What does the government do with Savings Bond money?
Friday, December 10th, 2004
Categorized as: Savings Bond FAQ
When I buy a savings bond, what does the government do with that money? Does it stay in a fund or get used to do government business? When I cash one, where does the money come from? Does the US have a reserve fund set aside to pay bonds and bond interest? Or are they paying out of current receipts?
Tom’s response
The U.S. government spends inordinate amounts of money each year - lots, lots more than it collects in taxes.
To cover the amounts the government spends above what it takes in through taxes, the Treasury borrows the money.
Savings Bonds are one of the ways the Treasury borrows money, although Savings Bonds are very minor compared to the two largest sources of borrowed funds, marketable Treasury securities and the Social Security Trust Fund.
When you redeem a Savings Bond, the money comes from the same Treasury funds, which, as we’ve seen, are a mix of tax receipts and borrowing.
There’s no reserve fund, just as you don’t have a reserve fund to pay back a car loan or home mortgage. If you had the money for a reserve fund, you wouldn’t need to borrow to begin with, and neither would the government.
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Tom Adams
This was helpful but I am trying to find out WHAT the government spends the money from the bonds ON. Does someone publish a list of these expenditures, such as; schools, roads etc.? Also, whst percentage on various things? I can’t find an answer to this anywhere on the net.
Lin - Wikipedia has a good breakdown here.
Tom Adams
I BONDS EE BONDS THE WORKING PERSON ALWAYS GETS IT UP THE YOU KNOW WHAT.
According to the Wikipedia link above:
” Spending: $261 billion (+9.2%) - Interest on National Debt “.
This could suggest that some (not all) New Savings Bond money is spent on payment for Redeemed Bonds. Uncle Sam’s ironic shell game.
Eddy - Money is like water in that once it gets in the government’s tank it’s impossible to say what goes where.
On the other hand, it’s interesting to think of the Savings Bond program as later investors paying off early investors.
Whether something is deemed a Ponzi scheme or not depends on whether it eventually fails. All we know is it hasn’t failed yet, so it’s not a Ponzi scheme yet.
Tom Adams