Eli5 – military war bonds.


They are in games and pop culture but can someone explain in very simple terms what they are and how they work?

In: Economics

When the government and even just big companies needs to loan money they can not just go to a bank with a loan application. Instead they issue bonds. A bond have the same terms on it as a regular loan however instead of being issued by the lender it is issued by the debtor. Anyone can buy these bonds and the government will then pay them back the loan as per the terms on the bond sheet. What is special about war bonds compared to regular government bonds is that they are issued in wartime. War is expensive so the government tends to issue more bonds then usual as they rack up their debt. War bonds also tended to be marketed differently with military parades and patriotic posters in order to get people to buy them.

Cash money is paper with value, war bonds are paper with value. Both can be traded for goods and sometimes services.

Have you heard of silver certificate bills? Basically dollar bills with extra value the longer you keep it. With war bonds it’s somewhat similar but once you leave the military the value drops a bit.

War is expensive. During times when the military budget doesn’t keep up with military expenses, the government will ask to borrow money from its citizens. It’s kind of a crowd funding sort of situation, where thousands of average people giving relatively small amounts of money fund huge, expensive projects. Except that war bonds are a cash loan that gets repaid with interest, instead of a pre-payment for a good or outright gift, the way modern small scale crowd funding tends to be.

Everyone who lends money, from banks to your cousin, is taking a little bit of a gamble on whether they’ll be paid back. If someone dies, they no longer have to pay back their student loan debt. If your uncle skips town with the money, your cousin probably isn’t getting his $300 back. Lending money to the government is *incredibly* low risk, especially long lasting, relatively stable governments like the USA. They’re very unlikely to collapse and are pretty much guaranteed to pay their debt in full, with interest.

WWII was kind of a weird situation. It cost a lot more than we expected, and that money had to come from somewhere. War bonds were advertised and sold in unprecedented amounts. The American people bought $185 billion in bonds at an average interest rate of about 2%. The government paid back about $189 billion as their tiny individual debts came due over the next 30 years.

A few bonds were never claimed and are occasionally unearthed in attics in the modern day. They’re worth a lot of money, both as historical artifacts and loans that have been accruing interest for nearly a century.