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What is a Liberty Bond?

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  • Written By: James Doehring
  • Edited By: Lauren Fritsky
  • Last Modified Date: 13 November 2016
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Although they mainly functioned as downspouts, gargoyles were also intended to scare people into attending church.  more...

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A Liberty Bond was a bond issued by the US Treasury to finance the First World War. The first Liberty Bond was not very successful due to lack of interest, but later bonds were more popular thanks to a variety of advertising campaigns. After the September 11th terrorist attacks, a bond under the same name was issued to fund the rebuilding of affected areas.

Governments often issue bonds to finance wars because the cost of military campaigns can dwarf all other government expenditures. The First World War was estimated to have cost the US federal government $30 billion US Dollars (USD). Annual spending on the war was several times larger than all other government programs combined. The idea behind a war bond is that the financial sacrifice incurred by citizens will be worth the broader implications of victory in the war. The bonds are also a way that citizens outside of the military can contribute to the war effort.

The first Liberty Bond did not achieve the popularity that government planners had hoped for. They ended up selling $2 billion (USD), less than half of the $5 billion (USD) limit. Many considered this underselling as an embarrassment for the US Treasury. Those who did buy the bonds earned 3.5% annual interest, up to $30,000 (USD) of which was exempt from taxes. The bonds were issued in 1917 and could be redeemed after 15 years.

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In response to the performance of the first Liberty Bond, the Treasury organized a campaign to increase the popularity of the bonds. Renowned artists were employed to design patriotic posters calling on Americans to participate in the bond program. Bumper stickers, buttons and even movies were produced. Finally, famous movie stars and celebrities hosted rallies advocating the bonds. These efforts were largely successful, and along with the higher interest rates offered, they led to an additional $3.8 billion (USD) in bond sales.

The fourth Liberty Bond was issued in 1918, near the end of the First World War. It authorized the sale of a final $6 billion (USD). The redeemable period of the bond was in the early 1930s, during the Great Depression. Due to the financial circumstances of this period, the US government was unable to meet the original repayment terms of the bonds.

More recently, the US government issued a Liberty Bond to fund the rebuilding of the site of the former World Trade Center in New York City. Not only were the Twin Towers at the site destroyed, but many neighboring buildings suffered heavy damage. Property damage estimates for the September 11th terrorist attacks range from $20 billion to $50 billion (USD). A Liberty bond was issued to raise funds without incurring the high interest rates of commercial bonds.

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