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The History of American Debt:1775-2011
The Band Of Patriots ^ | August 8, 2011 | Matthew Monos

Posted on 02/18/2012 1:31:18 PM PST by orthodoxyordeath

Standard and Poor downgraded the credit rating of the USA from AAA to AA+. Add in the fact that they downgraded the credit of institutions such as Freddie Mac and Fannie Mae for being too reliant on government (shocker!), are mulling downgrades of Britain and France, and said they might downgrade the USA again in a few months if the situation doesn't improve, and we're looking at financial free-falls worldwide.

This of course has prompted a renewed interest in American debt, since the S&P said that was the main factor in this downgrade. In fact this morning John Chambers, Managing Director of S&P, said that all the countries that regained their AAA credit rating after being downgraded took on fiscal reforms to reduce their debt to GDP. According to Paul Krugman (an idiot if there ever was one), we're fine financially, because we can still borrow and wouldn't you know it, Alan Greenspan thinks we can just print more money! One of our readers asked us, "WHY does America need to 'borrow' money from anyone?" Well, the simple answer, is that we live outside our means. Therefore, we need money to sustain ourselves. However, that has not always been the case for our debt.

First, we need to understand the history of our debt, and what has changed. American debt started to exist before this country even was born. Starting in 1775, a year before the country was officially founded, the USA started borrowing money. We needed money to finance the Revolution, and received money from the Spanish and the French, both of who were primarily loaning money to stick a finger in the eye of the Brits. After the Revolution and the Articles of Confederation, on January 1st, 1791, our debt was reported to be around $75,463,476.52. Keep in mind, this is the 1790s, so that is a ton of money. So, coming into the 1800s, we're already sitting on a huge debt. However, from 1796 to 1811 there were 14 budget surpluses and only 2 deficits. That's a word this country hasn't heard enough lately, surplus. Even so, our debt was destined to grow, again, because of a war, this time the War of 1812. But, again in the twenty years after the War of 1812, the USA had 18 surpluses. Keep in mind, for twenty years, that gave us a statistic of outputting a budget surplus 90% of the time. Add on the fact that the USA paid off 99.97% of its debt in those years, and we're left with a country that looks like a damn good investment to the rest of the world.

In those years, the US experienced huge growth, but as I said, the surpluses came for 20 years after 1812. So that puts us into about 1832. So next came the Panic of 1837, which brought a five-year depression, along with bank failures and high unemployment levels (around 10%). This stopped business growth for about three years but even so, the country was still growing at a pretty steady rate. This is because of the expansion of the railroads and general industrial expansion. So with a few financial insecurities, by the time the US reached 1860, one year before the Civil War, we had again accumulated a debt of about $65 million. However, as % of our GDP, this number was nominal, only around 2-5%.

Now though, we get into the Civil War. Without accounting for the horrid loss of life, which was over 1 million men in 10,455 engagements, we have the horrid economic situation it produced. By January of 1863, the war was costing the Federals over $2.5 million per day. The official post-war estimate of the cost in 1879 was a cost of $6,190,000,000. So, the debt went from $65 million in 1860 to about $1 billion in 1863 to $2.7 billion by the end of the war. Therefore, by the end of the war, our debt was about 35% of our GDP. Not a pretty number, but not unbearable either. To foreign investors, we still looked a pretty nice investment.

This is our GDP leading up to and after the Civil War

Here's our debt leading up to and after the Civil War

With those numbers, that is, our debt equaling a little more than 1/3 of our GDP, you'd think America was under hard times from then. That is a happily false assumption. We entered, as a country, what is now referred to as the "Gilded Age." Now, granted with Reconstruction and such, the South didn't share in much of this prosperity. Because of the factories and industrial complex the Civil War had set up, by 1890, the US leap-frogged Britain for first place in manufacturing output. This is because after peaking in 1880 at 40% of our GDP, the debt would decrease nearly every year until World War I. So, again, the US set a trend of paying its dues, something very appealing financially to investors. So, from the end of the Civil War, for 47 years America ran budgets which produced 36 surpluses and 11 deficits. That's still a better than 3/4 ratio of balanced budgets. (It's important to note that based on this and the trend of surpluses, America had a practice of running surpluses during times of peace, but we'll get back to this) Therefore, with this surplus trend, 55% of the US national debt was paid off. So, again, it's important to reiterate, that to the outside world, lending us money seemed a viable choice, since we had (key, past-tense, had) a darn good habit of repaying it.

