The Role of War Bonds on Today's Bond System

A war bond is similar to other government issued bonds, but it is used for the expressed purpose of funding a war. Because it is a government bond, a war bond offers a very low risk investment option. Upon maturity of the bond, there is nearly no chance of default. This means even a novice investor can generate a guaranteed return through a very stable bond. The cost of war bonds is also low, with denominations varying from small $25 bonds to much larger investments. 

History of War Bonds

War bonds have been used in many countries dating back to the 1800s. In the United States, war bonds were used by the Confederate and Union armies to help fund the Civil War. Perhaps the greatest use of war bonds internationally came with World War II. In that case, the world was only slowly recovering from a deep depression. War bonds were issued in nearly every county involved. Upon the end of the war, when Germany suffered national bankruptcy, the many bonds issued were no longer valuable. This helped contribute to the negative financial situation in the country for years to come.

War Bonds and Inflation

War bonds are primarily used to pay for industrial materials needed for a war effort. However, they have a second and very intended consequence. The federal government can encourage the purchasing of war bonds as a way of removing too much cash from the market. Whenever there is too much cash, a period of high inflation can result. The United States government has historically used many means to help curb inflation and keep prices fairly constant. War bonds offer another strategy in this effort. To help the process along, the government will often launch some degree of propaganda along with the issuing of bonds. For example, the bonds in the US are called "Liberty Bonds." The federal government appeals to patriotism, claiming the war effort requires individual capital and assistance to be sustained. This type of appeal often succeeds in driving the purchase of war bonds and reducing inflation in the marketplace. 

Current War Bonds System

War bonds today, like always, are not specifically ear marked for a given purchase. Instead, they go into a war fund, and they may be spent as needed. This fund counts as debt for the government, increasing the national debt, which is commonly criticized. In addition to war bonds, the federal government offers different types of treasury bonds. Some have proposed issuing bonds to support development of green energy or environmental resources. Ultimately, all of the bonds serve the same purposes. They provide the federal government with funds needed to take on projects without having to raise taxes. They also remove cash from the market and into investments. This helps curb inflation, stimulate the economy, and better stabilize the needs of individuals over time as they retire or experience financial emergencies. Ultimately, bonds are a tool used by the government to accomplish a variety of means, other than just raising money for wars or projects.

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