The Ascent of Money Episode 2: Human Bondage

@taskmaster4450le/re-leothreads-2up3mpvlk

Power Dynamics in the Bond Market

• Bill Gross, the boss of PIMCO, is the king of the bond market, managing a portfolio of bonds worth 700 billion dollars.
• Bonds are a link between high finance and political power, with governments spending more than they raise in taxation.
• Governments can sell bonds that pay interest to get rid of a bond without giving back the cash back.
• The bond market is a safe haven for investors seeking shelter from falling property and share prices.
• The bond market has been a significant factor in the financial crisis since the summer of 2007.
• The bond market has become more powerful than the 'Mr. Bond' created by Ian Fleming, as both types of bonds have a license to kill.

Historical Influence of the Bond Market:

• The bond market was a revolutionary invention of the Italian Renaissance, allowing governments to finance war through the bond market.
• The bond market was a revolutionary idea that would change the world of money forever, as citizens were obliged to lend money to their own government in return for interest.
• The bond market allowed citizens to sell their bonds to other citizens as liquid assets, turning citizens into their biggest investors.
• The birth of the modern bond market marked the birth of the modern bond market, where citizens were happy earning their interest and the bond market allowed them to buy or sell as they saw fit.

The Rothschild Family's Influence on the World Economy

The Rothschild Dynasty and the Bond Market:

• The Rothschild family, known as the Bonaparte of Finance, played a significant role in the 19th century bond market.
• Nathan Rothschild, the founder of the London branch of the world's largest bank, was a key figure in this industry.

The Rise of the Rothschild Family:

• Between 1810 and 1836, the Rothschild family rose from the obscurity of the Frankfurt get'r to a position of unequaled power in international finance.
• Nathan's great-great grandson, Evelyn de Rothschild, was ambitious and moved to London, aiming to build 41 stately homes across Europe.

The Battle of Waterloo and the Rothschild Family's Financial Breakthrough:

• The Battle of Waterloo was a contest between rival financial systems, with Britain winning based on plunder and the French based on debt.
• The British government sold an unprecedented amount of bonds, leading to the Rothschild family's first million by speculating on the outcome of the Battle of Waterloo.

The Role of Nathan Rothschild in the British Government:

• Nathan Rothschild was given the job of taking the money raised in the bond market and delivering it to Wellington as gold.
• This operation was crucial for the British government to provide a currency that was universally acceptable.

The Role of the Rothschilds in War Finance
• The Rothschilds' unique pan-European credit network and Athens' ability to mobilize gold were crucial in this operation.
• The Rothschilds became indispensable to the British war effort due to their banking network within the family.

The Rothschilds' Role in the American Civil War

The Battle of Waterloo and the Rothschilds' Bet:

• Nathan Rothschild, the first to hear the news of Napoleon's defeat, was left with heavy losses.
• He used his gold to make a risky bet on the bond market, hoping that the British victory at Waterloo would increase the price of British bonds.
• Despite his brother's desperate pleas to sell, Nathan continued to buy bonds, eventually selling his holding in July 1817, resulting in profits worth approximately six hundred million pounds.

The Rothschilds' Influence on the Financial World:

• The Rothschilds, being Jewish, contributed to deep-rooted anti-semitic prejudice.
• The Rothschilds' ability to permit or prohibit wars aroused indignation.
• Despite their significant deals produced by war, the Rothschilds chose to sit on the sidelines of the American Civil War.

The Turning Point in the Civil War:

• The traditional view suggests that the key turning point in the American Civil War came in June 1863 when Union forces captured Jackson the Mississippi State Capitol and forced a Confederate Army to retreat westward to Vicksburg.
• The real turning point came earlier and was financial, with Captain David Farragut seized New Orleans on April 28th 1862.
• Cotton had become the essential ingredient in an ambitious scheme to bring the bond market into the war.
• The Confederacy looked to Europe in the hope that the world's greatest financial dynasty might help them beat the North.
• Despite the setback, the Confederate government used cotton as collateral to back its bonds investors.

The Confederacy's Cotton Market and the Impact on the British Economy

The Confederacy's Cotton Market Strategy:

• The Confederacy sold bonds in European financial centers, leveraging the success of French firm Emil airliner's cotton-backed bonds.
• The success of these bonds was due to their ability to be converted into cotton at the pre-war price of six pence a pound.
• The South's strategy was to use cotton to blackmail Britain, a major player in the Victorian industrial economy.

The Cotton Embargo:

• The South imposed an embargo on all shipments of cotton to Liverpool, which led to a surge in cotton prices and the value of the Confederates' cotton-backed bonds.
• This embargo devastated the British economy, leading to the loss of jobs and a quarter of the population on poor relief.

The Fall of New Orleans:

• The fall of New Orleans on April 28th, 1862, was a turning point in the American Civil War.
• The Confederacy had exhausted its domestic bond market and had to rely on foreign loans.

The Impact of Inflation:

• By 1863, the mills of Lancashire had found new sources of cotton in China, Egypt, and India, leading to investors losing faith in the South's cotton backbones.
• The South's domestic bond market was exhausted, leading to the printing of paper dollars to pay for the war.

The Impact of Bond Market on Government Policy:

• The global bond market is still bigger than all the world stock markets and can make or break governments.
• Inflation undermines the value of being paid a fixed rate of interest in a bond.
• bond prices often fall when the inflation rate genie escapes from the bottle.

The Example of Argentina:

• Argentina's economic fortunes declined due to the rise of inflation.
• The country's history is a classic illustration of how all the resources and talent in the world can be used to manipulate the bond market.

The Ascent of Money: A Historical Perspective

Inflation and the Financial Crisis:

• In February, Argentina's financial system was nearing a crisis due to inflation reaching 10% per month.
• Banks were ordered to close due to the government's attempts to lower interest rates and prevent currency exchange rate collapse.
• The Austral fell by 0.44% against the dollar, and the World Bank froze lending to Argentina due to the government's failure to tackle the root cause of inflation.

Financial Deficit and Bond sales:

• The government attempted to finance its deficit by selling bonds to the public, but investors were hesitant due to the risk of inflation wiping out their real value.
• In April, prices were raised by 30% in supermarkets, leading to a halt in goods sales.

The Crisis and the Government's Response:

• The government declared that the central bank's reserves were running out with no foreign loans and no one willing to buy bonds.
• The government was forced to print higher denominations of notes, leading to a 50% price increase in coffee and cattle prices.
• By June 1989, Argentina had reached a monthly rate of 100% and an annual rate of roughly 12,000 percent.

The Impact of Hyperinflation:

• Rapidly rising prices are bound to wipe out anyone dependent on fixed income, including academics, civil servants, old-age pensioners, and bondholders living off the interest on their investments.
• The bond market has seen a miraculous resurrection, even in Argentina, with the key to this revival being the growth in the number of bondholders.

The Bond Market and the Future:

• The bond market has been a key player in the financial crisis, with central bankers planning to spend billions to bail out banks that have gone bust.
• The future of the bond market is uncertain, as it seems to rule the world more than lending to governments.