THE HISTORY OF THE DEBT

As citizens we are currently living under a government managed under re-current self-created crisis. Just when you think it is safe to get back into the water, so to speak, another crisis is beginning. It won’t be long before Congress faces another situation when our government might close and the issue of extending the debt limit will occur, again.

It is time to reflect on the history of the debt, and whether or not there were any root causes that are discernible throughout our history to help explain our current debt situation.

An article in the Atlantic monthly was most useful in retracing the history of America’s debt. The article appeared in November of 2012. 

With the Revolutionary War, debt came to America. We started in debt and history has not changed as we remain in debt. What is important to take note of is the historical pattern as to what percentage of debt we have had to GDP. Also wars have contributed mightily to our debt throughout our history.

Our Revolution left us in debt to the Dutch and to the French for their support of us during the conflict. From the beginning we started out with a debt to GDP ratio of 30%. President Jefferson actions helped to reduce the debt and the percentage to GDP ratio was lowered to 10%. The war of 1812 raised the debt, once again. 

Economic growth reduced our debt to GDP ratio until war once again reared its ugly head. The Civil War increased our debt from 65 million dollars in 1860 to 2.76 billion dollars in 1866.

Growth and inflation once again reduced the debt as a percentage of GDP until World War I. World War I saw a new record debt to GDP increase to 33%. Taxes were increased and the debt ceiling began. One can quite clearly see that a pattern has developed over time.

The twentieth century saw our debt be reduced substantially by 1930 with income coming in from taxes, plus growth, to where our debt shrank by 9 billion dollars.

Then the bottom fell out of our economy when the Great Depression occurred. The economy collapsed and revenue was dramatically reduced due to massive unemployment. World War II began and by the end of the War, our debt to GDP was at a record high at 113%. By the war’s end as the Atlantic Monthly stated, our debt was 242 billion dollars or 2.87 trillion in todays dollars.

I don’t think too many Americans regretted that we had to do what was necessary to win the war, and save civilization from the scourge of fascism and the military expansionism of Japan. America was back to work. We had new challenges when our GI’s came back home. They needed jobs. Truman made no effort to reduce the deficit but rather spent money to educate our returning heroes by passing the GI Bill. What followed was an unprecedented era of prosperity and as a result of the growth of the economy our debt was reduced by 1962 to prewar levels. As the article states, 1974, saw the recent low of 24% debt to GDP.

The lesson to be learned from the origins of our debt are that two common facts have occurred to cause our debt up until 1980, and those factors were war and depression. Your costs are increased with war and revenue decreases during economic down times.

That historic pattern was broken during the Reagan administration. Rightfully or wrongfully, the Reagan administration spent an inordinate amount of money on defense in their attempt to break or bankrupt the Soviet Union. In their attempt, they almost bankrupted the United States in the process. But President Reagan realized that you had to pay your bills and he raised taxes in his second term to help right the ship. The bottom line was that the debt to GDP ratio had increased from a low of 24% in 1974 to 49% by 1990.

President Clinton established pay as you go and by the time his two terms in office were over he left his successor a surplus, and an ongoing surplus if only one followed the prior policies. The debt to GDP percentage had fallen to 33% in 2001.

Things changed dramatically during the two terms of President George W. Bush. He did something that was unprecedented, he lowered taxes while America went to war in Iraq and Afghanistan. His administration also passed Medicare Part D, without providing revenue to pay for it.

The United States went from being the biggest creditor nation to the biggest debtor nation in 8 years.

Now the perfect storm occurred, the economy collapsed into what has been called the Great Recession. Our country experienced negative growth, and with lower taxes and lower revenue our debt exploded.

President Obama came into office needing to fix an economy that was on the edge of another great depression. It has taken 5 years but the debt to GDP ratio is going down. Economic growth has been the historical elixir in the past and there is no reason to believe that growth will not help fix what ails America now. The tax rate has just recently returned to the levels we saw during the Clinton administration and people are going back to work, so thereby we are seeing increased revenue.

For Republicans who talk the talk about balanced budgets being the cure-all and be all for solving our debt issue, it would be great if they walked the walk but they have not.

There have been only 3 Presidents who have balanced a budget since World War II. Those Presidents are President Eisenhower who managed to balance 3 budgets and still grow our economy. Eisenhower expanded our ability to compete by passing the Interstate Highway system. He understood the importance of transportation and the ability of moving goods quickly, but he still balanced budgets. We had a fantastic economy and our top tax rate was at 91%.

The other 2 Presidents who balanced a budget were President Carter and President Clinton.

The moral of the story is that war and depression by their very nature increase our debt. We can also see from the facts if you spend too much without sufficient revenue debt increases as well. Economic growth is what is needed.

What is a historic curiosity is that the political party of so-called financial responsibility and the party of big business has been notoriously absent during the Obama administration. They have been the party of NO, and have dug in their heels in refusing to follow a growth policy and have become stuck on two things: They are stuck on the austerity train which has been proven to be economically unsound and they have sacrificed their historic principles of financial responsibility for the sake of attempting to defeat President Obama, at all costs.

In the Republican Party’s attempt to reach their goal of less government, they spent more than what they brought in during the George W. Bush administration. They have attempted to drown government in a bathtub, but while they have attempted to do that, they have damaged our economic future in the process.

The current Republican leadership has refused to even put up for a vote a bill that would fix our roads and unsafe bridges and put Americans back to work, all for the sake of political gain.

Gone are the days of our parents generation when the welfare of the nation came first. What we need is a return to common sense government, smart government where we work together to grow our future.

Our debt history actually gives us the roadmap for reducing our debt. We should stay out of wars that are not in our national interests and we should work to grow our economy. The budget surplus we had under President Clinton could happen again if we have sufficient revenue coming in and maintain an attitude of spending money wisely. It takes money to make money and it takes investing in America to see us once again be the economic leader of the world.

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