The Economics of Prophecy

"We'll raise all the money we need in bonds."

When I said that, I peeked into the faces of the two men who controlled the kingdom's finances. Grinisias hadn't changed his expression, an irresistible bruise floated on Volker's face.

"Bonds are debt. I naturally consider making up for the funds with borrowings. But this amount is out of the question. What about interest payments, it takes years to redeem"

Even if we fund the state, will the difference between debt and taxes come back later? "Lend me because it's not enough" is a lot less resistant than "Give it to me because you need it". But there are limits to that, too. If you can't return it (default), we'll be together. The funds used for military bases confronting a large group of powerful f warcraft in barren land suck. Essentially, military spending is consumption that does not reproduce. However, not with regard to this time......

"No, this is not debt. assets. And interest, though. I intend to design a substantial portion of this bond in a way that neither pays interest nor requires redemption."

"I'm not talking about it. Prime Minister, how long do you intend to hear such nonsense"

Volker is already a complete con artist. Grinisias looks at me like he's exploring me. If my boss wasn't here, I might have been forced to go straight to the store.

"What do you mean, assets?"

Euphiria sighs one. And he asked me. I've already explained... Oh, was I in too much of a hurry?

"Explain. The funds raised with this bond are not just depleted. As a result, there is something left. It is the prototype of a new city that will become a trading hub with the Empire in the future. This is a new asset for the kingdom."

War expense is basically a drain, but not this time. Closer to construction government bonds than war time government bonds.

"I know we can have a new city. That's not why I'm out of debt."

Greenesias opened his mouth on behalf of Volker, who stared silently at this one.

"Add one trick to the bonds you issue. In other words, the bond owner is entitled to divide the rights of the new city if he so desires, and the bond is exchangeable for shares."

The idea originated in convertible bonds. In a sense, it is a det equity swap, an exchange of liabilities and capital. Creditors become investors in cities. In other words, if the buyer of the bond wishes, the principal will be the capital of the city, and the interest will be dividends.

"People who want to have it as a bond receive interest rates. Principal returns at redemption. This is the same as normal debt. However, I will work out one thing there as well, so I will start by explaining it as a bond..."

I saw Meer. Meer stood up. Present a piece of paper in your hand to the attendees, with a number that says 100 and a painting of gold coins at the top.

"See sample bonds handed out as materials"

Meer said. Everyone turns the paper.

"Though it means what it says. A hundred gold coins is the denomination per bond. This bond will be issued in 83 gold coins and a redemption period of 10 years."

Meer said.

"Even though you need a huge amount of money, you mean sell 100 pieces of gold for 83 pieces"

"Yes, instead you pay zero interest every year"

It's called a zero coupon bond if it's a type of bond. Instead of not having interest, that portion is sold cheaper from the start. It's Meer's idea, by the way. I just explained the discount current value, and they came up with it. Horrible.

"... you're saying the interest rate is discounted from the beginning"

Even it's a new attempt. I like this form to clarify the value. I have another big aim......

"One hundred to eighty-three grounds."

"Discount present value"

Meer offers a new piece of paper. In the case of a compound interest rate of ○ percent, one year ago and two years ago… it has been calculated how much the value ten years ago should be.

"Discount present value?

"Simply put, I'm saying that the value of the 100 gold coins you get now is different from the 100 gold coins you get in ten years. Here's a table showing how different it is."

Stick to the paper even to the merchant group that should have already been briefed on Meer's answer. Well, I can't help it with this. What interest rates mean in this world is that the majority of them are insurance against risk.

In any case, the value of the currency depends on its material, precious metals. Gold does not deteriorate, so there is no aging "inflation" in the monetary sense of paper. Of course, it means lost opportunities. But at this rate of economic growth, it's pointless. The exception is the Vinder Chamber of Commerce.

"Let's say the interest rate for a year is five percent. What is the value a year from now of 100 gold coins?"

Meer asked Volker.

"I see... lend me a hundred gold coins I've got and I'll be 105 in a year. So you're saying that 100 gold coins today is equivalent to 105 in a year."

Volker answered. You're quick to understand. When I heard this in class in my last life, how hard did it hurt you? Talking about finance goes against basic intuition. That's why experts take high salaries.

