United States Government Bonds
( Originally Published 1918 )
These bonds pay from 2 to 4 3/4 per cent; are issued to supply the government with funds (usually for extraordinary needs) and are payable, principle and interest, from the revenues of the government. They are secured by the simple credit of the country and are free from all government, state and local taxes. United States government bonds are recognized as the safest investment.
Liberty Loan bonds are United States Government Bonds. Everyone knows that fact spells safety. "As safe as a Government Bond" has been incorporated into the language as a superlative expression. And rightly so. For if the United States is not safe, then nothing in the United States is safe. If the United States can not pay its debts, then commercial enterprises within the United States can not pay theirs, because taxes take precedence over all other obligations and a corporation's taxes help to pay the interest on its government's bonds before it can pay interest on its own.
Advantages of Owning Government Bonds. When you buy Government Bonds, the United States Government becomes the custodian of your funds and pays you a liberal interest. Who can be found to say that this is not a safer custodian even than the savings banks which for so many years have kept faithful watch and ward over the wealth of the people? Such solid investment also performs an inestimable service to the community. The investor in Government Bonds sets a worthy example to those who through lack of experience or foresight would otherwise lose their money in unwise investments or spend it in extravagant living.
Then again, consider the ready salability of Government Bonds. They can be so readily converted into cash that they are virtually the same as cash. Yet they pay an income, which cash does not.
Another advantage of United States Government Bonds is their borrowing value. Owing to the comparatively non-fluctuating character of these bonds, banks are always willing to lend more money on them than on any other class of security.
So the American who invests in United States Government Bonds is putting his money into an investment based on the credit and good faith of the richest country in the world, which has an honorable and unbroken record as a debt paying nation. Hence he need not worry about panic or crop failure. His money is absolutely safe and his income on same positively sure.
Liberty Loan Bonds and the Older Issues of Government Bonds. There is one important difference between the Liberty Loan Bonds and the older issues of Government Bonds now in the hands of investors. The holders of the older issues consider and very properly that the degree of safety they enjoy is so high they can well afford to accept a comparatively low interest yield on their money. This is a result of the unequaled credit standing of the United States. But the Liberty Loan issues present a different case. They have the same government behind them. They can make the same claim to being the safest investment in the world. Yet safety is not all they offer, for the interest return on these issues is very attractive indeed. The higher interest rate is simply due to the more insistent demands of war as compared with the requirements of peace.
Attractive as these Government Bonds are now they will be far more attractive after the war. United States Government Bonds bearing 3/ per cent to 4 per cent interest are worth more than par in normal times. Therefore all who believe in the future prosperity and credit of the United States will admit that a profit on bonds purchased now is sure to accrue when the war is over.
FOREIGN GOVERNMENT BONDS
Foreign Government Bonds.--The bonds of leading foreign governments have always been considered among the world's soundest securities and as such have commanded. unusually low rates of interest. Before 1914 when the World War began, there were comparatively few of these bonds sold in the United States, which until that time had been a borrowing nation rather than a lending nation. Today the United States is one of the greatest lending or creditor nations.
Secured by Collateral. The earliest of these foreign war loans, like all government bonds, were secured merely by the credit and taxing power of the nations issuing them. However, some of the more recent loans for the British and French Governments are not only secured by the credit and taxing power of these governments but also by collateral whose market value is 20 per cent greater than the amount of the loan. Some of the recent issues pay as high as 5 1/2 and 6 percent.
Short Term Security. Foreign government bonds are generally "Short Terni" securities, that is, the bonds are paid off within a few years after they are issued. As such, they are more attractive to banks and institutions than to individual investors.