There are two stories related to bonds which we may be looking into later this week, one is a story about bond proposals at the state level, http://www.duluthnewstribune.com/event/article/id/288778, while the other is about the local level, http://www.grandrapidsmn.com/news/article_e58d8d2e-7a49-11e3-835b-001a4bcf887a.html. Both of these may relate to the Myles Reif Center.
We will also look at a new law which may come into play here later, for more on this please refer to our previous article, http://grandrapidsvoice.com/2013/12/31/is-this-taxation-without-representation/.
More about the above in future articles. For now let’s look at what the bonds that these three stories have in common are.
According to Investopedia, http://www.investopedia.com/terms/b/bond.asp, bonds are defined as follows:
Definition of ‘Bond’
A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities.
Bonds are commonly referred to as fixed-income securities and are one of the three main asset classes, along with stocks and cash equivalents.
Investopedia explains ‘Bond’
The indebted entity (issuer) issues a bond that states the interest rate (coupon) that will be paid and when the loaned funds (bond principal) are to be returned (maturity date). Interest on bonds is usually paid every six months (semi-annually). The main categories of bonds are corporate bonds, municipal bonds, and U.S. Treasury bonds, notes and bills, which are collectively referred to as simply “Treasuries.”
Two features of a bond – credit quality and duration – are the principal determinants of a bond’s interest rate. Bond maturities range from a 90-day Treasury bill to a 30-year government bond. Corporate and municipals are typically in the three to 10-year range.
So what does this mean to us? Simply that whenever a government entity, such as a city or school district, wishes to spend money, but has none on hand, that entity issues bonds to investors and receives funds in the form of a loan. This loan is then paid back, along with interest, by the taxpayers. We can look at this as a way to spend tomorrow’s money today, much like an individual using a credit card to purchase ahead of the paychecks.
Please read the articles linked above, then leave any comments and questions below. We will continue with this at more depth after we see what questions come in.