Like I said, this was a trend until World War I, and like I said, we only had a trend of running balanced budgets in peacetime (Obvious concept). With the implementation of progressive policies beginning, America's economic growth came under serious challenges. In 1913, the Sixteenth Amendment was ratified, and the income tax was instituted in the United States, and the Federal Reserve (something I can't even comprehend), was created. So, along come the Krauts, Turks, Bulgars and Austro-Hungarians, and they mess everything up. We were already under stress from the new progressive policies that Woodrow Wilson and his goons were imposing. The debt had been cut significantly, and with an annual GDP of around $30 billion, we were sitting at about 7% of our GDP equal to our debt.

However, that pretty little number of 3.3% was bound to change because of WWI. The war put us into a debt of over $25 billion. Remember, the last time we had a significant debt at this point had been post-Civil War. Yet again, that American trustworthiness came through, and after WWI we had 11 consecutive surpluses and saw the debt reduced by 36%. Notice though, that the debt is being reduced by steadily less after every war. From 99% to about 55% to 36%.

From 1920 to 1921, the country faced a postwar recession. However, the 20s have become known to us today as the "Roaring 20s." This was thanks to two wonderful men, who instead of progressive policies reverted to good old laissez-faire economic policies. The first man, was President Warren G. Harding, who set the stage for the work that the second man would do. President Harding's Secretary of the Treasury, Andrew W. Mellon ordered a study on the income tax, which found that as income tax rates increased, money was driven underground or abroad (Shocker, like we haven't been saying that today!). Therefore, Harding cut taxes, beginning in 1922, from 73% to a planned max of 25% in 1925. Shockingly (not), revenues to the Treasury increased, unemployment began to fall, happiness rose and innovation grew exponentially.

I mentioned two men, so now we'll get into the other. He was President Harding's Vice President. After Harding died suddenly, this man, Calvin Coolidge, became President. As leader of the US from 1923 to 1929, he

Debt reduction under Coolidge

GDP under Coolidge

presided over one of the most prosperous times in this country. The GDP of the country grew, and the debt decreased in a complete downward slide. He allowed the tax cuts of Harding to continue, so that by 1925, he sat on a max income tax of 25%, and by 1927, only the richest 2% of taxpayers paid any federal income tax. Coolidge also cut federal spending and unemployment. The surpluses that Coolidge ran went to paying the debt from $24 billion down to around $17 billion. Again, again, that peacetime trend, shown again by cutting 1/3 of the debt. Under Coolidge, unemployment went from the Wilson era high of 20% to 2.4% in 1923, and averaged 3% unemployment for the rest of the decade. Air-conditioning, the radio, sliced bread and scotch tape (as well as many other things) were all invented during this time. It's also fun to note that when asked about using stimulus to get the country out of its rut, he said "It won't work."

Do the day’s work. If it be to protect the rights of the weak, whoever objects, do it. If it be to help a powerful corporation better to serve the people, whatever the opposition, do that. … Expect to be called a demagogue, but don’t be a demagogue. … Don’t expect to build up the weak by pulling down the strong. Don’t hurry to legislate. Give administration a chance to catch up with legislation. ~“Have Faith in Massachusetts” to the State Senate, 1914

It's also worth noting, that Coolidge was a man of principle. He didn't want to do stimulus, because it was unconstitutional. James Madison had expressed the same thought when he said the Federal Government was not in the road building business, and Madison 100 years earlier, said the Erie Canal would not be built with federal funds because Madison had declared such public works to be unconstitutional–and a gain for New York at the expense of the nation.

Coolidge supported the Constitution no matter if it went against his persona beliefs. He was an opponent of Prohibition, but even so, vetoed a bill that allowed liquor sales since by that time, the Constitution prohibited alcohol sales because of the 18th Amendment. Coolidge wrote this:

“Opinions and instructions do not outmatch the Constitution. Against it, they are void.”

I.e. if we don’t like what it says, then amend it by the proper procedures (as happened in 1933 by ratification of the 21st Amendment).

