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Faculty Forum Papers

April 1976 - U.S. Savings Bonds Are A Ripoff By

Robert R. Claeys
Eng. Exp. St.

March 16, 1976

    I believe President MacVicar gave his colleagues poor financial advice in January in recommending the purchase of U.S. savings bonds. I would agree with Milton Friedman, Professor of Economics at the University of Chicago, that these bonds are a "ripoff" (G.T. Feb. 12, 1976).

    Where America invests its money is very important to the future of this country. One should ask: Where and how will the borrower use my money, and will the rate of return compensate for the risk involved and for inflation? Is the money borrowed by the Federal Government used to develop new industries and jobs? Very little. Is it put to other good uses? Only a small portion. I believe Federal borrowing has a long term negative effect on the economy.

    The rate of return is low, even after tax considerations. As for safety, the same government backs both saving bonds and saving accounts. Government safety is over rated; everyone thought New York bonds were as good as gold. In the past ten years the Federal Government has been borrowing heavily to pay current bills; and, if continued, will eventually lead to bankruptcy and a new form of money. Since saving and loan institutions invest in local housing, their investments are probably the safest; and the money is put to good use in the local community.