The complete article can be found here
http://qz.com/26062/one-chart-that-tells-the-story-of-us-debt-from-1790-to-2011/
$16.2 trillion.
As the high-stakes wrangling over the fiscal cliff gets underway, we thought it might be the proper moment to remind everybody just how the United States managed to become the world’s biggest debtor.
So, here’s how.
Freedom isn’t free
The US was born in debt. The earliest full reckoning of US national debt was compiled by Alexander Hamilton, the first US Treasury Secretary, who was sort of like the Nate Silver of his era—a self-taught economist.
The analysis dates to 1790 and puts the newborn US at around a 30% debt-to-GDP ratio, with the debt a bit higher than $75 million. Where did that debt come from? Well, the Continental Congress, the rough equivalent of the Federal government in revolution-era America, lacked the power to tax. It first tried to pay for stuff by printing money. This currency, known as the Continental, collapsed. The nascent US government also raised cash by borrowing under all sorts of authorities. This National Bureau of Economic Research working paper lists them:
These included certificates issued by the Registrar of the Treasury, the Commissioners of Loans of the States, the Commissioners for the adjustment of accounts of the Quartermaster, Commissary, Hospital, Clothing and Marine Departments, the Paymaster General, and the Commissioner of Army Accounts. In addition, interest on these certificates had often been paid in further certificates known as ‘indents of interest.’
All in, the US owed about $11.7 million to foreigners, mostly to Dutch bankers and the French government, and about $42 million to domestic creditors. The states also had a ton of debt (about $25 million, Hamilton reckoned), which the Federal Government assumed—take a hint, euro zone!—in 1790.
As Secretary of the Treasury, Hamilton was laser-focused on the debt, not so much to pay it off, but rather just to ensure that the fledging government could make all its payments to creditors. How? Well, tariffs and taxes. Americans were cool with that? No, 0f course not. People hated it. After all, the country had just fought a war inspired in part by a revolt against the taxation imposed by the British.
But the federal government stuck to its guns, literally suppressing an armed anti-tax uprising in western Pennsylvania in 1794, known as the Whiskey Rebellion. Meanwhile, the economy grew, helping to shrink debt-to-GDP. Later on, Hamilton’s arch-nemesis, Thomas Jefferson, was even more focused on paying off the debt as fast as possible, driving US debt-to-GDP below 10%. All this work was undone, when the US had to borrow heavily to finance the war of 1812.
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