USS Clueless Stardate 20010915.1525

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Stardate 20010915.1525 (On Screen): Senator McConnell wants to bring back War Bonds. He says that they'll help finance the war we're about to go into. Senator McConnell doesn't understand why there were War Bonds during World War II, or he'd understand that it is a pointless waste of time, for the moment.

The US economy went onto a war footing beginning in 1942. Factories which had been working to manufacture consumer goods like cars and refrigerators and stoves switched over to producing military goods. Some things like tires and gasoline continued to be made, but much of the output went to the government. Employment actually rose, and hours were long. Many dollars were issued as pay, but there were far fewer consumer goods to buy; if that situation was not rectified, the result would be runaway inflation. The purpose of War Bonds was not to raise money but rather to take cash out of the economy, cash which had been injected into it to pay for manufacture of war supplies. In a sense, it meant that the people doing the work were being paid with I.O.U.'s instead of with real dollars. With something like half the output of the US economy going into war production which was shipped overseas. this was necessary.

For the moment, the US does not face that problem. While we are about to enter a war, our economy is not switching to a war footing. War Bonds now would actually have the effect of causing disinflation, since right at the moment there is plenty of product to buy. If War Bonds start soaking up substantial amounts of cash then there will be more product than cash to buy it, which will cause prices to fall. Disinflation is a bad thing to have happen; it puts companies out of business and can set off a recession. (discuss)

Captured by MemoWeb from http://denbeste.nu/entries/00000736.shtml on 9/16/2004