PrefBlog

Christophe Chamley, a professor of economics at Boston University, writes an interesting piece on Bloomberg about the Spanish default of 1575:

At that time of costly communications, periodic commercial fairs were essential events for the economic activity throughout Europe. Credit was rolled over from fair to fair by bankers, and lending agreements were renegotiated. With the Spanish commercial credit market frozen, the fairs couldn’t be held. Indeed, the main fair that was held twice a year at Medina del Campo was canceled. In short, the default caused a banking collapse, which led to a severe recession.

After two years, in November 1577, the cities caved, agreeing to a very large tax increase. The king resumed debt payments to the bankers. As the king explained in the settlement agreement, called Medio General, the bankers were joined in their demands “by the petition of the delegates of the cities with particular urgency about the same business.” In other words, the cities were begging the king to restore the business of trade. The fairs at Medina del Campo resumed late in the next year, but they had lost their preeminence forever.

It was a quiet day on the Canadian preferred share market, with PerpetualDiscounts up 1bp, FixedResets winning 3bp and DeemedRetractibles flat. Volatility was minimal. Volume was pathetic.

This entry was posted on Tuesday, August 2nd, 2011 at 10:52 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.