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I watch governments struggle with their finances all the time, and I'm wondering why no government has tried this strategy:

1. Issue a bond, backed by the proceeds of the investment.
2. Put the revenue generated by the bond sale into the S&P 500 (or similar buy-and-hold blue-chip portfolio).
3. Use the dividend stream from the investment to pay off the bond.
4. Repeat.

Given a fairly reasonable assumption that a government could get a 65 basis point spread between the rate on their bond and the current dividend yield of the S&P 500 (1.85%), and given that those dividends grow at about 5% annually (long-term historical average is more like 5.88%), the debt should be fully repaid in about 30 years without selling a single share of the initial stock purchase. After that, all dividend yields would become a free revenue stream for the government.

Depending on how aggressively they chose to pursue this strategy, a state could become self-financing without any taxation within a few generations, and could do so without increasing taxes at all in the process. It's a pure arbitrage based on shouldering the time risk of the market.

So, why hasn't a single municipality or state (or government, for that matter) tried this approach?
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