Bond Market Power

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  • Topic: Bond, Bond market, Bonds
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  • Published : March 25, 2011
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Bond Market Power:
The reasons behind James Carville's quote stating that if he would want to be reincarnated as the Bond Market as appose to a political figure or religious leader (Ferguson, N, 2008) is clear, the Bond market since its inception over 800 years ago has been the most influential financial instrument throughout history. Its longevity and power far surpasses any leader. It affects the outcome of wars, the success and failures of even the largest economies and also touches the lives of individual people. The below paper will discuss the history and origins of such a Debt Instrument, its rise in America inspiring James Carville's quote. Also how the Bond Market works, its components and its power over economies throughout history using examples to support this. Concluding this analysis with the Bond Market in Ireland and how it has been greatly affected by the current economic climate. Origins and Early History of the Bond Market:

Nations, races and religions have been at war since the dawn of time and has seen many wars; there have been countless debates as to what ultimately plays the most important role in winning a war. Many people would argue that it is the size of an army, some would say it is the General at the forefront of a battlefield, others would denote it to technological advances in weaponry. These arguments all have one factor in common, they all need to be funded by money; money to pay soldiers, to reward Generals and to pay for arms. The amount of money which a town, country or kingdom has to fund a war is what determines victory. Niall Ferguson outlines the historic origins of the Bond Market very informatively in ''The Ascent of Money" tracing the use of Bonds, to as far back as the early 14th century in Italy. Throughout the 14th and 15th Century, Italian cities were at war with one and other. Florence, Pisa and Siena being the main cities at war with each other among others. As concluded above, it is money which is the most influential strategy or weapon to be victorious against the other cities and in the case of Florence we see that by funding their wars they landed their town into major debt. How could Florence pay back this debt? Imposing tax increases would lead to upheaval, they therefore came up with the revolutionary idea of a commonly coined term: "Government IOU's" (Ferguson, N 2008); the wealthier citizens would lend the Government money over an agreed period of time receiving regular interest payments on said loan. The ideal factor in this agreement is that these IOUS's could be sold to other citizens prior to their maturity making them a liquid asset. This debt instrument saw the birth of the Bond Market. By the early 14th Century, two thirds of households were the Florentine Governments prime lenders in financing their "Mountain of Debt". (Ferguson, N 2008). While it seems like a win-win situation for both investors and the Government a critical point arose, if a Government kept going to war and kept issuing Bonds to pay for such wars, how could an investor be guaranteed the investment would be returned. It is this point which highlights the link between the Bond Market and is power over economies. Governments undertaking this idea grew throughout the 16th and 17th century, some using towns as intermediaries; France with Paris hotel de ville, Spain utilizing Genoas Casa di San Girgio and Antwerp's beurs. (Ferguson, N, 2008) But it is the 18th Century and the British consol which paints the most relevant picture as to the rise of the Bond Market and the extent of its power, both from the perspective of winning battles and to be capitalized as a rewarding investment; The Battle of Waterloo being the best example of this. Nathan Rothschild was the most prominent figure at that time in the UK financial world and due to this and his reputation of being a successful Gold smuggler, he was given the task by the British Government of using funds from the issuance of Bonds to...
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