From TreasuryDirect KIDS,
Even before the United States was founded in 1776, debt existed. Paying for the American Revolutionary War (1775 - 1783) was the start of the country's debt. Some of the founding fathers formed a group and borrowed money from France and the Netherlands to pay for the war.
To manage the new country's money, the Department of Finance was created in 1781. The next year, Government debt was reported to the public for the first time. The U.S. debt in 1783 totaled $43 million. That year, Congress was given the power to raise taxes to cover the Government's costs. However, the taxes did not bring in enough money. The debt continued to grow as the Government grew and provided more services to the people.
The U.S. Treasury Department was created in 1789 to help the country borrow money and manage the debt. Alexander Hamilton was the first Secretary of the Treasury and one of the country's founding fathers. He felt getting into a reasonable amount of debt would help the country get its feet on the ground. He said, "A national debt, if it is not excessive, will be to us a national blessing." By 1791, he estimated the federal government's debt to be $77.1 million. To help raise money, federal bonds were issued by the Government.
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By the end of the [Civil - CC] war in 1865, Government debt had exploded, reaching $2.6 billion. That was more than 40 times what it was only five years earlier at $65 million.
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The U.S. Government needed to raise money in preparation for their participation in World War I - the first major war between the countries of Europe in modern times. To do that, the Government raised taxes. [Novel concept! CC]
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In 1929, the U.S. economy collapsed.
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[FDR instituted the New Deal. CC]
- The U.S. Government started programs that gave unemployed people jobs.
- As part of those projects, people built many public buildings and roads.
- Other New Deal programs helped raise the price of farmers’ crops and the animals they sold.
During the New Deal, changes were made to make the U.S. banking system more stable so banks would not go out of business without giving people their money back. The Federal Deposit Insurance Corporation (FDIC) was created. The FDIC:
- insured the money people put into a bank up to $5000
- prevented people from losing all their savings if a bank failed
The New Deal also changed the way businesses operated to help make sure people were paid more fairly. All the New Deal programs were paid for, and run by, the Government. This meant that the Government’s debt grew a great deal. The U.S. debt was $22 billion in 1933 and grew by 50 percent in the three years that followed, reaching $33 billion.
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During the Depression, the Government's debt began to grow again since it was not collecting much money in taxes. [In 1941, the national debt stood at $49 Billion. CC]
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Taking part in [the Second World - CC] war was very expensive for the U.S. Not only did the U.S. pay for its own military, it also lent money to Britain and other countries fighting the German military. The estimated cost for the U.S. was $323 billion. To help pay for the war, the U.S. took on more debt....At the end of World War II, the Government’s debt had grown to more than $258 billion.
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After the end of World War II, the U.S. economy grew.
- 1946-1949: The Government collected enough in taxes and other fees so that there was more money than needed to pay for programs - meaning that there was a budget surplus. Even with that surplus, the debt remained large - never falling below $250 billion [Emphasis mine - CC].
- 1950: The U.S. got involved in the Korean War. This caused growth in military spending, but the debt only grew a small amount.
- 1960s: The U.S. debt increased a great deal as the Government started many new programs to help the poor, improve education, and provide better transportation. There were also programs to fight crime and drug abuse, as well as end racial discrimination. The U.S. also took part in the Vietnam War [understatement! CC]. The debt increased to $382.6 billion by 1960.
- 1970s: Debt continued to grow as receipts failed to keep up with spending.
- The economy also faced quickly increasing gas and oil prices, and rising inflation....
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By 1979, the debt reached more than $845 billion. During the 1970s, the amount of the Government’s debt sold to foreign governments increased a great deal. By 1973, foreign governments owned $28.5 billion of the U.S. Government’s debt.
- 1980s: Debt continued to grow and reached nearly $3 trillion by 1989. Personal debt also grew during this period. People borrowed more money from banks to buy houses and began to rely on credit cards to buy the things they wanted.
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At the beginning of the 1990s, the U.S. economy was still fairly strong....However, the debt continued to grow.
Starting in 1998, the Government worked to balance its budget....For a short time the amount of debt did not increase a great deal [Emphasis mine - Note that the amount of debt did not decrease! CC]
But after 2000, changes in Government spending caused the debt to grow again. After the September 11, 2001 terrorist attacks the economy stalled and for a brief time tax receipts slowed. The debt continued to increase due to spending on homeland security, the Iraq war, and programs such as Medicare.
Toward the end of 2007, the U.S., along with many other countries around the world, was in a recession or general slowdown in the economy. To try to encourage the economy to grow again, the Government created and paid for many new programs. It also gave back some of the taxes people had paid. The goal was to get people to spend more money to help the economy grow. The cost of these programs caused the Government’s debt to increase [Rapidly! CC] By 2010, the debt had reached more than $12 trillion.
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So...from a debt in 1791 of about $77.1 million (population was about 4 million = about $3.63 per person - which is about $50 per person in today's inflated dollars*), we have come to today's debt of about $14,000,000 million (population is about 308 million = about $45,500 per person). Our debt per person, today = $45,500/$50 = 910 times the debt per person, in 1791.
*I used The Inflation Calculator which only covers the years 1800 - 2010, during which period the calculator shows an inflation ratio of 12.65, resulting in Today's dollars = ($3.63/person)(12.65) = $45.92/person. I'm strickly guessing that inflation from 1791 to today would produce about $50/person. (At least it is a semi-educated guess!)
Referencing a previous posting, Social Security and Me, I again invite real economists to correct my figures/assumptions. Opinions are welcome from every reader - economist or not.
Thank you for an excellent post. We needed to constantly be reminded of the history of how we got here. I really appreciate the facts you posted. You know I am stickler for John Adams statement that facts are stubborn things.
Posted by: Darlene | August 06, 2011 at 04:23 PM
Darlene--Ah, yes, facts and data....I appreciate whoever said that one could torture the data until one obtained the desired answer! This was about as even-handed an explanation of the history of our debt as I was able to find - even if it was written for children.
Posted by: Cop Car | August 07, 2011 at 09:09 AM
What Darlene said!!!! I took an economics class in college (and how I managed a B+ escapes me) and I still don't understand it very well. Thank you!
Posted by: Kay Dennison | August 07, 2011 at 12:39 PM