Alright, enough of Coolidge, I apologize for the tirade, but I think any opportunity to talk about Coolidge is one worth taking. Back to the economy.

When we last left it, America was prospering under Coolidge in ways that would not again be seen until the 80s. What followed Coolidge was an unfortunate individual, Herbert Hoover. Coolidge said this about Hoover:

For six years that man has given me unsolicited advice—all of it bad.

Hoover's presidency coincided with the Great Depression. Instead of staying with the laissez-faire policies of predecessors, what Hoover did was immediately raise taxes to heights of 63%. So, we move forward into the Great Depression with higher taxes. Fantastic. This marked the beginning of Keynesian economics being used in America, a phenomena that would last in at least bursts until Reagan (If anyone wants me to talk about Keynes and Hayek, just write us an email and I'll write it). Modern day economists, even the liberal leaning ones, agree that Hoover's policies deepened the crisis. Remember those beautiful unemployment numbers under Coolidge? The 3% average for a decade? Well, Hoover killed those, and by 1932, he replaced them with an unemployment rate of 25%.

Speaking of 1932, enter Franklin Delano Roosevelt, a man without a plan. However, his advisors quickly threw together the New Deal, the worst thing that's happened to America, other than Obama. According to a study I found, from US News and World Reports, 49% of economists feel the New Deal worsened and lengthened the Great Depression. That's a fairly divided opinion. I personally feel the slight minority is right here, and I'll explain why. First of all, if we had just been in a Depression, or just in a war, we would have probably been alright. But, we were in both, and we had F.D.R's idiotic social programs, which effectively killed the economy. Under F.D.R and Truman, the debt went from $20 billion in 1933 to $260 billion in 1950. Yes, you read that right, $260 BILLION, a sixteenfold increase. Keep in mind, when F.D.R. started, the debt was equal to 20%. In his first term, he started running annual deficits of about 2-5%. By 1936, only F.D.R's third year as president, the national debt had increased from the initial $20 billion to $33.7 billion or, 40% of GDP. Then, add on World War II, and our debt reached 117.5% of GDP. Yes, our debt was more than what we made as a country annually. That is a dangerous place to be financially.

Quick historical and electoral education. The reason F.D.R was able to win four presidential elections is this. He took money from a rich man, say this man makes $1,000,000. Now, for simplicity, the tax rate was something like 93.5% for top earners, but we'll say it was 90%. So, here's what happens. You take $900,000 from this once "rich" man, and distribute it, $20,000 to 45 different people who will work on your New Deal projects. What you end up with, is one pissed off man, but 45 people who are indebted to you, and who will vote for you in an election. That's a net gain of 44 votes for you. Simple math. Thank God F.D.R. died, or we might live in a dictatorship today.

Anyways, again, back to economics. So, we are now at the end of F.D.R's life, sitting at 1945, with that big 'ole 117.5% debt to GDP ratio. We again, entered peacetime. However, this time peacetime was coupled with the Cold War, and engagements such as the Korean and Vietnam Wars. Therefore, our debt continued to rise. However, our GDP was rising faster, therefore, in technicality, our debt as percent of our GDP was declining. Now, adding to the debt at this point was not good, but it wasn't necessarily a turn off to foreign investors. From 1945, onward, the debt to GDP ratio would decrease until Reagan stepped into the presidency in 1981. There isn't a whole lot worth talking about during this period. The debt went down, quite simply because Presidents began cutting taxes. In a Democrat, John F. Kennedy, we can find someone who believed in tax cuts, and his tax cuts significantly helped.

It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now ... Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.

So, we'll stop here for a moment. The Kennedy Tax Cuts were brought into fruition in 1964. At this point, we've decreased the debt to GDP ratio from 117.5% to 46.9%. Unemployment also fell from 5.2% in 1964 to 4.5% in 1965, and fell to 3.8% in 1966. With a nice decrease like that, countries are still loaning us money when we ask to borrow, because we still have a great habit of paying back our debt. It could be noticed by economists of other foreign nations at this point, that we've never gone longer than about a decade without paying some debt back. Therefore, at this point, the US is still a healthy investment.

