The failure of a single Treasury-bond issue would be worse than a disaster upon the battle-field...
"Are you 100% American? Prove it! Buy US government bonds..."
- Poster from the US Treasury promoting the Third Liberty Loan, 1918
THE BRITISH PRIME MINISTER, David Lloyd George, smirked in 1915 that it was Britain's political and financial stability which would always enable it to raise "the last million".
It was a nice play on words, notes James MacDonald in his excellent book A Free Nation Deep in Debt, sparring off the "last million men" promised by Lord Kitchener, London's secretary of state for war. Endless money forms the sinews of war, as Cicero spotted 2,000 years ago. Next to cash, endless bodies are just a second-rate worry.
The hero of imperial legend, however – and butcher of those fuzzy-wuzzies unlucky enough to stumble in front of the Maxim guns he commanded – Kitchener had already set the model for raising millions both of money and men. Because the man who invented concentration camps during the Boer War of 1899-1902...starving thousands of woman, children and the old to death...also lent his stern face and jabbing finger to the world's first ever "He wants YOU!" recruitment poster.
It worked a treat! So well, in fact, that Kitchener's pose was soon adopted by John Bull (in his top-hat and waistcoat), Uncle Sam (with his little white goatee), a daughter of Zion (recruiting for the Jewish regiment) and the Russian White Army during the First World War. Repeated by the Basque government during the Spanish Civil War, the same marketing trick was then applied by the Soviets during the next "war to end all wars". It was even used by Germany's Waffen-SS to recruit death-squad collaborators in occupied France!
And just recently, amid the vicious retail recession of Christmas 2008, the old war-lord himself was wheeled out again...this time by a desperately hip art shop in London's desperately ironic Farringdon district.
Only this time (tee-hee!), the bony finger says "Shop, Damn You, Shop!"
How long before Kitchener's well-oiled moustache is replaced by Barack Obama's audacious grin? The great hope of 2009 has yet to take office, but Washington already needs to sell some $2 trillion-worth of Treasury bonds this year according to one guess-timate, simply to plug its current funding deficit.
Yes, fighting debt-deflation with yet more debt may seem a crazy proposal. But it's so universally felt to be the only tactic worth trying today, investors everywhere might want to start putting money aside today.
How else will you be able to do your patriotic duty when the bond drives begin?
"The failure of a single issue of government bonds would be worse...than a disaster upon the field of battle..." said a handbook for speakers and speech-writers issued by the US Treasury to support the Fourth Liberty Loan of 1918.
"Fight or buy bonds...Enlist or invest," screamed another US bond poster. "You who are not called upon to die – subscribe!"
Put another way, "A man who can't lend his government $1.25 at the rate of 4% is not entitled to be an American citizen," as Treasury secretary William McAdoo said. He famously closed the New York Stock Exchange for four months when war broke out in Europe in August 1914.
His aim? Three years before the US joined in the fun, McAdoo wanted to stop European investors from dumping their US securities and demanding Gold as cash payment – then the only sure form of wealth. Whereas today, of course, such nationalist politics could never interfere with your choice of investments, right?
Those two trillion dollars needed to fund Uncle Sam's deficit spending in fiscal 2009 – even before the full bail-out package and Obama's plans need funding – will surely come from somebody else. Your country will never need you to finance its political programs, not as a bond buyer at least, and matter how crass or crazy. Foreign investors will step up, even as governments worldwide also race to the bond market, starting with $350 billion-worth from European sovereigns alone during the first 3 months of this year.
And if you do choose to buy government debt as a play on deflation, a collapse in government bond prices simply cannot occur. Because even with the new US issuance set to reach perhaps 10% of America's GDP "indefinitely" on Martin Wolf's math at the Financial Times, there will always be money – from somewhere, perhaps down the back of the sofa – to keep buying up bonds.
Either that, or your central bank will simply print the notes needed to finance the debt. And that can only be good for the country – and good for bonds, too. Right?