How and Why Savings Bonds Have Been Used in America.
Introduction
The history of savings bonds in the American stocks market dates back to the days of Henry Morgenthau, Jr., who was the Secretary of the Treasury in the year 1935. Earlier before the times of Henry, the U.S. government had also issued bonds especially to finance the revolutionary war of 1776. The savings bonds were mainly issued to institutional investors as well as small investors. The U.S. government was not the only one in this field of issuing savings, other countries like Canada also did the same in terms of public borrowing (Daniels, 2001). This essay expounds on the reasons for issuing savings bonds and how they are issued by the American government.
Why and How to Issue Savings Bonds
The main reason for issuing of savings bonds by the U.S. to the small investors was for the purpose of education and also tax matters. The savings bonds were set in way to allow small investors earn a return and at the same time enjoy the benefits of United States. The savings bonds also helped the department of Finance to get a way of raising finances for the daily operations.
The American government also issued the current EE bonds as a way of showing patriotism and also to enable the government to fight terrorism in 2001, immediately after the terror attack of the twin towers. The savings bonds were all the times designed to be all inclusive even the small savers. The success of the issue of savings bonds during the world war 1 and 2, led to the Treasury’s introduction of smaller denominations savings stamps. These savings stamps were redeemable on maturity which was an advantage to the small savers since it allowed them to save for the uncertain future.
The department of Finance through the collaboration of the treasury and the defense team came up with other forms of savings bonds; the defense stamps which were sold through the post office and also at schools (Tully,2010). All these savings bonds were redeemable. The savings bonds were advocated by many since they had a variety of tax advantages. The holders of these bonds enjoy certain forms of tax benefits different from other citizens. The savings bonds also offer a levelheaded inflation index return which is steady in nature and a promising long term investment.
Another reason for holding the savings bonds is as way of investing surplus with hope to reap a return when the maturity time is reached. The funds accumulated during the period can earn impressing interest for the investor. Investors also invest in savings bonds as a precautionary way during the times of emergency. The American government encouraged its citizen to buy the savings bonds through persuasion and also explaining the importance of these bonds in the future times. For instance saving for the children, the government through the relevant bodies showed the parents the importance of saving for the future of their children. The main areas of savings the government emphasized are:- education, medical and trade. Also in home ownership, the savings bonds acted as a bail out to investors. The longer the period to maturity, the higher the interest and thus the higher the return to the investor.
The Treasury department has carried out several changes in law concerning the savings bonds. Among the changes that have taken place is the lengthening the period of holding bonds to 12 months from 6 months especially for newly issued bonds. The changes are only overruled in case of a natural disaster. The redemption period for EE savings bonds was set at 12 months (Daniels, 2001). All these changes have attracted a negative perception from the low income earners. The Treasury also stopped the marketing campaign for all the savings bonds. This led to many people losing their jobs and thus a negative impact to the economy.
Following the introduction of the U.S. bond program by Henry Morgenthau, jnr., these savings bonds have turned to be non-marketable, that is, they cannot be traded among the investors. They contract only remains between the initial principals and they can only be redeemed from the government on maturity. The main advantage of this rule is that, the savings bonds will always remain constant, with no single time of fluctuations in value. This has attributed to the popularity of these savings bonds amongst the Americans.
Conclusion
Savings bonds have increasingly become popular among Americans since they were introduced in the early 20th century. The savings bonds have provided an avenue through which Americans can invest their surplus incomes. The increasing risks associated with other savings scheme have continued to make bonds an alternative from of investment for many people.
Avery,
Carlson, Mark, & Roberto. (2004). Profits and balance sheet development at US
commercial
Daniels, M. (2001). Keeping the Republic: Saving America by Trusting Americans.
Chicago: McGraw Hill
Tully, S. (2010). The naked stimulus: Why savings stimulate more than spending.
Retrieved from http://finance.fortune.cnn.com/2010/09/09/the-naked-stimulus-why-savings-stimulate-more-than-spending/
