Chapter 3: The Bond Market — How Governments Learned to Borrow
When nations need money for wars, they issue bonds — IOUs to citizens promising repayment with interest. The bond market has funded revolutions, toppled empires, and today controls more money than all stock markets combined.
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Renaissance Italy: Warring city-states needed money. Forced loans with interest created the first sovereign debt.
Dutch Republic, 1600s: Reliable repayment built trust. This created a virtuous cycle of lower rates, lending, and wealth.
Nathan Rothschild, 1815: Pigeons brought Waterloo news first. Buying British bonds cheap, he became rich. Information was true power.
American Civil War: Jay Cooke sold war bonds door-to-door. This democratized government debt, involving ordinary citizens directly.
Bonds: Lend money, get interest, then your principal back. Price moves inversely to rates: up when rates fall, down when they rise.
When governments over-borrow, bond investors demand higher interest. These 'vigilantes' punish governments faster than voters can.
Today's $130 trillion global bond market dwarfs stocks. The US 10-year Treasury yield moves the entire world economy.
