What's the deal with War Bonds?

During WWII goverment bonds (US War Bonds) were sold aggressively to the general public. I believe bonds were also sold in the UK at the same time.

  1. What did the goverment do with the money that it collected?

  2. What would have happened had this money not been collected?

  3. Did the sale of War Bonds have a significant impact on how the war was conducted?

Just wondering…

Guns & ammo must be paid for.

The Government neede a loan. They got ut from John Q. Public.

The bonds were redeemed for the purchase price, plus intrest.

They used it to pay for stuff to fight the war. After the war, the money was paid back with interest, same as any bond. However, war bonds generally offered a fairly low rate of return, so their appeal was for patriotic citizens to help the war effort, as opposed to an investment opportunity.

They would have had to raise taxes to pay for the war instead. (They did raise taxes to pay for the war, but they would have had to be raised a lot more without the bonds.)

They did raise quite a bit of money, but that had no immediate effect on military tactics or planning.

That makes sense… thanks.

Not sure why the govenment didn’t just print more money… I guess that would have caused massive inflation, but spending money on bullets would have been worth it given the gravity of the situation.

The government was well aware of what happened to Germany’s economy after the First World War when they printed a bunch of money. Printing currency without an actual increase in GDP is never a good idea.

A bond is a financial entity (a corporation or a government, typically, but an individual could theoretically do this, too) selling off debt to others for an influx of liquid assets now, at the expense of having to pay off all debts with interest over time.

When you buy a bond, you buy an interest in the entity’s future earnings as it applies to the interest and principle you are owed. You cast an implicit vote of confidence in the future earnings of that entity (all US bonds are backed by the Full Faith and Credit of the US Government) and you give it liquid assets to aid in those earnings. In essence, you give the entity a small loan and hope it will be repaid, with interest, over time.

Since the US Government is such a secure financial entity, a US Government bond is seen as a conservative, albeit low-yield, investment.

As for printing more money:
[li]Currency is a small fraction of what money is. Very little of the money we use has a physical form: Most of it exists in ledgerbooks and accrues interest, instead of sitting around as paper or coin slowly rotting.[/li][li]If the US dollar is seen as devalued, two things will happen: People will doubt the stability of the US economy, and we will make a killing in foreign export. (Think of it this way: If a shop down the street is willing to sell you a dollar’s worth of bread for 75 cents, will it or will it not do business hand-over-fist? That’s the same thing that happens when the yen is 1,000:1 with the dollar – Sony gets to sell cheap here and still pay their workers a living wage.)[/li]
Let’s focus on the first, though: If the Greenspan types are seen to be dumping American money into the market in hopes of bolstering our buying power, people will refuse to take American money for trade at its former (high) value. Gresham’s Law (bad money drives out good) only works if a government is forcing two unequal currencies into par. In international trade, nobody makes anyone accept Russian roubles, Mexican pesos, or any other currency of dobutful value. So the American dollar buys less foreign oil, less foreign electronics, and less foreign currency.

Bonds, by mobilizing the liquidity of the working world into government coffers, are a much better way to increase national wealth in a quick spurt.