From the Internal Revenue Service came a letter, the subject of which is something between me and them, that mentioned almost in passing that the interest rate on money owed the government would henceforth be nine percent. This made me think of the question I once put to a friendly IRS auditor.I asked why, when we owe the government money, we have to pay interest, but when it is the other way around, interest is not paid?
This shows the government does not play fair.
It also shows, though, that the government really does know the value of money or, to put it another way, the approximate rate at which it is losing value. This is an interesting admission for Uncle Sam to make because when it comes to promoting and selling savings bonds it pretends that inflation is either well under control or a thing of the past. Savings bonds pay seven percent.
Normally, this might not even be worth mentioning: Seven percent is more than you can get at most savings institutions -- federal savings and loans, banks or credit unions. It is, however, way less than you get in other places and even less than you can get in the usual places if you will agree to some conditions and restrictions. A savings bond, in fact, is a rotten way to invest your money.
This is not something the government is willing to tell you. It has, instead, wrapped the flag around these bonds, making it your patriotic duty to take a soaking.It has trotted out actors and athletes to make their pitch in an attempt to make bond junkies of us all -- one a month on the payroll savings plan where. . . .
We have heard this pitch so often we have committed it to memory. What we have not heard from the government is that in an era when inflation is something like 13 percent, a seven percent bond is not -- ahem, ahem -- the wisest of investments.
The government knows this. It wouldn't think of offering that kind of return to major investors. For them, it will offer much higher rates -- 10, 11, 12 percent. You can get similar returns from private savings institutions and even higher returns from the so-called money market funds which, unlike either government bonds or government insured savings institutions, are not insured.
Presumably, it was these funds that are the target of the television commercial in which a couple stands before the house they lost because they invested their money in an uninsured savings instrument of some kind.
In terms of low blows, this television commerical is hard to beat. (Just name one couple who got wiped out in a money-market fund.) But whatever you might think of this commercial, it is private enterprise doing its thing -- in this case, substituting scare tactics for sound argument.
But the federal government is not private enterprise. It has an obligation to the citizens themselves and not to stockholders or lenders. Its bottom line is something called public trust -- not profit and loss. The government does nothing to enhance this trust when it sells bonds to people who would be better off putting their money somewhere else.
In a sense, this is yet another tax on the poor and the gullible, who are told they are not only making a sound inventment, but also doing something patriotic.
In fact, you would have to look pretty hard to find a worse investment than a savings bond. You get seven percent after 11 years with Uncle Sam; you can get seven percent right off the bat at a state-chartered savings and loan.
If you think a bond is a good deal, I would like to interest you in a bridge or two, one of which is in Brooklyn.
No matter. The government plunges on. Once it sold the bonds to win a war. The bonds had purpose then and they amde economic sense. But all that has changed. Recently the government stooped to calling them Energy Bonds, when they had nothing to do with energy -- either the lack of it or the conservation of it.
Maybe they ought to call them Sucker Bonds.