This story also shows another facet of inflation: the amount currently paid is €13.61 a year. Effectively, that debt was killed by inflation over the years.
Inflation makes it harder for the current generation but also free future generations from your debts.
the view you are describing could be described as (or at least, i would describe as) "newtonian" interest/inflation, where modern thinking is more "einsteinian".
the interest rate of a bond isn't just "liquidity/the time value of money", it also contains expectations for future inflation rates. However, we never know the future, so inflation risk cannot be eliminated/hedged by any means, so being "wrong" about the future might harm or reward you.
furthermore, by portfolio theory, you would have needed to reinvest all the interest received from this bond immediately upon receipt as part of your evaluation of the performance of the bond (which, that being difficult to do is why we evaluate bonds at "present value"). All those past interest payments made would have been reinvested at prevailing (e.g. so-called "inflationary") rates and might have done extraordinarily well.
If you include all factors, this bond might have been the best investment she could have made, and it would be wrong to describe it as somehow "ravaged by inflation"; with nothing any better to do with her savings, it's the idea that money is somehow "fixed" and potentially permanent unless "eroded" that we should see as damaged, not the value of this bond.
I think a more nuanced take would simply be that the long tail of a perpetual bond is unlikely to be worth that much, which is why these days bonds with extremely long maturities aren’t issued.
I think I was taught that perpetuities were banned because of the legal/accounting woes they create in the future.
As an example, the reason that coupons (like $1 off a box of Wheaties) or refunds (good for 1 airline ticket) and similar "financial instruments" have expiration dates on them is because it is required by accounting rules. When those items are issued, companies need to put them on their books as liabilities, and having to keep around an ever increasing accumulation of liabilities for many years would give a "wrong" picture of the financial health of the entity, when the purpose of books is to give a "right" picture.
(your take is not more nuanced, it acknowledges this practicality aspect. to extend the newtonian/einsteinian analogy, you're advocating ignoring the ∆x² term as the lim ∆x→0 version of the calculus derivative rather than the approach taken by analysis :)
Hm interesting. I think that would also explain why they make gift cards expire or lose value over time, even though, if anything, they should be paying you interest because you’re giving them a(n otherwise) free loan.
The catch is that the interest-free loan can be called in by you, the gift card holder, at any time - so they get less utility from any given amount of gift card balances than they would loans/corporate bonds of the same amount because they're always trying to be prepared to pay out some portion of those balances.
This is why they're treated as a liability in the company books. You can guess or bet that all of your outstanding gift card balances won't be redeemed at once, but there's really nothing preventing that from happening and causing cashflow problems for the company. And there's lots of overhead involved in tracking many many thousands of small balances on cards into perpetuity.
Much easier to encourage people to spend the gift cards and get your financing from proper, predictable business loans or bonds.
Any large issuer of gift cards has an income stream from gift card breakage to the tune of a few percentage points of their outstanding gift card obligations each year.
Imagine a business where people give you cash and don’t ask for 5% or so of it back. Meanwhile your use of that cash is regulated with a feather (compared to a bank or other deposit-taker) and you can earn some yield while you wait for people to ask for their money back.
Most of that is irrelevant here. All they have to do is put in an interest bearing account, and pay out some amount less than they're earning. Furthermore, they will effectively owe you less than even the principle since they (on average) sell the goods for more than they cost. You're forgetting that this liability comes with an over-offsetting asset.
Then, if they have any wiggle room, they can get a further increase by buying back a bond of higher yield sooner, modulated by expected cash flows.
>Much easier to encourage people to spend the gift cards and get your financing from proper, predictable business loans or bonds.
That doesn't follow at all. The longer the gift card goes without being spent, the more free money they get. There's no net benefit to the goods being called sooner.
The relatively short validity period of gift cards makes them more profitable for the issuer because a substantial minority of them are not redeemed before the expiry date.
Sure. That Party City gift card bought last week may not be honored today due to bankruptcy and certainly won’t be honored after the stores close in a couple months.
No, that argument applies to the owner of the gift card accounting for the fact that the gift card may not be used (and isn’t a great method assuming they intend to spend it and expect to get the full value).
What I’m talking about is the provider of the gift card writing off some portion of the liability of gift cards they have sold that people will never spend because they forget about them and lose them and so forth.
In Chile at least, you can get a loan in “UF”, which is an inflation-adjusted equivalent of the underlying currency. The value of UF changes with inflation (almost always going up). So the loan will just keep getting more expensive
People complain about inflation, which is very odd in the 2% era but understandable when talking about genuine hyperinflation. But, when talking about a four hundred year old bond, I would like people to think about all the population, political, technological and environmental changes that have happened across that period, look me in the eye, and say "yes, I expect every single item to have the same price that it did in 1624".
> Final note, inflation helps encourage people to use their money and keep the economy moving.
Short term thinking in itself is damaging.
But then thinking something is "worth more" because it costs more dollars a year from now is deceptive.. how much did its value increase vs the dollar decrease?
But it's convenient for tax authorities as you're taxed on the gains, regardless of the why/how it changed.
> But then thinking something is "worth more" because it costs more dollars a year from now is deceptive.. how much did its value increase vs the dollar decrease?
You have missed the point.
Inflation encourages activity because your money is worth less a year from now. Better to get something for it, or invest it.
Let’s say you have an economy of 100,000 units of work done in a year and thus is backed by a fixed supply of $100,000
You do enough work for 1/100th of the economy and receive $1000. You keep this in a box and do nothing for years.
In years time the work done in the economy is 1 million units, but money hasn’t changed. Your $1000 can no purchase 1:100th of the economy you haven’t built, or 1,000 units of work
> Inflation benefits borrowers and penalizes lenders.
That occurs after the primary beneficiaries of inflation (those who receive freshly printed dollars) take their cut.
> Final note, inflation helps encourage people to use their money and keep the economy moving.
This is just something people say. Programming equivalent of a factory class. Sure, it makes sense given Java’s language design, but when you realize the underlying design is awful and (at least for the modern US economy) out to hurt you, you look at things a little differently.
Inflation is just the rate which the population will accept without revolting. Constant inflation is not good nor needed, but we’d have to change a lot of our monetary policy in a way that results in a much smaller wealth gap (and military).
>> Final note, inflation helps encourage people to use their money and keep the economy moving.
> This is just something people say.
Do you keep your savings under a mattress? Or do you put it someplace where the money can do work in the economy, like a bank account or bonds or stocks?
Reality is that the bank just indexes your loan with inflation, so you have to pay more.
Inflation is just a hidden tax on everyone - and people should protest against it. Great way of the rich (who are heavily invested in assets, not cash) and government (who gets cash inflows from the central bank - and central bank makes money by printing money) to screw the poor.
How is it much worse than other indirect taxes? At least it provides benefits that VAT or sales taxes don’t like allows central banks to stabilize the financial system and reduce the outfall from boom and bust cycles (which were much worse pre 1830s).
