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War bonds may return to fight terror

Two senators are trying to bring back war bonds, something the United States hasn't seen since World War II.

Officially, war bonds are savings bonds that serve as a way to raise money for a war effort. Both sides sold them during the Civil War. The U.S. government sold them during both world wars (they were called Liberty Bonds during World War I), and bonds were sold to pay off Revolutionary War debts.

Unofficially, war bonds serve another purpose: fighting inflation during an overheated wartime economy.

Sens. Mitch McConnell, R-Ky., and Conrad Burns, R-Mont., introduced legislation Friday to authorize the Treasury to sell war bonds. The proposal would let the Treasury secretary choose the bonds' terms, including the rate of interest and length to maturity.

No one gets rich investing in war bonds. During World War II, war bond investors collected an annual percentage rate of about 2.92 percent. Patriotic Americans would spend $18.75 for a bond that could be redeemed 10 years later for $25. Likewise, $37.50 would buy a bond that would be worth $50 in 10 years, and $75 would buy a $100 bond that would mature 10 years later.

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Stores sometimes handed out change in "war stamps" which could be collected in a book and be redeemed for war bonds.

People knew back then that war bonds weren't the world's best investment, but they bought them by the billions anyway because buying war bonds was patriotic. Children bought them at school, and the federal government organized traveling rallies. Like fire-and-brimstone preachers at tent revivals, bond barkers warned of the hell on earth that would surely follow if the Japanese and Nazis won the war.

In addition to financing the military, war bonds damped inflation. During World War II, anyone who wanted a job could get one, and civilian income increased rapidly, while nylon, rubber, meat and other items were rationed. Demand exceeded supply, and war bonds were a way to take money out of people's hands and keep inflation down.

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In 2001, when the Federal Reserve is lowering interest rates to encourage people to spend and not to save, it might seem rather counterproductive to introduce inflation-taming war bonds. But McConnell says war bonds would have a greater purpose: "It will be essential for our government to generate consistent public support for its actions."

Issuing war bonds "will provide an opportunity to educate all Americans on the complicated nature of the terrorist threat and the resulting comprehensive nature of our response," McConnell says in a statement.

Maybe, for the first time in almost 60 years, Americans will again see war bond rallies.

-- Posted: Sept. 18, 2001

 

See Also
Disaster survival tips
Bond with your nation, buy U.S. savings bonds
Buying savings bonds through payroll deductions
Types of savings bonds
Savings glossary
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