Understanding the Impact of Government Budgeting on U.S. Investors

When government budgeting accounts for new expenses, it may use bonds as a way to fund those projects. Bonds are one of the two ways the government can get money, the other way is by raising taxes. In both cases, voters will decide to approve the additional expense through their representatives in Congress. If a new bond-supported project is announced, investors get a change to lend money to the government.

War Bonds

War bonds have historically been used to fund major military campaigns. The biggest use of war bonds came during the Great Wars, when the United States issued "Liberty Bonds" to fund the effort. The US was not the only country using bonds as support for the war, a record number of bonds were also issued in other nations such as Germany.

Treasury Bonds

Treasury bonds are more commonly issued when compared to war bonds. They are used to support infrastructure development and other major projects. Treasury bonds offer safe investments since they have relatively no chance of default. Though the interest rates tend to be low, investors will capitalize on tax benefits of Treasury bond earnings. The earnings may not be taxed by either the Federal Government or even the state government where you reside in some cases.