Also if we look back price stability under the gold standard is a myth. Prices might have been broadly similar in 1800 and 1900 but there were some massive ups and downs in between that lasted decades. Predictable and stable inflation seems like a much smaller issue
The hole in the system, though, is fixed-rate loans over the long term, and the ability to refinance relatively-cheaply. If you buy a house when rates and inflation are low, then over the life of the loan you'll win on inflation. All you have to do is hang on to that low-interest loan. If you happen to buy when rates are high, then you refinance the next time they're low and hold that loan. It's the ability to (worst-case, "eventually") lock in a low rate for decades that lets you win from inflation in the long term. There are a lot of people that were holding onto real estate loans at ~2-4% throughout the pandemic monetary+housing inflation cycle that made out very well. They didn't have to predict it or time it, they just grabbed a low-rate loan some time back whenever they could, and then waited for the inevitable to eventually happen.
> Inflation makes it harder for the current generation
It's not obvious to me that this is the case- if your wages go up with inflation, and you store money in stocks/bonds that keep up with inflation- doesn't it also just make any debt you have gradually reduce overtime?
"if your wages go up with inflation, and you store money in stocks/bonds that keep up with inflation"
This depends on at least four premises:
a) that your wages at least track with inflation
b) that your expenses (not debt) track less than inflation
c) that you can buy into stocks/bonds before the inflation AND they track at least with inflation
If any of those are untrue, your conclusion falls apart.
If all three are untrue, your expenses are growing faster than your wages and the little you have left over is now buying already-inflated assets.. which we've seen play out once in recent times.
Why would expenses need to track less than inflation, if your wages are tracking with it? Expenses, by definition, track with inflation.
With (c) stock prices are generally tied to the underlying value of a company which is protection from losing value due to inflation except in rare cases where the inflation directly harms the business model. Assuming the inflation continues to increase over time, you just buy the stocks as soon as you get the money, there is no need to do it "before the inflation" or any sense in which stocks can be "already inflated."
There's such a thing as a personal inflation rate.
CPIH in the UK for example includes the cost of housing but the weighting of housing is effectively an average of a teenager, a mid life family and a pensioner. It comes out at like 20% weight which is well under what most people spend on housing.
Wages are a lagging indicator. Basically everyone who makes their money working and not off investments gets screwed roughly to the tune of the inflation rate. Eventually the economy reached equilibrium but in the intervening years everyone's discretionary spending gets redirected into the pockets of asset owners rather than quality of life improvements.
This is why being in low interest debt is so amazing. Take two people with the exact same job tracks, same appartments, family, interests, etc...
But give one of them $2,000,000 in mortgage debt at 3.0% interest on 3 properties that are rented out, and don't have the other have anything.
In 15 years, those properties will be worth 2-3x as much, and the debt will still be 2,000,000. This is what happened to boomers even though they don't realize it. Its not that houses are some amazing investment, its that no one will give you 7figure loans at 3% interest to buy stocks with money you don't have, but they will do it for a property.
I don’t think the 2-3x as much in 15 years time is likely to be true. When interest rates start out low there is much less scope for appreciation than when they start out high. So if you buy when mortgage rates are at 3% you can’t expect the big gains you get when mortgage rates fall.
My personal rule of thumb is that rents remain fairly stable as a proportion of earnings under balanced supply and prices are then a function of rents / mortgage rates.
Over the past 15 years median household income has gone from $50k to $80k while mortgage rates more than halved from 6.5% in 2006 to 3.1% in 2021. Most of that 2-3x increase is from the fall in rates.
> My personal rule of thumb is that rents remain fairly stable as a proportion of earnings
This is the problem, because supply is artificially constrains if wages double (through efficiencies), rents increase to soak up the extra productivity.
It depends on when and where: All real estate investment is a bet on a specific location, and properties don't maintain themselves: In general, the land appreciates, while the house on top of it loses value.
If you bought a house 15 years ago large parts of north St Louis, chances are you lost money, even without accounting for said home maintenance. They one I live in didn't go up 50% in 15 years. A lot of commercial investments? Ravaged.
So while it's true that it's possible to leverage yourself more in real estate, and that said leverage is even tax advantaged, assuming that the line will go up faster than anything else in a risk-adjusted way is a very risky position to take.
That did happen to Boomers, but I wouldn't assume it will happen again. Over a long enough time period housing values must approximately track inflation, because there is an upper threshold of income percentage (certainly below 100%) people can afford to spend on housing. Currently, mortgage rates are about 2x what inflation has been over decades historically. Boomers mostly made money with regulatory capture- landowners were able to politically block housing construction during a time of increasing population, causing a short term anomaly where people were paying steadily increasingly high percentages of income on housing. Both that regulatory capture, and the population growth are disappearing now.
When I run the numbers where I live based on current market rates buying a home is predicted to be a big money loser over time vs renting and investing the difference. Renting lets you buy into housing with the prices and tax rates of when the owners bought them decades ago.
Buying still has a ton of tax advantages and gives people access to an incredible amount of leverage that they wouldn't be able to get otherwise.
For what it's worth, I don't disagree with you, and I think renting makes more sense than buying right now for the first time in decades, but it's just by a hair.
> In 15 years, those properties will be worth 2-3x as much
You're extrapolating the last 15 years onto the next 15 years. The last 15 years came on the heels of a historic decline in real estate prices that occurred just prior to that period (2008-2010).
>This is what happened to boomers even though they don't realize it. Its not that houses are some amazing investment, its that no one will give you 7figure loans at 3% interest to buy stocks with money you don't have, but they will do it for a property.
Interest rates from 1971-1998 were higher than they are today[1].
It kind of happened to boomers, but it's wrong in a number of ways.
1. Interest rates were in the teens when they bought their houses. However they may have only paid $50k for a house in the 80s.
2. Most only bought their own house and didn't have many other investments. My parents for example had an investment property in the 90s, but were an exception.
3. House values have gone up because building regulations and zoning have become so onerous that supply hasn't kept up with demand. I believe this will continue and house prices will continue to beat inflation in many jurisdictions.
The banks offload the obligation to Fannie Mae and collect commissions and administrative fees. With respect to mortgages, they function essentially as sales agents for the government.
Indeed, the Netherlands at that time operated on a 'hard money' system. Coins were minted from gold, silver, and copper, with their value directly tied to the availability and intrinsic worth of these metals, naturally limiting the money supply. This is in contrast to modern fiat currency systems, where money derives its value from government decree rather than a physical commodity, allowing inflation through unrestricted money creation.
I'm curious if anyone has run the numbers and looked at what the interest payments of this bond over the past 400 years would have amounted to had they been invested in some theoretical basket of typical assets that were available at the time.
It sounds like a pittance now but 400 years of a compounding pittance could be a lot of money.
Edit: with an annual contribution of €13.61 and a real rate of return of 3%, 400 years of annual compounding would be over €7 million. With a rate of 4% it would be €280 million.
> with an annual contribution of €13.61 and a real rate of return of 3%, 400 years of annual compounding would be over €7 million. With a rate of 4% it would be €280 million
400 years -> 280M
That gives you a perspective on how insane a billion dollars is. Also wild that any single individual can own that much (and some a lot more!)
> Also wild that any single individual can own that much (and some a lot more!)
Nobody owns a billion dollars except governments.
"Billionaires" usually have ownership of business interests that could theoretically be sold for a billion dollars, but that they generally do not want to sell (because they would rather own and often run the business.).
