an increase in the supply of paper money, and hence a decrease in the purchasing power of the currencies in which most bonds were denominated. A rational investor who anticipated a major war would sell bonds in anticipation of these effects.
The excerpt discusses how an increase in the supply of paper money leads to a decrease in currency purchasing power, particularly affecting bonds. This economic shift is critical for investors' decision-making, especially in uncertain times.
Niall Ferguson suggests that rational investors, anticipating the onset of a major war, would take proactive steps such as selling their bond holdings. This behavior reflects their concern about the impending devaluation of currency and potential financial instability resulting from the war.
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