"Yes, conversely, a hundred gold coins a year from now equals 95.2 gold coins today"

"I see, is that the rationale behind selling 100 gold coins for 83 bonds"

"Easier to manage without the need to pay interest per year. In fact, considering the current calculation at 10 years compound interest rate as 2 percent interest rate, it would be 82. That's the calculation for issuing 83 bonds that will be redeemed as 100 gold coins in 10 years. One gold coin is a management fee."

Meer keeps explaining. By the way, two percent is naturally a wartime interest rate. It is arguable logic that it is far from the original risk, but that it will be over when it perishes about it.

Everyone manages to convince me of Meer's pale explanation.

"I see what bonds mean. But redemption is in ten years. How to ensure credibility"

"That's the biggest problem. Firstly, we ask His Majesty the King to purchase this bond in large quantities"

Meer said.

"Measures to the disaster yesterday and victory over the war against the Empire. The popularity of His Majesty the King, His Royal Highness the King and His Royal Highness the Alfina is immense. This means saying that the royal family has tremendous credibility from the nobles and the people. To say that the royal family invests in bonds. We're going to say that the bonds will be granted royal credit."

Meer's words are terrible. At some point, popularity has gained credibility. Well, it's the way to make the most of the King's proclamation of offering his royal possessions for the purpose of counteracting this disaster..................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................... It is as a people that maximizes the utility function of the king's truth in thinking of the country............................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................ Well, not before construction.

Even in previous life, the greatest credibility was the state. Bonds issued by the state, or government bonds, have the greatest credit and interest rates are low. As a result, it was an indicator of interest rates.

"By the way, my concubine isn't going to throw the majority of her assets on this bond either. Neither does His Highness Alfina."

Euphilia said.

"... then the nobles will have to fund each other... the funds will be collected. But if you increase this amount by 20%, it won't be redeemable in ten years."

"Yes, the current financial position of the kingdom would take at least thirty years to redeem."

A number about how you knew that came out of Meer's mouth. When I talked to you about this bond, you were basing your calculations on this hand figure without much thought. What did you do while you were in and out of the Chancellery with the commonality of transport standards or something?

"So I won't give it back"

"What the..."

Meer turned a blind eye to the words she had put in her mouth all the time.

"Seniors earlier...... as Ricardo said, the funds collected turn into an asset called a city. Set the right to receive profits rising from this city as dividends annually as city shares. Please check with His Excellency the Grand Duke of Bertoldo regarding the shares."

Meer saw the Lord where he lived.

"The Chancellor and the Finance Minister will know better. You seem to have a passion for our income."

Euphiria laughed.

"Bonds are subject to the condition that they can be exchanged for this new city stock depending on the amount. In other words, it may be retained as a bond to be redeemed in ten years' time, with an emphasis on safety. It would be a good idea to exchange it for the rights of the new city. Shares exchanged for shares in new cities are not liabilities and therefore do not need to be redeemed"

I wonder if it's about the exchange ratio of 100 pieces of nominal gold to 82 pieces of stock gold in the city. Zero coupon bond, so no interest until then.

"In other words, when this piece of paper becomes gold as it is..."

"Yes, it's like the king's decree, the guild being given, for example, but this also actually has enormous economic value, doesn't it? It's similar."

Meer said things that made both merchants and aristocrats face off. But I don't give a shit.

Now, the next problem is….

"... a plain with nothing now. It's a city built into the realm of the Warcraft. Wouldn't anyone convert it to shares?"

said Grinisias. Yes, if no one converts shares, that's just a bond.

"We're thinking about starting the conversion in five years. Urban construction will proceed rapidly through the forthcoming battle against demonic worms. The exchange of vast supplies between the Kingdom and the Empire is also guaranteed. Against this backdrop, the value of cities will come to the attention of many human beings. Especially to the commercial world, which assumes itself as the centre of buyers of bonds"

The merchants snorted all over Meer's words. Well, politicians...... Grinisias thinks silently. I slapped Volker in the ear. Volker nodded reluctantly, with a bitter face.

"I have another concern. This huge transfer of funds is causing disruption to the kingdom's economy."

You got one last problem. This major undertaking distorts the distribution of the kingdom's Golden Kings. Even though there is no such thing as a disaster, it becomes a disaster for all humans. Especially for us merchants.