LOL Bezos sold a few Bs of Amazon every other week recently. I’m sure all the top billionaires could get a billion in cash easily if they ever need to.
The issue would be finding an asset (or group of assets) that 1) held value and 2) you could maintain ownership over continuously for 400 years. Cities, kingdoms, countries, currencies, corporations, banks, markets all rise and go extinct over much shorter periods.
Monetary calculations in general are tough over that long of a timespan in general much less when you have to factor in the likelihood your theoretical investment would have survived the bakers dozen of financial/governmental crises.
> with an annual contribution of €13.61 and a real rate of return of 3%, 400 years of annual compounding would be over €7 million. With a rate of 4% it would be €280 million.
Calculating the total return given an annual average rate of return is the easy part here. The idea that you can easily invest in a diversified basket of assets and receive a fairly safe x% a year is a relatively recent one. I'm not sure what assets you could invest in 400 years that would even be guaranteed to exist today.
> with an annual contribution of €13.61 and a real rate of return of 3%, 400 years of annual compounding would be over €7 million. With a rate of 4% it would be €280 million.
Reminds of Futurama with billionaire Philip J Fry after unintentionally leaving 93 cents in the bank for 1000 years.
Clearly not, since all the answers were incorrect; two of them by an order of magnitude:
* 0.93((1.03)^1000) is 6.393E12, not 1.788E13
* 0.93((1.02)^1000) is 3.7E8, not 4.28E9
* 0.93*((1.01)^1000) is 19,492, not 19,482
...on a whim, I just tried asking ChatGPT "What would 93 cents accumulate to over 1000 years with 3% compound interest?", and the answer (179.74) was staggeringly wrong because it thought that 1.03^1000 was approximately 193.48.
Personally, I can say that I just gained a whole _ton_ of respect for you for your ability to learn a lesson, to admit that you made a mistake, and not to double-down on insistence that LLMs are Good, Actually.
I hope my message didn't come across at too unpleasantly confrontational - I'm not annoyed at _you_, but rather at the over-reliance of these hallucination machines in our industry which is supposed to prize hard data and accuracy. I'm glad I was able to help someone gain a bit of reasonable skepticism for them!
All the very best to you and yours for this holiday season!
I found a server I used to host in 1996 still online, but I don't know where it is. Looks like it is running a 2010 version of Apache, though, so it was at least updated 14 years ago:
> In return for her money, the water board promised Jorisdochter, her descendants or anyone who owned the bearer bond 2.5 per cent interest in perpetuity.
This is inaccurate; it was 5%:
> According to its original terms, the bond would pay 5% interest in perpetuity, although the interest rate was reduced to 3.5% and then 2.5% during the 18th century. [1]
Sounds like the Wikipedia article is talking about a different set of bonds, "Another of these bonds, issued in 1648, is currently in the possession of Yale University."
From the article, it looks like the original interest on this one was 6.25% (75/1200) though.
Hey, you could buy a stock from Berlin Zoo. I don't think they every paid a dividend and it is difficult to buy one. Trading volume last month: 7 stocks.
But AFAIK it gives you free entrance in the zoo...
Pretty much!
(Securities like this are also something of a headache for compliance people since _technically_ they can be caught by current regulations not written with them in mind. Good luck getting an LEI for this bond’s issuer.
(An actual concern I’ve seen raised by people responsible for such things)
"The Legal Entity Identifier (LEI) is a reference code — like a bar code — used across markets and jurisdictions to uniquely identify a legally distinct entity that engages in a financial transaction."
Interesting story, but as a bond holder, you're a lender. As a lender, you are exchanging inflation risk for interest. With this in mind, how could anyone think that a 400 year bond would be a good idea (specially at only 2.5%!). You have to remember that when buying a bond, your principal is tied up until maturity. On a 400 year bond, you're basically never getting it back. So you've handed your money to someone 15 generations in the future for what is initially a bad return and by the end of the bond's life is unbelievably bad.
By the way, if you take the 1,200 Gilder and invest it in an investment vehicle at 4% compounding and wait 400 years, it's worth $7,807,589,396.13 This woman basically traded almost $8 Billion of future return for a total of $5,444 including that principal that is returned at maturity. Ouch.
The original bond says 75 guilders per year until the principal of 1200 was repaid. That's 6.25% per year.
I don't think this investment was anywhere as dire as you paint it as. Especially in a world where monetary inflation was very different... currency debasement didn't typically happen that quickly.
The lender in this case was living somewhere that was likely to flood if the repair works funded by the bond didn't get done, so they might have had some not purely financial motivation for it.
Plus we don't know what other investments Elsken Jorisdochter owned; this was probably a small part of her assets.
Finally, I'm not very convinced by the "400 years at 4% compounding" hypothetical -- could you actually buy an investment with that return at that date which was a safe non-risky one? And if you could, should you as a person with a lifespan much less than 400 years really prefer it over something which gives you a guaranteed income within your life?
> [I also declare] to have awarded and given 75 Carolus guilders of twenty stivers apiece per year as heritable annuity, to be paid one half of the annuity aforesaid on the 9 th of June 1625 and the other half the 9th of December following and so on every six months until repayment with all payments entirely free of all taxes, impositions or burdens of whatever name or title none excepted.
It is confusingly written, but what it means by repayment in the above paragraph is not "until you get your 1200 guilders back in these 75-guilder installments", its meaning is clarified by the next paragraph,
> On such conditions that I or my successors [unreadable] of the aforesaid Leckendijck may, at any time when it pleases us, extinguish, repay, and buy back the said annuity in full at once and not in parts or fractions with the sum of one thousand two hundred Carolus guilders
which explains how the board can get itself out of this obligation: by paying the original principal of 1200 guilders back.
Curious why the board never paid back the original principal at any point in time over the past 400 years?
If the current annual interest of 2.5% cited in the article is €13.61, that would make 1200 guilders €544.40.
Did they just forget to? Did they figure the bond would eventually disappear? Or did they at some point think it was really cool to have a piece of "living history" and want to keep the world record alive for oldest active bond? If so... when?
It's such a low amount it's barely a blip on the budget of the successor issuer and by the time it was rediscovered in modern times it was enough of a historical novelty it was more interesting to keep it than to cancel it. Most of these bonds go years without being collected on.
A similar one owned by Yale can be viewed online [0]. It was issued in 1648, and it seems to have a fairly continuous payment history since then. There are gaps of a few decades, but nothing too extreme.
There's a pretty continuous line between the carolus guilder and the euro. For example, the modern-day (2002) guilder was fixed at an exchange rate of 2.2 GLD = 1 EUR. Previous coins also had a more-or-less fixed ratio, aided by the value of the gold and/or silver they were made out of.
If you want to treat it like a completely separate coin, you'd have to buy historical carolus guilders in auctions. They seem to be worth about €1500 [0], although the same amount of gold can be bought for only €240.
Currencies rarely "go away". They are usually replaced by new ones, and the government will buy the old currency and pay you in new currency. Imagine the mayhem if a government decided that all money everyone owned would suddenly be completely worthless!
