A History of the National Debt; Congress Is Not Good at Not Spending

Article excerpt


Alexander Hamilton, AmericaAAEs first secretary of the Treasury, issued the first U.S. Treasury bonds on Sept. 18, 1789. The Continental Congress had borrowed money from overseas to help finance the Revolutionary War and could not pay back its loans. It defaulted on maturing debt in 1786 and couldnAAEt pay the 625 soldiers of the U.S. Army in 1787. By the time the Constitution went into effect on March 4, 1789, the United States owed $75 million.

That debt would be roughly $900 billion in todayAAEs dollars and was 30 percent of gross domestic product in 1789. Hamilton instructed the Treasury to borrow $19,608.81 from the only two banks in the country at that time (the Bank of New York and the Bank of North America) to pay interest on the new nationAAEs debt. Repayment of the bonds was secured by revenue from the 8 percent import tariff that Congress had enacted.

So began the long, steep ascent to todayAAEs $16.5 trillion national debt (on which the Treasury pays $19,608.81 in interest every two seconds). The national debt now exceeds 100 percent of GDP and is growing by roughly $3 billion a day. The Congressional Budget Office (CBO) projects a $20 trillion debt 10 years from now.

George Washington warned about the dangers of debt in his Farewell Address (1796), admonishing the people of the United States Aa to avoid the accumulation of debt. Forty years later (1835) was the only debt-free year in AmericaAAEs history. By the time President Clinton gave his final State of the Union address on Jan. 27, 2000, AmericaAAEs national debt was $5.5 trillion.

Uncle Sam spends more money every year than he takes in. The resulting budget deficits are financed by issuing more Treasury bonds (IOUs), adding to the pile of debt. Annual deficits balloon when wars or recessions cause spending to surge and/or tax revenues to decline. Deficit spending makes debt reduction impossible. Opinion polls suggest Americans want government to stop the deficit spending, so Washington is now fixated on deficit reduction. The CBO says the current debt trajectory will shave 1.7 percent off GDP by 2022.

The U.S. Senate hasnAAEt passed a budget in four years. Congress sidesteps fiscal responsibilities by passing continuing resolutions that provide temporary and emergency funding for Uncle Sam. Without those budget Band-Aids, the government would have to shut down, as it did on 17 occasions from 1976 to 1996. The longest (21-day) shutdown was sparked by Mr. ClintonAAEs veto of a balanced budget that the Republican-led Congress passed in December 1995. That shutdown furloughed 800,000 federal workers, delayed passport and visa processing and closed national museums, monuments and parks.

Recognizing its inability to attain deficit reduction through the annual budget process, Congress created mechanisms of budget enforcement that would compel deficit reduction while providing political cover for the resulting spending cuts. The Gramm-Rudman-Hollings Act of 1985 stipulated a six-year schedule of declining deficit ceilings, culminating in a balanced budget in 1991. …