A 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.
BrtByte 9 hours ago [-]
The Fourth Crusade really does read like a chain of "well, since we're already here…" decisions escalating into one of history's biggest geopolitical disasters
rightbyte 15 hours ago [-]
War is a racket. And there are a lot of enthusiasts cheering on.
alexpotato 9 hours ago [-]
Arms dealers make money on both sides of the war.
inglor_cz 12 hours ago [-]
The sack of Constantinople might have been the worst and most stupid crime that the Medieval Christendom inflicted upon itself, with consequences visible until today.
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.
klrefg 9 hours ago [-]
The sack was preceded by a literal genocide of all Latins/Italians living in Constantinople a few decades earlier. Coincidentally Venetians weren’t really affected since they were already exiled before that. However still it probably made it easier for the members of the fourth crusade to justify the atrocities they committed.
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.
59percentmore 6 hours ago [-]
>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.
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.
fakedang 12 hours ago [-]
If you look at most of Byzantine history, most of their misfortune they brought upon themselves. Yarmouk, Manzikert, the Fourth Crusade...
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.
toyg 58 minutes ago [-]
And this in contrast to an islamic culture that was, back then, extremely meritocratic. A lot of the best Ottoman civil servants, fighters, seamen, and pirates, were Europeans who, after ending up "on the other side" for various reasons, were promoted on merit to the highest positions in the empire - something that would have been unthinkable in most Christian states back then, where strict caste systems kept everyone in their place.
It's funny how many "financial innovations" seem to start as emergency hacks
interdrift 1 days ago [-]
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.
mr_toad 24 hours ago [-]
The Venetians also essentially opened the door to the Ottomans, and the Ottomans then proceeded to dismantle the Venetian empire.
alephnerd 1 days ago [-]
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.
vondur 1 days ago [-]
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.
SA9G 15 hours ago [-]
Enjoyable read... I kept thinking so where is the Straights of Hormuz in all this :-)
ericmay 1 hours ago [-]
Probably nowhere on the radar really. Even today the US has oil shipments at around near pre-war levels and the discrepancy between the pre and current war levels are mostly just Iran not being able to ship oil. The blockade worked.
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.
fuzzfactor 1 days ago [-]
Compare this to the US Civil War and the depth of perpetual debt before and after.
mono442 1 days ago [-]
Technically bond markets with fiat currencies are unnecessary but for some reason they still exist.
smallmancontrov 1 days ago [-]
"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.
goalieca 9 hours ago [-]
Inflation is an invisible tax. Nothing is free.
smallmancontrov 6 hours ago [-]
Yes, and deflation is a visible timebomb. Everyone loses their job and starts drawing their savings to 0. People approaching 0 who don't want to starve join up with the first populist to promise salvation. If you're lucky, they choose FDR. If you're unlucky, they choose Hitler. Tell me, are you feeling lucky?
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 50 minutes ago [-]
The best option is to not spend like maniacs so you need to fire the money printer.
roenxi 16 hours ago [-]
> 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.
Deflationary currencies don’t lead to price stability in non static economies. Just look at the 1800s with the constant violent price swings and western economies being stuck in a permanent boom and bust cycle that culminated in the Great Depression (or more accurately the Great Depression II)
> 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 7 hours ago [-]
Yep, and with China installing gold vaults everywhere it seems likely that the course of events will be an inflationary episode in the West followed by a dive back into Kindleberger Problems as they try to eat their cake and have it too.
smallmancontrov 8 hours ago [-]
> The big example of the US in the 1930s led to an economy that conquered most of the known world in short order
...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 7 hours ago [-]
> ...by confiscating the gold, devaluing the USD from $20/oz to $35/oz, and taking on a lot of debt.
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 7 hours ago [-]
I'm glad you've abandoned "FDR was deflationary." That was silly, but maybe if it convinced you that you need a history review it wasn't for nought.
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.
dmix 19 hours ago [-]
> 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.
nostrademons 1 days ago [-]
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.
mono442 1 days ago [-]
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.
nostrademons 1 days ago [-]
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.
weakened_malloc 22 hours ago [-]
simpler - yes, but that would also lead to a debasing currency, hyperinflation, and guaranteeing that nobody else would buy your bonds.
Ekaros 1 days ago [-]
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...
mono442 1 days ago [-]
Money comes from debt. Debt is essentially the way to print money.
smallmancontrov 1 days ago [-]
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.
andsoitis 17 hours ago [-]
>> 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.
badpun 16 hours ago [-]
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).
ericmay 51 minutes ago [-]
Businesses and local governments which aren’t allowed by law to print money need to issue bonds though.
nelox 23 hours ago [-]
Currency-issuing governments don't strictly need bonds to fund spending, but they issue them for monetary control, financial stability, and credibility.
FabHK 22 hours ago [-]
> 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.
whatever1 21 hours ago [-]
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).
pyuser583 19 hours ago [-]
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?
kasey_junk 11 hours ago [-]
Every consumer bank and piddly credit union in America will offer cash management customers a sweeps program that will stripe your funds across banks to keep you under the insured limit at each bank.
Whether you want to do that vs bonds is a risk, liquidity and yield decision.
mytailorisrich 11 hours ago [-]
Not economist but my understanding is that printing money is inflationary as it is ultimately a devaluation. On the other hand, borrowing on the market isn't.
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.
t7itkt7k7ktk 1 days ago [-]
[dead]
jmyeet 23 hours ago [-]
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.
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.
gruntled-worker 20 hours ago [-]
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.
bormaj 8 hours ago [-]
So mortgages are bad too? How about retirement assets later in life? What financial products are going to give elderly stable cash flows to live off of?
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.
gruntled-worker 6 hours ago [-]
> mortgages are bad too?
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.
whall6 18 hours ago [-]
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
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.
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.
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.
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.
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.
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.
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.
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.
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.