No state does. The Russian state started in 1917 and disclaimed all debts of the Czar. The Ottoman empire ended and was replaced with the Republic of Turkey. Modern Germany doesn't inherit from any of the predecessor states after WWI and the Nazi era.
I'm currently reading a book about a war in the 17th century. One thing that is entirely different from today is how kings and governments could just stop paying back their lenders and there was nothing you could do about it but send angry letters...
Ofcourse it worked the other way too. Entire armies of paid mercenaries could just take the money and run into the night.
Not to say that Kings just completely stopping payment to lenders never happened, but this paper argues (at least for the case of Philip II, who defaulted 4 times) that lenders had sufficient leverage to ensure that while kings might miss payments, that kings would eventually continue to pay. And of course, this makes some sense - why would people lend money to someone they had absolutely no leverage over?
The paper argues that lenders (or at least Genoese lenders who provided at least 2/3 of short terms loans) were able to work as a bloc with sufficient power to compel the King to eventually resume payments. As you pointed out, the King is mainly lending money to pay for armies. Being cut-off from credit is the same thing as being cut off from his army.
An interesting point that this paper makes at the end is that in a pre-modern context, lenders would have understood that sometimes... shit happens. They understood what the mechanisms a King would have for generating revenue, and that these revenue streams were not stable (taxation and silver shipments from the New World in Philippe's case), and that a King could in deep default "in good faith" and still be a "good enough" financial situation in subsequent years. That is in fact why the King even needed to borrow money from them to begin with.
Modern Germany doesn't inherit from any of the predecessor states after WWI and the Nazi era.
Not quite. Its criminal code inherits directly from that of the 1871 Reich (including quite notoriously Paragraphs 175 and 218).
But it is correct to say that its constitution inherits only back to 1919, and it never maintained any pretense of connection to the Holy Roman Empire.
Bearer bonds exist in crypto and are extremely popular there, for anyone lamenting the loss of the concept
What I love about this is how in just the last 20 years, a lot of work has been done to jettison bearer bonds from existence in jurisdictions across the globe, and cause the “registration” of any existing bearer bonds so that they couldnt be grandfathered in
But no sooner than this advancement in global geopolitical hegemony was developed and leveraged, the crypto market reinvented bearer bonds and they work even better
This is amazing, but I find it disappointing that the NYSE (current owner) hasn't collected interest on it since 2004. Given that most of the charm is that this is still an active financial document, I don't understand why they wouldn't keep it going. Otherwise it's just another defunct historical document.
The article is about them collecting interest a couple weeks ago on the 400th anniversary? They clearly are keeping it going, just only collecting interest irregularly at PR milestones.
Moving such a document is extremely risky and a lot of work so not worth it in almost any case short of the PR bump/curiousity of having the "world's oldest bond"
Given this, we should be thankful that the NYSE is maintaining this at a loss. It occurs to me that NYSE might be the best owner of this bond, as the primary value isn’t monetary, but the demonstration of stable financial institutions.
i have to laugh at their proposition that Bonds built the modern world... that was slavery buddy, all that stolen labor funded the markets of the world.
This story also shows another facet of inflation: the amount currently paid is €13.61 a year. Effectively, that debt was killed by inflation over the years.
Inflation makes it harder for the current generation but also free future generations from your debts.
the view you are describing could be described as (or at least, i would describe as) "newtonian" interest/inflation, where modern thinking is more "einsteinian".
the interest rate of a bond isn't just "liquidity/the time value of money", it also contains expectations for future inflation rates. However, we never know the future, so inflation risk cannot be eliminated/hedged by any means, so being "wrong" about the future might harm or reward you.
furthermore, by portfolio theory, you would have needed to reinvest all the interest received from this bond immediately upon receipt as part of your evaluation of the performance of the bond (which, that being difficult to do is why we evaluate bonds at "present value"). All those past interest payments made would have been reinvested at prevailing (e.g. so-called "inflationary") rates and might have done extraordinarily well.
If you include all factors, this bond might have been the best investment she could have made, and it would be wrong to describe it as somehow "ravaged by inflation"; with nothing any better to do with her savings, it's the idea that money is somehow "fixed" and potentially permanent unless "eroded" that we should see as damaged, not the value of this bond.
I think a more nuanced take would simply be that the long tail of a perpetual bond is unlikely to be worth that much, which is why these days bonds with extremely long maturities aren’t issued.
I think I was taught that perpetuities were banned because of the legal/accounting woes they create in the future.
As an example, the reason that coupons (like $1 off a box of Wheaties) or refunds (good for 1 airline ticket) and similar "financial instruments" have expiration dates on them is because it is required by accounting rules. When those items are issued, companies need to put them on their books as liabilities, and having to keep around an ever increasing accumulation of liabilities for many years would give a "wrong" picture of the financial health of the entity, when the purpose of books is to give a "right" picture.
(your take is not more nuanced, it acknowledges this practicality aspect. to extend the newtonian/einsteinian analogy, you're advocating ignoring the ∆x² term as the lim ∆x→0 version of the calculus derivative rather than the approach taken by analysis :)
Hm interesting. I think that would also explain why they make gift cards expire or lose value over time, even though, if anything, they should be paying you interest because you’re giving them a(n otherwise) free loan.
The catch is that the interest-free loan can be called in by you, the gift card holder, at any time - so they get less utility from any given amount of gift card balances than they would loans/corporate bonds of the same amount because they're always trying to be prepared to pay out some portion of those balances.
This is why they're treated as a liability in the company books. You can guess or bet that all of your outstanding gift card balances won't be redeemed at once, but there's really nothing preventing that from happening and causing cashflow problems for the company. And there's lots of overhead involved in tracking many many thousands of small balances on cards into perpetuity.
Much easier to encourage people to spend the gift cards and get your financing from proper, predictable business loans or bonds.
Any large issuer of gift cards has an income stream from gift card breakage to the tune of a few percentage points of their outstanding gift card obligations each year.
Imagine a business where people give you cash and don’t ask for 5% or so of it back. Meanwhile your use of that cash is regulated with a feather (compared to a bank or other deposit-taker) and you can earn some yield while you wait for people to ask for their money back.
Gift cards are very lucrative at scale.
Most of that is irrelevant here. All they have to do is put in an interest bearing account, and pay out some amount less than they're earning. Furthermore, they will effectively owe you less than even the principle since they (on average) sell the goods for more than they cost. You're forgetting that this liability comes with an over-offsetting asset.
Then, if they have any wiggle room, they can get a further increase by buying back a bond of higher yield sooner, modulated by expected cash flows.
>Much easier to encourage people to spend the gift cards and get your financing from proper, predictable business loans or bonds.
That doesn't follow at all. The longer the gift card goes without being spent, the more free money they get. There's no net benefit to the goods being called sooner.
The relatively short validity period of gift cards makes them more profitable for the issuer because a substantial minority of them are not redeemed before the expiry date.
Not really. Gift cards don’t expire and you’re allowed to just make reasonable assumptions about what portion will never be redeemed.
Gift card expiration used to be really egregious. In 2010 that changed in the US. They can still expire, but not within 5 years.
https://www.ftc.gov/news-events/news/press-releases/2010/11/...
