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contraction of consolidated annuities, a bond issue designed to consolidate two or more outstanding issues, used in reference to British government stock. Public borrowing began in England with the establishment of the Bank of England and the national debt (1693–94), and the growth of the debt produced a confusing variety of stocks. Prime Minister Henry Pelham began to consolidate existing stocks in 1751. The consolidated stocks had a fixed rate of interest, or annuity, payable by the Bank of England, with premiums to be paid if the market conditions justified such payments. Consols bore no maturity date and were redeemable on call by the government. During the late 19th and early 20th cent., consols constituted the major part of the national debt and were thus a reliable index to the state of national credit.
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The disadvantage of Gideon's structure from the fiscal point of view was that, for each 100 [pounds sterling] of war expenditure on 3 percent Consols issued at 60 percent of par, 167 [pounds sterling] was typically added to the debt.
The interest cost was indeed the same, or even slightly lower than through issuing new 5-6 percent debt at par, because the Consols' attractiveness to speculators allowed them to be sold at a slightly lower running yield.
The rise in the prices of British Consols from 1813 onward appears to have been due, in part, to a reduction in their perceived risk as the Allies approached France and peace returned, and, in part, to a drastic reduction in the annual supply of new Consols through budget deficit financing.
Nevertheless, the overall trend is clear: huge deficits and increases in the supply of Consols during the war years of 1812-15 were followed by near-balanced budgets in 1816-19 and surpluses thereafter, while the supply of Consols stopped increasing from 1816 onward, except for a modest blip in 1819-20 caused by funding 10 million [pounds sterling] of the Bank of England's holdings of Exchequer Bills in connection with the return to gold.
The largest single tranche, 384 million [pounds sterling], consisted of "Consolidated Annuities," the 3 percent Consols, which paid interest in January and July.
The 4 percent debt, totaling 75 million [pounds sterling], took the form of 4 percent Consols, while the 5 percent debt, totaling 136 million [pounds sterling], originally contracted in many cases by the Navy and Army directly, had been consolidated into 5 percent Consols.
The loan raised 27 million [pounds sterling] in net proceeds, for each 100 [pounds sterling] of which buyers would be given 130 [pounds sterling] in 3 percent reduced stock, 10 [pounds sterling] in 4 percent Consols, and 44 [pounds sterling] in 3 percent Consols.
However, given the price rise in Consols over the next decade, their holdings of this issue alone played a major role in generating the Rothschild and Ricardo fortunes.
Their capital base dramatically increased, from 1810 or so as their large long positions in Consols rose in value.
* Nearly all the Napoleonic War debt was issued around 60 percent of par or below, so when peace came holders would have a capital gain of 40 percent as Consols trended back toward par.