By the year 2011, the U.S. government carried a total national debt of $14 trillion, and also faced $46 trillion in future obligations of unfunded-liabilities for federal “entitlement” programs such as Medicare and Social Security.

As it all began when our nation was founded in 1776, the federal government had a fair amount of public debt, after it took on state government and private costs incurred during the American Revolution.  On into the early twentieth century, this so-called national debt had usually been modest and had generally declined in amount, with the major exception of the Civil War.  In more recent times, given the two World Wars, the Great Depression, and the Recession of 2008, it has more often been substantial and on the rise.

Paying What’s Owed

The very first national administration of President George Washington, at the urging of the financially adept Treasury Secretary, Alexander Hamilton, assumed the $75 million in obligations the nation had accumulated during the Revolutionary War.  The Gross Domestic Product, or GDP, of America in 1790 amounted to about $190 million.  Thus the national debt was equivalent to about 40% of the total of all the country’s produced good and services at that time.

This debt, even with the additional obligations acquired under the Louisiana Purchase, was steadily paid off over several decades.  Then the costs of the unexpectedly long and bloody War of 1812 pushed the national debt back up to $125 million.  Yet this amount was only about 13% of a GDP that had risen to $960 million by that time.

The National debt actually disappeared during the administration of the premier “deficit hawk,” President Andrew Jackson.

Andrew Jackson had been born poor, and badly burned by personal debts. He had a horror of banks and financial obligations.  Upon taking office in 1829, he faced a national debt of about $50 million.  Over two terms, President Jackson piled up surpluses and squashed expensive spending bills for “internal improvements”—road and canal building that would be called “infrastructure projects” today.  By 1835 his Treasury Department was $450,000 in the black.  President Jackson noted: “How gratifying the effect of presenting to the world the sublime spectacle of a Republic of more than 12 million happy people free from debt!”   

Ups and Downs

However, deficits and debt roared back in 1836, with a severe economic downturn.  These two things have been with us ever since. Some historians blame Jackson’s stingy tightening of credit for that recession.  As in 2008, though, as the asset bubble, triggered by over-heated speculation in real estate greatly contributed to the red ink.

By 1860, the national debt was indeed quite a small amount, $65 million, which was 1.5% of a GDP of $4.5 billion.  Then with the Civil War, the federal debt soared to previously unheard-of levels, $2.7 billion soon after the war, though it still was just about one-third of the GDP.  After a long period of rapid growth, and the steady paying off of the Civil War debt, new obligations were incurred with the Spanish-American War.  The major fighting in that 1898 conflict only lasted four months, and balanced budgets and debt pay-downs followed in the generally prosperous years up to 1917, with the U.S. entry into the First World War.  By 1919, when that bloody and most expensive war was finally over the National Debt stood yet again at about one-third of the GDP.

During the Roaring Twenties’ boom, budgets were often balanced, as they have been—surprisingly from our perspective—for most years in American history.  Then the Great Depression of the nineteen thirties brought in “Keynesian economics,” whereby large-scale government spending and large national deficits were employed in a political attempt to spur the economy into higher growth rates.  During this time, by the late 1930s, the national debt rose to 45% of the GDP.  It just kept going up and up fast and faster, in the 1940s during the Second World War.  The national debt, $16 billion in 1930, at the start of the Great Depression, was $260 billion in 1950, five years after World War II. had ended.  As a proportion of GDP, the National Debt peaked in 1946, at 121%.

Mortgaging the Future ?

Debt as a proportion of the GDP steadily fell to 56% in 1960, after the too often tight budgets, tax-cuts, and prosperity of the President Eisenhower years.  Federal debt then dropped to 38% in 1970, after the Kennedy and Johnson Vietnam-era “guns” and Great Society era “butter” resulted off the highly prosperous 1960s; and then down to 33% in 1980, despite the twin oil-price fueled recessions of the 1970s, which were punctuated by periods of growth.

During the following decade, the Ronald Reagan administration saw marked rises in military and domestic expenditures, and the debt percentage rose back up to 56%.  The Clinton era of the 1990s managed to run a budget surplus in 1998, and therefrom witness a debt percentage rise slightly, to 58% by the end of the year 2000.  Then in the George W. Bush years up to 2007, the debt percentage rose appreciably to 66% of GDP.  Sharply higher domestic and military spending followed the late 1990s and the Internet bubble collapse and the September 11, 2011 terrorist attacks, which were both followed by another recession.

After a period of good growth, the banking crisis of 2008 touched off a severe recession, all of which generated more massive government spending.  The national debt ascended quickly, reaching $14.5 trillion in 2011, a proportion to the GDP of about 100%, the highest it has ever been since the Second World War, with tens of trillions more owed for future unfunded liability social program payments.

If history is a good judge (and it surely is), the speed with which the U.S pays off this accumulated debt will depend on how rapidly its economy grows and expands.  The fast debt run-ups of the Revolutionary War, Civil War, First World War, and the Great Depression/Second World War were all followed by sustained periods of economic growth and related rising private-sector profits and governmental revenues that served to pay down the accumulated deficits.

Everything revolves around the increasing growth of our own national economy through greater business productivity and fewer governmental restrictions and regulations, lower income tax rates, and most importantly reduced governmental spending.  These options are not suggestions, they are absolutes, if we are to save our crumbling nation.

Like a prosperous family able to pay off its mortgage and car payments, if its purchases are held to a reasonable level, the U.S. will hopefully once again grow its way out of what it owes!

Now You Know More of What Really Happened………………