Regardless, you can still account for breakage without any formal expiry
Sure. That Party City gift card bought last week may not be honored today due to bankruptcy and certainly won’t be honored after the stores close in a couple months.
No, that argument applies to the owner of the gift card accounting for the fact that the gift card may not be used (and isn’t a great method assuming they intend to spend it and expect to get the full value).
What I’m talking about is the provider of the gift card writing off some portion of the liability of gift cards they have sold that people will never spend because they forget about them and lose them and so forth.
In Washington state they never expire.
The benefit to perpetuals is all bonds trade in the same pool regardless of issuance.
On a long enough timeline, every perpetual guarantor defaults.
> also free future generations from your debts
Only if the debt is not pegged to inflation
In Chile at least, you can get a loan in “UF”, which is an inflation-adjusted equivalent of the underlying currency. The value of UF changes with inflation (almost always going up). So the loan will just keep getting more expensive
Most mortgages there are in UF
Debtors see hyperinflation in neighboring countries and start getting nervous.
People complain about inflation, which is very odd in the 2% era but understandable when talking about genuine hyperinflation. But, when talking about a four hundred year old bond, I would like people to think about all the population, political, technological and environmental changes that have happened across that period, look me in the eye, and say "yes, I expect every single item to have the same price that it did in 1624".
It is worse than that though.
Credit markets don't work without inflation and none of this progress in the last 400 years happens without credit markets.
The age of this bond and the march out of the dark ages is not unrelated.
> Inflation makes it harder for the current generation
Inflation benefits borrowers and penalizes lenders.
I would posit that younger people tend to be borrowers and older people tend to be lenders (bond owners).
That said, it's not clear what you meant by "the current generation."
Final note, inflation helps encourage people to use their money and keep the economy moving.
> Final note, inflation helps encourage people to use their money and keep the economy moving.
Short term thinking in itself is damaging.
But then thinking something is "worth more" because it costs more dollars a year from now is deceptive.. how much did its value increase vs the dollar decrease?
But it's convenient for tax authorities as you're taxed on the gains, regardless of the why/how it changed.
> But then thinking something is "worth more" because it costs more dollars a year from now is deceptive.. how much did its value increase vs the dollar decrease?
You have missed the point.
Inflation encourages activity because your money is worth less a year from now. Better to get something for it, or invest it.
Let’s say you have an economy of 100,000 units of work done in a year and thus is backed by a fixed supply of $100,000
You do enough work for 1/100th of the economy and receive $1000. You keep this in a box and do nothing for years.
In years time the work done in the economy is 1 million units, but money hasn’t changed. Your $1000 can no purchase 1:100th of the economy you haven’t built, or 1,000 units of work
You receive 900 units of work for free.
That’s immoral.
> That’s immoral.
You’re gonna need to back this up with some reasoning. That’s exactly how every asset works when demand outpaces supply.
> Final note, inflation helps encourage people to use their money and keep the economy moving.
That also means that costs are increasing, which may have the opposite effect
> Inflation benefits borrowers and penalizes lenders.
That occurs after the primary beneficiaries of inflation (those who receive freshly printed dollars) take their cut.
> Final note, inflation helps encourage people to use their money and keep the economy moving.
This is just something people say. Programming equivalent of a factory class. Sure, it makes sense given Java’s language design, but when you realize the underlying design is awful and (at least for the modern US economy) out to hurt you, you look at things a little differently.
Inflation is just the rate which the population will accept without revolting. Constant inflation is not good nor needed, but we’d have to change a lot of our monetary policy in a way that results in a much smaller wealth gap (and military).
>> Final note, inflation helps encourage people to use their money and keep the economy moving.
> This is just something people say.
Do you keep your savings under a mattress? Or do you put it someplace where the money can do work in the economy, like a bank account or bonds or stocks?
What you write is theory from economic books.
Reality is that the bank just indexes your loan with inflation, so you have to pay more.
Inflation is just a hidden tax on everyone - and people should protest against it. Great way of the rich (who are heavily invested in assets, not cash) and government (who gets cash inflows from the central bank - and central bank makes money by printing money) to screw the poor.
How is it much worse than other indirect taxes? At least it provides benefits that VAT or sales taxes don’t like allows central banks to stabilize the financial system and reduce the outfall from boom and bust cycles (which were much worse pre 1830s).
Also if we look back price stability under the gold standard is a myth. Prices might have been broadly similar in 1800 and 1900 but there were some massive ups and downs in between that lasted decades. Predictable and stable inflation seems like a much smaller issue
The hole in the system, though, is fixed-rate loans over the long term, and the ability to refinance relatively-cheaply. If you buy a house when rates and inflation are low, then over the life of the loan you'll win on inflation. All you have to do is hang on to that low-interest loan. If you happen to buy when rates are high, then you refinance the next time they're low and hold that loan. It's the ability to (worst-case, "eventually") lock in a low rate for decades that lets you win from inflation in the long term. There are a lot of people that were holding onto real estate loans at ~2-4% throughout the pandemic monetary+housing inflation cycle that made out very well. They didn't have to predict it or time it, they just grabbed a low-rate loan some time back whenever they could, and then waited for the inevitable to eventually happen.
> Final note, inflation helps encourage people to use their money and keep the economy moving.
The government offers inflation protected securities, matching inflation plus some usually minimal interest.
What does the government do with the monies they receive from said securities?
They use it to fund programs, pay salaries, etc.
Inflation means we value work done in the future more than now.
And that’s right. If I do $100 of adding up numbers in 1950 that’s likely worth millionths of a cent in 2025.
> Inflation makes it harder for the current generation
It's not obvious to me that this is the case- if your wages go up with inflation, and you store money in stocks/bonds that keep up with inflation- doesn't it also just make any debt you have gradually reduce overtime?
"if your wages go up with inflation, and you store money in stocks/bonds that keep up with inflation"
This depends on at least four premises:
a) that your wages at least track with inflation
b) that your expenses (not debt) track less than inflation
c) that you can buy into stocks/bonds before the inflation AND they track at least with inflation
If any of those are untrue, your conclusion falls apart.
If all three are untrue, your expenses are growing faster than your wages and the little you have left over is now buying already-inflated assets.. which we've seen play out once in recent times.
Why would expenses need to track less than inflation, if your wages are tracking with it? Expenses, by definition, track with inflation.
With (c) stock prices are generally tied to the underlying value of a company which is protection from losing value due to inflation except in rare cases where the inflation directly harms the business model. Assuming the inflation continues to increase over time, you just buy the stocks as soon as you get the money, there is no need to do it "before the inflation" or any sense in which stocks can be "already inflated."
>Why would expenses need to track less than inflation, if your wages are tracking with it?
Because wages don't go up in real time so you get robbed of the difference for the duration.
You make $3. Rent costs $1. You have $2 leftover to improve your life, pay down debt, whatever.
You make $3. Rent is now $1.50. You have $.50 leftover
Your wage goes up to $3.50. Rent is now $2. You have $.50 leftover.
Repeat a bunch of times.
Your wage goes up $.50 again. Rent stops rising in price. You have $1 leftover.
See how the inflation robs you of $.50 multiplied by the duration?
