AOM2: Bond Markets and Power

Emily Wilburn

Global Politics

Mr. Roddy

AOM2: Bond Markets and Power

This past week the video we watched focussed primarily on the use of bonds, what they are, and how they function in an economy. Bonds are a way for the government to borrow money and are almost always seen as a safe investment. This is because governments tend to need additional funds down the line even after collecting taxes. History has proven that bonds carry huge power.

Bonds are extremely important in our current economic system and were originally created because of war, this shows the power they hold.

In the 14th century all across Italy, city-states were at war with one another, and Florence was running huge deficits year after year to fund their war. During this time, citizens were lending money and would in return receive interest later -- these were the original bonds. These bonds were liquid assets and citizens had the freedom to sell their bonds to others.

Later, in the 16th century, they went into multiple wars where they were still relying on bonds from their countries' citizens, because of the need for more bonds, they eventually lost their original value. This example represents the risk that comes with a bond -- while they may seem to be a safe choice they also come with risks. Later in Venice, the bond market set interest rates for the entire economy, by doing so bonds became much more powerful.

History has shown the relationship between bond markets and how powerful they are. In the examples above we can see how bonds have played a major role in economies in the past and they still are today.