Main subject
One of the greatest revolutions in the ascent of money after the creation of credit banks, the center of the discussion in this chapter is on how issuing bonds can help governments to borrow money from the public. The government of Japan is a typical example of a country that has borrowed money by selling bonds to the public. That has accumulated a debt of 838 trillion yen since the 1980s, which it repays at 100, 000 yen (15%) yearly. Here, investments made by governments in the bond market have grown to its vast size with the value of internationally traded bonds reaching $18 trillion. Most countries raise money by selling bonds in the stock market and put it aside for old age.
The performance of bonds in the stock market provides important indicators of the credibility of a government’s monetary and fiscal policies. However, the value of a bond can either increase or decrease with the changes having serious implications on the interest rates payable on the money borrowed through bonds.
The theme of the chapter
The theme of this chapter is to illustrate the nature of bonds and their importance to any government in helping to raise money to sustain the delivery of services to the people. Bonds have been in existence for many years as a means for governments to raise money and cover their fiscal deficits. Governments can use the bond to test their monetary and fiscal policies. The fundamental base of all markets depends on the power of the stock market, the driver of the value of assets, and the credit value of the stock market.
The argument has its foundation on the historical development of bonds that governments used to raise money to hire armies for war. Governments had realized that without having enough funds, the cost of incessant war, as happened in Italy, could plunge states into crisis.
Interpretation of Historical events
Despite bonds having been in existence for many years, their nature has changed with time. For instance, in some countries, rich people could lend money to the government and in return get reprieved from paying wealth taxes and earn interest on the money. Despite the changing nature of bonds, many countries have accumulated huge debts from the sale of bonds such as the increase in the British debt, which issued so many bonds to finance military conflicts between 1783 and 1815.
Many countries that favored the use of bonds to pay for wars and other government expenses followed the same trend. The rationale was to turn citizens into being the biggest investors in servicing public debt and government expenditure.
James Carville once claimed that if he were to reincarnate, he could take the nature of the bond market to shake the governments. Here, the statement sums up the historical meaning of the power of investing in the stock market for profit. Besides, such investments were prone to risks and uncertainties, especially for those customers who bought bonds during the war. However, many families that invested in the stock market became wealthy.
Examples include the Rothschild family in France. The trend persists even today. However, as more people retire, the bonds market remains an important source of funds for the government to support aging people and fund other projects.