Fast forward a bit, and it's 1981, the debt has reached more than $994 billion (Adjusted for inflation, about $1.787 trillion). GDP is sitting pretty at about $3 trillion dollars ($5.5 trillion adjusted for inflation). Reagan is in his first year of the presidency. Now, you're probably thinking, so, Reagan is going to decrease the debt right? Wrong. Jimmy Carter had just decreased the debt during his term by 3.3% to 32.5% of GDP. Now you're thinking, how can Jimmy Carter, peanut brain, decrease the debt, but Reagan, our idol, increased the debt by 20%? However, we need to consider some factors. First, Carter achieved his debt decrease by cutting military spending. Keep in mind this is the peak of the Cold War. Cutting military spending did not benefit this country, and Reagan had to reinstate it, so that amazingly, the Soviet Union would fall. Next, keep in mind, with the historical aspect involved, yes Reagan did increase the debt by 20%, BUT that was over eight years. Wait until we get to what Obama has done in just over three years. Furthermore, we need to look at a different statistic in this case, plain GDP. When Reagan started, the GDP was around $3 trillion. When he left office in 1989, GDP was $5.4 trillion. That means GDP increased by 55.5% over eight years (FYI Obama has decreased it). Now, the debt increase is an issue, but considering that for all intents and purposes this time was a full-scale war, just without actual engagements, the debt seems like a normal increase. I say it was similar to war, because we were going under an arms buildup, therefore, we were spending similar amounts of money as had we been actually fighting. Reagan also cut taxes on “the rich” from 70% to 28%, a drop of 60%. According to liberals, that should cause revenues to the government to fall by 60%. As can be expected, our friends are wrong. Revenues to the federal treasury went from $517 billion in 1980 to $991 billion in 1989. Let's just remember what I covered a little while back, in the 1920s, cuts in the top rate from 63% to 25% produced the "Roaring 20s." Of course, we'll still hear that Reagan tripled the debt but of course most people fail to remember Reagan also added 20 million jobs. Technically, you can say he tripled the debt, but if you consider the debt increase to be a percentage of wealth, GDP went from 32.6% to 51%, so that is a 59% increase relative to the entire American economy, not a 300% increase (tripling). And, of course, any liberal that criticizes Reagan's debt tripling fails to remember, they, the Democrats controlled Congress. While Reagan was defeating the Soviet Union and increasing treasury revenues, the Democrat Congress went on a wild spending spree. So it was not tax cuts that caused the debt – they caused the boom. That is simply agreed on as a fact except by the most staunch of Keynesian economists. And while military spending did cause the debt to rise somewhat, it was the Democrats’ massive spending that really caused the spike.

So, now that I've disproved that stupid little liberal lie, let's move on. Now, according to the theoretical trend set before, we've just engaged for all intents and purposes in a war, so we should begin repaying the debt. Wrongo, Bush Sr. did no such thing. He increased the debt by 13%. Of course, that'd be because he increased taxes. Surprise, surprise. It doesn't work. Even so, with Bush Sr. and Clinton, the national debt increased by 75% but the GDP still rose by a decent 69%. At the end of the 90s, we should be thinking about repaying that debt. Sadly, wrong again. George Bush oversaw the largest growth in the debt in history. Thanks to him the debt jumped 28%. Keep in mind, we controlled Congress during his first term, so there's no chance that the Democrats did anything this time. This increase is because again, this country returned to Keynesian policies, which fundamentally do not work. Bailouts and stimuli do not, will not and cannot not work.

Obama, God love his little air-filled head, has furthered the problem. If he simply added to the debt, there wouldn't be as much of an issue here. However, he not only has grown the debt to GDP by 16% in three years, he's also shrunk the GDP by 2%! The last time our GDP shrunk was under Bush Sr., and that was a then piddly 0.8%. Add in unemployment and you have today's financial situation. It is a small wonder that S&P downgraded us. We used to be fiscally responsible. We used to try to repay our debt. We have not, and don't appear to be ready to do that anytime soon, and that is why we were downgraded. Borrowing money is fine and well, but paying it back is what gets us trust in the world economy. Borrowing has always been part of our economy, but we always repaid the full faith and credit of our investors.

BUT WAIT, THERE'S MORE!

