April 24, 2014. The cradle of civilization Regime switches (expectations and payoffs)
Say's law ?
Larry Summers at the IMF (November 15, 2013)
In the second half of the sixteenth century, under Philip II in Spain, the public debt reached, for the first time in history , the "modern" level about 60 % of domestic production. Most of the long-term debt, perpetual bonds called juros, was guaranteed by the fixed contribution of cities to the central government. Each city paid its contribution (encabezamiento) to the central government after deducting interests juros issued on itself. The bondholders had a direct control over the service of their bonds through their local government. This control reinforced the credibility of the public debt and reduced its cost to the central government. The contributions of 18 major cities were determined by a simple majority vote in the Cortes. Their total imposed de facto a ceiling on the service of the debt and therefore on its amount.
In September 1575 Philip II decreed the suspension of payments on the medium-term debt (asientos) underwritten by Genoese bankers. The usual interpretation of this decree is a bankruptcy due to lack of resources or cash. Based on archives in Simancas, Valladolid and Madrid, the authors show that this interpretation is incorrect. The payment stop was the result of a conflict between Philip II and cities. The King wanted to triple the encabezamiento and thus get rid of the ceiling on the domestic debt, something that was opposed by the Cortes. This showdown is similar to the conflict in the United States where in 2011 and 2013, a fraction of the Congress tried to prevent an increase of the legal ceiling of the public debt. In Castile, the economic crisis that was caused by the payment stop forced the Cortes, after more than two years of protracted negotiations, to accept a doubling of the encabezamiento. The main commercial fairs which had been interrupted by the credit market freeze, would never regain their pre-crisis activity.
- "Debt policy under constraints between Philip II, the Cortes and Genoese bankers", (2014), with Carlos Álvarez-Nogal, Economic History Review, 67, 192-213.
François Velde: Primer on Bitcoins (December 2013).
Entertaining (Felix Martin, "Money, the unauthorized biography"), June 7
- Review in the Economist (short and stimulating)