You make $3, rent costs $1, you owe $300, it takes 150 to repay your debt
Inflation doubles everything
You make $6, rent costs $2, you owe $300, it takes 75 to repay debt
The person so wealthy they lent you money loses out, you gain.
If that's universally true, why would lenders lend in a high inflationary environment?
There's such a thing as a personal inflation rate.
CPIH in the UK for example includes the cost of housing but the weighting of housing is effectively an average of a teenager, a mid life family and a pensioner. It comes out at like 20% weight which is well under what most people spend on housing.
Wages are a lagging indicator. Basically everyone who makes their money working and not off investments gets screwed roughly to the tune of the inflation rate. Eventually the economy reached equilibrium but in the intervening years everyone's discretionary spending gets redirected into the pockets of asset owners rather than quality of life improvements.
This is why being in low interest debt is so amazing. Take two people with the exact same job tracks, same appartments, family, interests, etc...
But give one of them $2,000,000 in mortgage debt at 3.0% interest on 3 properties that are rented out, and don't have the other have anything.
In 15 years, those properties will be worth 2-3x as much, and the debt will still be 2,000,000. This is what happened to boomers even though they don't realize it. Its not that houses are some amazing investment, its that no one will give you 7figure loans at 3% interest to buy stocks with money you don't have, but they will do it for a property.
I don’t think the 2-3x as much in 15 years time is likely to be true. When interest rates start out low there is much less scope for appreciation than when they start out high. So if you buy when mortgage rates are at 3% you can’t expect the big gains you get when mortgage rates fall.
My personal rule of thumb is that rents remain fairly stable as a proportion of earnings under balanced supply and prices are then a function of rents / mortgage rates.
Over the past 15 years median household income has gone from $50k to $80k while mortgage rates more than halved from 6.5% in 2006 to 3.1% in 2021. Most of that 2-3x increase is from the fall in rates.
> My personal rule of thumb is that rents remain fairly stable as a proportion of earnings
This is the problem, because supply is artificially constrains if wages double (through efficiencies), rents increase to soak up the extra productivity.
It depends on when and where: All real estate investment is a bet on a specific location, and properties don't maintain themselves: In general, the land appreciates, while the house on top of it loses value.
If you bought a house 15 years ago large parts of north St Louis, chances are you lost money, even without accounting for said home maintenance. They one I live in didn't go up 50% in 15 years. A lot of commercial investments? Ravaged.
So while it's true that it's possible to leverage yourself more in real estate, and that said leverage is even tax advantaged, assuming that the line will go up faster than anything else in a risk-adjusted way is a very risky position to take.
That did happen to Boomers, but I wouldn't assume it will happen again. Over a long enough time period housing values must approximately track inflation, because there is an upper threshold of income percentage (certainly below 100%) people can afford to spend on housing. Currently, mortgage rates are about 2x what inflation has been over decades historically. Boomers mostly made money with regulatory capture- landowners were able to politically block housing construction during a time of increasing population, causing a short term anomaly where people were paying steadily increasingly high percentages of income on housing. Both that regulatory capture, and the population growth are disappearing now.
When I run the numbers where I live based on current market rates buying a home is predicted to be a big money loser over time vs renting and investing the difference. Renting lets you buy into housing with the prices and tax rates of when the owners bought them decades ago.
Buying still has a ton of tax advantages and gives people access to an incredible amount of leverage that they wouldn't be able to get otherwise.
For what it's worth, I don't disagree with you, and I think renting makes more sense than buying right now for the first time in decades, but it's just by a hair.
> In 15 years, those properties will be worth 2-3x as much
You're extrapolating the last 15 years onto the next 15 years. The last 15 years came on the heels of a historic decline in real estate prices that occurred just prior to that period (2008-2010).
>This is what happened to boomers even though they don't realize it. Its not that houses are some amazing investment, its that no one will give you 7figure loans at 3% interest to buy stocks with money you don't have, but they will do it for a property.
Interest rates from 1971-1998 were higher than they are today[1].
[1] https://www.freddiemac.com/pmms
Depends on the 15 years. If the government’s fiscal policy is zero inflation, except houses, sure.
It’s really a war bubble, which will pop, with pretty devastating impact.
It kind of happened to boomers, but it's wrong in a number of ways.
1. Interest rates were in the teens when they bought their houses. However they may have only paid $50k for a house in the 80s.
2. Most only bought their own house and didn't have many other investments. My parents for example had an investment property in the 90s, but were an exception.
3. House values have gone up because building regulations and zoning have become so onerous that supply hasn't kept up with demand. I believe this will continue and house prices will continue to beat inflation in many jurisdictions.
Doesn't that depend on which generation collects payments on the bond, and which makes the payments?
survivor bias: bonds paying interest rates above inflation get paid off and replaced ("called"), leaving the bonds paying under the inflation rate.
The banks nowadays know very well to index your debt with inflation
The banks offload the obligation to Fannie Mae and collect commissions and administrative fees. With respect to mortgages, they function essentially as sales agents for the government.
Your view is very USA centric. In many places the loans are not unloaded.
I would assume that bond was made in an era of low or no inflation. The yield of 2.5% would barely cover our current levels of desired inflation.
Indeed, the Netherlands at that time operated on a 'hard money' system. Coins were minted from gold, silver, and copper, with their value directly tied to the availability and intrinsic worth of these metals, naturally limiting the money supply. This is in contrast to modern fiat currency systems, where money derives its value from government decree rather than a physical commodity, allowing inflation through unrestricted money creation.
I'm curious if anyone has run the numbers and looked at what the interest payments of this bond over the past 400 years would have amounted to had they been invested in some theoretical basket of typical assets that were available at the time.
It sounds like a pittance now but 400 years of a compounding pittance could be a lot of money.
Edit: with an annual contribution of €13.61 and a real rate of return of 3%, 400 years of annual compounding would be over €7 million. With a rate of 4% it would be €280 million.
> with an annual contribution of €13.61 and a real rate of return of 3%, 400 years of annual compounding would be over €7 million. With a rate of 4% it would be €280 million
400 years -> 280M
That gives you a perspective on how insane a billion dollars is. Also wild that any single individual can own that much (and some a lot more!)
> Also wild that any single individual can own that much (and some a lot more!)
Nobody owns a billion dollars except governments.
"Billionaires" usually have ownership of business interests that could theoretically be sold for a billion dollars, but that they generally do not want to sell (because they would rather own and often run the business.).
Why sell when you can take out loans against your stock holdings?
LOL Bezos sold a few Bs of Amazon every other week recently. I’m sure all the top billionaires could get a billion in cash easily if they ever need to.
The issue would be finding an asset (or group of assets) that 1) held value and 2) you could maintain ownership over continuously for 400 years. Cities, kingdoms, countries, currencies, corporations, banks, markets all rise and go extinct over much shorter periods.
Monetary calculations in general are tough over that long of a timespan in general much less when you have to factor in the likelihood your theoretical investment would have survived the bakers dozen of financial/governmental crises.
> with an annual contribution of €13.61 and a real rate of return of 3%, 400 years of annual compounding would be over €7 million. With a rate of 4% it would be €280 million.
