter's balance sheet. The resident doesn't steal the upside, the co-investor's agent doesn't camouflage away the downside from the principal. Foreclosure no longer exists.
The political economy of housing also changes for the better.
> How about retirement assets later in life?
If the elderly investor is wealthy stocks are just fine, all risk goes to inheritors anyway. Otherwise they should be insuring their life expectancy rather than minimizing return variability. This is either done through the government or through a private pension fund. If the pension fund goes under the government should step in. In no case is debt better.
And in any case, in a debt-less world stocks are way less risky. There's no financial leverage in the chain.
> If a company goes under, debt is generally higher in the asset recovery waterfall.
You can have recovery categories of stock too. For example, they can kick in in investor fraud and catastrophic losses.
> enable people and businesses to attempt things without needing all the cash up front
You can do this with equity too.