Venice’s failed war against Constantinople led to the first bond market
bigthink.comA few decades later, Venice brilliantly exploited the Fourth Crusade’s debt (and the fact that they built all the Crusade’s ships) to proceed on a debt-collection/revenge tour along the Adriatic, sacking Zara, getting the entire Crusade excommunicated, and ultimately diverting the entire force to Constantinople where they sacked the city in 1204 and replaced the government with the Latin Empire.
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.
War is a racket. And there are a lot of enthusiasts cheering on.
The author is also part of the team behind FT Alphaville (free but requires registration): https://www.ft.com/alphaville
Discussed here as well: https://podcasts.apple.com/nl/podcast/the-story-of-money/id1...
The author was on Top Tradders Unplugged 2 weeks ago, giving a nice hour long summary, which inspired me to read the book: https://www.youtube.com/watch?v=jsOUuihvpzs
Enjoyable read... I kept thinking so where is the Straights of Hormuz in all this :-)
the story of the constantinople riots is really interesting. A foolish treaty established this unequal relationship between constantinople and venice that would later indirectly lead to the destruction of the empire through the fourth crusade and the weakening of the trade rights of its own citizens. The emperor who made that treaty was equally desperate and stupid.
The Venetians also essentially opened the door to the Ottomans, and the Ottomans then proceeded to dismantle the Venetian empire.
The Byzantine "Empire" in 1204 was barely an empire at that point anyhow. It was essentially a rump state consisting of Greece and small portions of Anatolia.
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.
The sack of Constantinople was 30 years into the future after this expedition. But yes, after the fall of Constantinople in 1204, it never was able to recover its former power. Manuel I Komnenos really blew it with the decision to anger the Venetian's.
Compare this to the US Civil War and the depth of perpetual debt before and after.
Technically bond markets with fiat currencies are unnecessary but for some reason they still exist.
"Some reason" is Separation of Power applied to money printing. The Federal Reserve is an independent body guarding the money printer from the politicians.
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.
> because the events of 100 years ago showed us what deflationary shocks look like (even worse than the inflationary shocks)
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...
> I'm also not keen on destroying the money printer, because the events of 100 years ago showed us what deflationary shocks look like
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.
Why? The purpose of the bond market isn't to supply the government with currency, but rather to distribute risk and capital payments to those most willing to bear them.
The main purpose is definitely to supply the government with currency. Many countries put imo unnecessary restrictions on themselves and do not borrow directly from the central bank which would be simpler and cheaper.
If that were true we wouldn't have corporate bond markets, and municipal bond markets, and mortgage bond markets. All of these are capital markets where the capital goes to either a private party or a non-monetary-authority government.
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.
simpler - yes, but that would also lead to a debasing currency, hyperinflation, and guaranteeing that nobody else would buy your bonds.
That’s the purpose of the bonds themselves, not bond markets. Government could just as well issue bonds without bond markets existing (so that they cannot be bought or sold).
Wouldn't that be just more complicated way to print money? With weird question about would it ever be possible lower debt without actually printing...
Money comes from debt. Debt is essentially the way to print money.
No. Money is a type of debt, but a very special type, one that has no duration and is available now rather than locked up for some period of time. When the treasury sells bonds, it replaces "unlocked" money with "locked" money in the private sector, decreasing the amount of unlocked money in the private sector to balance the increased amount of unlocked money in the public sector. The amount of unlocked money remains constant.
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.
>> Money comes from debt.
> 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.
Currency-issuing governments don't strictly need bonds to fund spending, but they issue them for monetary control, financial stability, and credibility.
> bond markets with fiat currencies are unnecessary
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.
Companies can also print shares to get money. In fact this is how most tech salaries are paid (every quarter they just print new stocks and give them to the employees).
Wait … what? So if I have 10 million dollars, and I need it to be secure and know it’s there, how do I do that?
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?
It's funny how tied together war is with money-making.
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...
>Except the war isn't really about oil
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.
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This comment got flagged by our software which classified it as genai, which isn't allowed in HN comments (https://news.ycombinator.com/newsguidelines.html#generated, https://news.ycombinator.com/item?id=47340079.)
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.
Debt is crap. Except for a few categories (taxes, liquidity, structuring, benevolence) it's a game of two parties trying to out-cheat one another.
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.
Saying debt is crap is kind of a bold statement considering it has worked for thousands of years and most debt arrangements are entered into voluntarily
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