Calculating the total return given an annual average rate of return is the easy part here. The idea that you can easily invest in a diversified basket of assets and receive a fairly safe x% a year is a relatively recent one. I'm not sure what assets you could invest in 400 years that would even be guaranteed to exist today.
The Hudson's Bay Company is almost old enough. https://en.wikipedia.org/wiki/Hudson%27s_Bay_Company
> with an annual contribution of €13.61 and a real rate of return of 3%, 400 years of annual compounding would be over €7 million. With a rate of 4% it would be €280 million.
Reminds of Futurama with billionaire Philip J Fry after unintentionally leaving 93 cents in the bank for 1000 years.
I asked a bot to do the math for me (if anyone was as curious as I was):
93 cents would turn into approximately $17.88 trillion with compound interest of 3% over 1000 years.
93 cents would turn into approximately $4.28 billion with compound interest of 2% over 1000 years.
93 cents would turn into approximately $19,482.22 with compound interest of 1% over 1000 years.
Is a bot really necessary in order to calculate 0.93*(1 + n%)^1000?
The bot does the trivial things well, still need a brain to actually apply these trivial things to solve complex problems - much like a calculator
> The bot does the trivial things well
Clearly not, since all the answers were incorrect; two of them by an order of magnitude:
* 0.93((1.03)^1000) is 6.393E12, not 1.788E13
* 0.93((1.02)^1000) is 3.7E8, not 4.28E9
* 0.93*((1.01)^1000) is 19,492, not 19,482
...on a whim, I just tried asking ChatGPT "What would 93 cents accumulate to over 1000 years with 3% compound interest?", and the answer (179.74) was staggeringly wrong because it thought that 1.03^1000 was approximately 193.48.
How timely that https://news.ycombinator.com/item?id=42484937 was posted today.
To be fair, I qualified the whole thing with “I asked a bot” so I can say I learned a valuable lesson as to the value of LLMs.
I doubt anyone reading this will believe me, today is the second day I have ever tried using an LLM. Talk about a backfire.
Personally, I can say that I just gained a whole _ton_ of respect for you for your ability to learn a lesson, to admit that you made a mistake, and not to double-down on insistence that LLMs are Good, Actually.
I hope my message didn't come across at too unpleasantly confrontational - I'm not annoyed at _you_, but rather at the over-reliance of these hallucination machines in our industry which is supposed to prize hard data and accuracy. I'm glad I was able to help someone gain a bit of reasonable skepticism for them!
All the very best to you and yours for this holiday season!
I like the Compound Interest Calculator on Investor.gov.[1]
[1]: https://www.investor.gov/financial-tools-calculators/calcula...
Not if you know the formula. I suspect that GP didn't.
I had a tab open and asked a question. It was simpler than running the calculation 3 times. I do in fact understand basic math.
Merry Christmas!
Happy Hanukkah!
Is this a rhetorical question? The answer is clearly yes. I never studied organic chemistry.
Cool. Now take the 1,200 Gilder and invest it in that same investment vehicle at 4% and wait 400 years. It's worth $7,807,589,396.13
HN headline in the year 2400: "I SSHed into a box with a 146923-day uptime and found a cronjob still running"
I found a server I used to host in 1996 still online, but I don't know where it is. Looks like it is running a 2010 version of Apache, though, so it was at least updated 14 years ago:
http://resworld.eolith.net/res.html
It's in the UK somewhere: https://bgp.he.net/AS13037
> In return for her money, the water board promised Jorisdochter, her descendants or anyone who owned the bearer bond 2.5 per cent interest in perpetuity.
This is inaccurate; it was 5%:
> According to its original terms, the bond would pay 5% interest in perpetuity, although the interest rate was reduced to 3.5% and then 2.5% during the 18th century. [1]
[1]: https://en.wikipedia.org/wiki/Perpetual_bond
Sounds like the Wikipedia article is talking about a different set of bonds, "Another of these bonds, issued in 1648, is currently in the possession of Yale University."
From the article, it looks like the original interest on this one was 6.25% (75/1200) though.
So, not in perpetuity.
Bond, Perpetual Bond
Interest compounded, not simple.
Hey, you could buy a stock from Berlin Zoo. I don't think they every paid a dividend and it is difficult to buy one. Trading volume last month: 7 stocks.
But AFAIK it gives you free entrance in the zoo...
https://www.finanzen.net/aktien/zoologischer_garten_berlin_1...
Do I understand this right that this is a public works project with effectively a 400 year old interest only loan?
Pretty much! (Securities like this are also something of a headache for compliance people since _technically_ they can be caught by current regulations not written with them in mind. Good luck getting an LEI for this bond’s issuer. (An actual concern I’ve seen raised by people responsible for such things)
I checked it, and the issuer of this bond (Hoogheemraadschap De Stichtse Rijnlanden) indeed does not seem to have a LEI!
For those like me that didn't know
"The Legal Entity Identifier (LEI) is a reference code — like a bar code — used across markets and jurisdictions to uniquely identify a legally distinct entity that engages in a financial transaction."
The UK government finally bought back its old consols, their perpetual bonds, in 2015.[1]
"Never sell consols" was good advice in the Jane Austen era.
[1] https://uk.finance.yahoo.com/news/uk-says-redeem-post-world-...
Interesting story, but as a bond holder, you're a lender. As a lender, you are exchanging inflation risk for interest. With this in mind, how could anyone think that a 400 year bond would be a good idea (specially at only 2.5%!). You have to remember that when buying a bond, your principal is tied up until maturity. On a 400 year bond, you're basically never getting it back. So you've handed your money to someone 15 generations in the future for what is initially a bad return and by the end of the bond's life is unbelievably bad.
By the way, if you take the 1,200 Gilder and invest it in an investment vehicle at 4% compounding and wait 400 years, it's worth $7,807,589,396.13 This woman basically traded almost $8 Billion of future return for a total of $5,444 including that principal that is returned at maturity. Ouch.
The original bond says 75 guilders per year until the principal of 1200 was repaid. That's 6.25% per year.
I don't think this investment was anywhere as dire as you paint it as. Especially in a world where monetary inflation was very different... currency debasement didn't typically happen that quickly.
The lender in this case was living somewhere that was likely to flood if the repair works funded by the bond didn't get done, so they might have had some not purely financial motivation for it.
Plus we don't know what other investments Elsken Jorisdochter owned; this was probably a small part of her assets.
Finally, I'm not very convinced by the "400 years at 4% compounding" hypothetical -- could you actually buy an investment with that return at that date which was a safe non-risky one? And if you could, should you as a person with a lifespan much less than 400 years really prefer it over something which gives you a guaranteed income within your life?
There was a Tom Scott video about a similar bond https://youtu.be/cfSIC8jwbQs?si=352fpBnjG_2gs4CZ
Where is the in perpetuity language in the bond terms? Doesnt it say until full repayment?
> [I also declare] to have awarded and given 75 Carolus guilders of twenty stivers apiece per year as heritable annuity, to be paid one half of the annuity aforesaid on the 9 th of June 1625 and the other half the 9th of December following and so on every six months until repayment with all payments entirely free of all taxes, impositions or burdens of whatever name or title none excepted.