Oh and did I mention, our $14 trillion debt that we seem to have no interest in repaying isn't all of our debt? Yeah that's right. Don't forget, our debt count excludes our unfunded obligations. That debt includes things that the government has to pay for, but will not have the money to do so. Among the things involved are Medicare, Medicaid and Social Security. To pay for the unfunded commitments through 2084, we need another $45.8 trillion dollars. So that makes our obligations oh, roughly $62 trillion. Lovely huh?

Now, I've said my piece on history, but just a quick little blurb on what I think we should do.

1. Tax, at least in some nominal way the income of the 51% of Americans that don't pay taxes (see, conservatives can think of ways to increase revenues too). Next, bring the money that companies have hidden overseas back onshore by lowering the rate to 5-10%. 2. Next, there's something called "unobligated funds." This refers to money that is in government programs that isn't being used. E.g., the government created a program to provide wheelchairs for the disabled veterans of a war. The veterans all got their wheelchairs, but there's money left. That money just sits there. We have about $703 billion in such situations. Therefore, take that money back. 3. Next, institute a voluntary flat tax. I say voluntary because if people find the old tax code better, they can use that. 4. Scrap the death tax. As Steve Forbes said, "No taxation without respiration." 5.Cut the corporate gains tax from the absurd, world-high of 35% down to 20% with plans to cut to 15% within ten years, and eliminate current loopholes. 6. Defund Obamacare. 7. Permanently ban all earmarks. 8. Privatize Freddie Mac and Fannie Mae. 9. Privatize Social Security to allow Americans the freedom of investment in the Chilean model. 10. Encourage state passage of Tort reform. 11. Abolish the EPA. 12. Abolish HUD. 13. Abolish the Department of Energy. 14. Abolish the Bureau of Reclamation and Bureau of Indian Affairs. 15. Cut foreign aid except to countries that are vital allies (Israel) or that are in need of serious aid from genocidal attacks etc (African Nations). 16. Privatize Amtrak. 17. Repeal TARP. 18. Abolish most of the Department of Agriculture. 19. Abolish the Department Of Education excluding Pell Grants, but only at 2007 levels. 20. Institute a "coach-only" policy for federal employees on domestic flights, unless paid for out of pocket. 21. Oh and pass a Balanced Budget Ammendment. 49 states have one, the Federal government should have one too. That's just what cuts I can think of off the top of my head.

Cheers. Please comment and share this. It took a ton of work. If I have numbers wrong, tell me, and I'll update them.


TOPICS: Business/Economy; Government; History
KEYWORDS: america; congress; debt; deficits; government; govternment; obama; spending; taxes
If you actually go to the article, there's some interesting charts and graphs to go along with all of this boring text.
1 posted on 02/18/2012 1:31:28 PM PST by orthodoxyordeath
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To: orthodoxyordeath
Obama has borrowed 5 trillion from China to pay for China products. So that benefits China's economy.

If instead of reducing government spending Obama is increasing it and borrowing trillions more. That will make the U.S. collapse worse than Greece's is.

What is the share of the debt for every American that has a real job? It has to be at least 100,000. So If someone has 100,000 debt . What is the best thing to do reduce spending or increase spending and borrow more? You all see what Obama is doing will cause the U.S.A to collapse?

2 posted on 02/18/2012 1:55:22 PM PST by Democrat_media (China is destroying all our jobs and manufacturing ability. China makes everything.)
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To: Democrat_media

America has now the federal government they deserve..
And seem to have little desire to change it..

America is doped up and riddled with porn..
It murders its babies like culling dogs and cats at the humane society..
Humane Society.. now thats a joke..

Sodomists running around in gangs fully funded by PACS..
Even submarines and surface vessels have become brothels..
There is indeed a “hard rain” preparing to fall..
Unless America turns to salt..


3 posted on 02/18/2012 3:14:28 PM PST by hosepipe (This propaganda has been edited to include some fully orbed hyperbole...)
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To: orthodoxyordeath

too much narrative, too few tables, too little consistency in which data is reported at each date in the narrative, leaving each point in time that is reported NOT lifting up all the relevant data-points at that time, together, every time


4 posted on 02/18/2012 3:36:57 PM PST by Wuli
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