It is confusingly written, but what it means by repayment in the above paragraph is not "until you get your 1200 guilders back in these 75-guilder installments", its meaning is clarified by the next paragraph,
> On such conditions that I or my successors [unreadable] of the aforesaid Leckendijck may, at any time when it pleases us, extinguish, repay, and buy back the said annuity in full at once and not in parts or fractions with the sum of one thousand two hundred Carolus guilders
which explains how the board can get itself out of this obligation: by paying the original principal of 1200 guilders back.
Thank you!
Curious why the board never paid back the original principal at any point in time over the past 400 years?
If the current annual interest of 2.5% cited in the article is €13.61, that would make 1200 guilders €544.40.
Did they just forget to? Did they figure the bond would eventually disappear? Or did they at some point think it was really cool to have a piece of "living history" and want to keep the world record alive for oldest active bond? If so... when?
It's such a low amount it's barely a blip on the budget of the successor issuer and by the time it was rediscovered in modern times it was enough of a historical novelty it was more interesting to keep it than to cancel it. Most of these bonds go years without being collected on.
A similar one owned by Yale can be viewed online [0]. It was issued in 1648, and it seems to have a fairly continuous payment history since then. There are gaps of a few decades, but nothing too extreme.
[0]: https://collections.library.yale.edu/catalog/2008714
How is the exchange rate between modern money and "carolus guilders" calculated?
Something like a foreign exchange market cannot help determine this right?
In theory, could the exchange rate for $1 be made equal to 1,200 carolus guilders? (Effectively, making the bonds worthless)
There's a pretty continuous line between the carolus guilder and the euro. For example, the modern-day (2002) guilder was fixed at an exchange rate of 2.2 GLD = 1 EUR. Previous coins also had a more-or-less fixed ratio, aided by the value of the gold and/or silver they were made out of.
If you want to treat it like a completely separate coin, you'd have to buy historical carolus guilders in auctions. They seem to be worth about €1500 [0], although the same amount of gold can be bought for only €240.
[0]: https://www.ma-shops.nl/henzen/item.php?id=77815
It would be done stepwise.
When the Dutch florin was introduced there would have been an agreed (or imposed) exchange rate. Looks like that was 1:1.
Later when the Euro was adopted there was an exchange rate for that too.
To get to USD use the floating exchange rate of the open market.
I guess conversely, if you had a bond dominated in say Francs and the currency goes away do you just default?
Currencies rarely "go away". They are usually replaced by new ones, and the government will buy the old currency and pay you in new currency. Imagine the mayhem if a government decided that all money everyone owned would suddenly be completely worthless!
In 2016 India demonetized some bank notes (true, not the whole currency)
https://en.wikipedia.org/wiki/2016_Indian_banknote_demonetis...
So if their available interest rates had ever dropped below 6.25% then the issuers should have bought it back?
Thanks, yes, very helpful!
Yes, but they never repaid it. They have just been paying out the interest.
ah thanks, I think I get it now.
"heritable annuity" is the perpetual interest. "until repayment" threw me off.
75/1200 = 6.25% though.
Where does the 2.5% interest rate quoted in the article come from?
Not sure. From other comments, it sounds like that's an adjustment that they made later.
This has me hoping the Vesuvius prize finds an ancient Roman bond that needs to get paid out.
Pity that the Holy Roman Empire dissolved a while ago.
Given that several states claim to be Rom's successor, it shouldn't be that hard to find someone to take the responsibility.
No state does. The Russian state started in 1917 and disclaimed all debts of the Czar. The Ottoman empire ended and was replaced with the Republic of Turkey. Modern Germany doesn't inherit from any of the predecessor states after WWI and the Nazi era.
I'm currently reading a book about a war in the 17th century. One thing that is entirely different from today is how kings and governments could just stop paying back their lenders and there was nothing you could do about it but send angry letters...
Ofcourse it worked the other way too. Entire armies of paid mercenaries could just take the money and run into the night.
Not to say that Kings just completely stopping payment to lenders never happened, but this paper argues (at least for the case of Philip II, who defaulted 4 times) that lenders had sufficient leverage to ensure that while kings might miss payments, that kings would eventually continue to pay. And of course, this makes some sense - why would people lend money to someone they had absolutely no leverage over?
The paper argues that lenders (or at least Genoese lenders who provided at least 2/3 of short terms loans) were able to work as a bloc with sufficient power to compel the King to eventually resume payments. As you pointed out, the King is mainly lending money to pay for armies. Being cut-off from credit is the same thing as being cut off from his army.
An interesting point that this paper makes at the end is that in a pre-modern context, lenders would have understood that sometimes... shit happens. They understood what the mechanisms a King would have for generating revenue, and that these revenue streams were not stable (taxation and silver shipments from the New World in Philippe's case), and that a King could in deep default "in good faith" and still be a "good enough" financial situation in subsequent years. That is in fact why the King even needed to borrow money from them to begin with.
https://www.bde.es/f/webpi/SES/seminars/2009/files/sie0927.p...
Just ask lenders to Argentina about how getting paid back is going.
Modern Germany doesn't inherit from any of the predecessor states after WWI and the Nazi era.
Not quite. Its criminal code inherits directly from that of the 1871 Reich (including quite notoriously Paragraphs 175 and 218).
But it is correct to say that its constitution inherits only back to 1919, and it never maintained any pretense of connection to the Holy Roman Empire.
It was neither Holy, nor Roman, nor an Empire.
I wonder if there's a market for novelty collector bonds like this.
CUSIP?
Bearer bonds exist in crypto and are extremely popular there, for anyone lamenting the loss of the concept
What I love about this is how in just the last 20 years, a lot of work has been done to jettison bearer bonds from existence in jurisdictions across the globe, and cause the “registration” of any existing bearer bonds so that they couldnt be grandfathered in
But no sooner than this advancement in global geopolitical hegemony was developed and leveraged, the crypto market reinvented bearer bonds and they work even better
“Help us now please, don’t worry our children will pay your children”
See also Tom Scott on a different perpetual bond:
* https://www.youtube.com/watch?v=cfSIC8jwbQs
* Also: https://en.wikipedia.org/wiki/Perpetual_bond
This is amazing, but I find it disappointing that the NYSE (current owner) hasn't collected interest on it since 2004. Given that most of the charm is that this is still an active financial document, I don't understand why they wouldn't keep it going. Otherwise it's just another defunct historical document.
The article is about them collecting interest a couple weeks ago on the 400th anniversary? They clearly are keeping it going, just only collecting interest irregularly at PR milestones.
Because the bond has to be physically presented.
Moving such a document is extremely risky and a lot of work so not worth it in almost any case short of the PR bump/curiousity of having the "world's oldest bond"
Given this, we should be thankful that the NYSE is maintaining this at a loss. It occurs to me that NYSE might be the best owner of this bond, as the primary value isn’t monetary, but the demonstration of stable financial institutions.
Even if you didn't have to move it, getting a taxi to some meeting place would exceed the interest payments, let alone traveling to Europe.
i have to laugh at their proposition that Bonds built the modern world... that was slavery buddy, all that stolen labor funded the markets of the world.
You are using a very modern lens to look at history - not recommended.
I say that as someone whose grandfather was a slave.