Friday, March 17, 2006

A brief history of the debt

[News on the debt ceiling prompts...]
A BRIEF HISTORY OF THE DEBT: The United States has had public debt since its inception. Debts incurred during the American Revolutionary War and under the Articles of Confederation led to the first yearly reported value of $75,463,476.52 on January 1, 1791. Over the following 45 years, the debt grew and then contracted to nearly zero in late 1834. On January 1, 1835, the national debt was only $33,733.05, but it quickly grew into the millions again [4] [5].

The first dramatic growth spurt of the debt occurred because of the Civil War. The debt was just $65 million dollars in 1860, but passed $1 billion in 1863 and had reached $2.7 billion following the war. The debt slowly fluctuated for the rest of the century, finally growing steadily in the 1910s and early 1920s to roughly $22 billion as the country paid for involvement in World War I [6].

The buildup and involvement in World War II brought the debt up another order of magnitude from $43 billion in 1940 to $260 billion following the war. After this period, the debt's growth closely matched the rate of inflation until the 1980s, when it again began to skyrocket [7] [8]:

Year to
U.S. Govt Debt
US$ billions
1910 2.6
1920 25.9
1930 16.2
1940 43.0
1950 257.4
1960 290.2
1970 389.2
1980 930.2
1990 3,233.3
2000 5,674.2
2005 7,932.7

The public debt briefly started to go down in 2000 when the country had a substantial budget surplus, but began growing again after budget deficits grew large beginning in 2002.

At any given time (at least in recent decades), there is a debt ceiling in effect. If the debt grows to this ceiling level, many branches of government are shut down or only provide extremely limited service. However, the ceiling is routinely raised by passage of new laws by the United States Congress every year or so.

Viewed alternately as a percentage of the GDP, the national debt rose sharply during World War II, reaching about 122% of GDP in 1946. As soon as the conflict ended, the debt began declining, reaching a postwar low of 32.6% of GDP in 1981. The debt then started rising again and peaked at 67.3% of GDP in 1996. It then dropped to 57.4% of GDP by 2001 but began rising again after congress and the George W. Bush administration implemented several tax cuts. In 2004, the debt reached 63.7% of GDP and is projected to continue rising, reaching 70% of GDP in 2010. It should be noted that the debt of United States on par with what it is in many other developed countries, such as Germany and France. In any case, all of the above debt figures can be found in Historical Table 7.1 of the 2006 U.S. Budget. [9]

Modern presidential records

Statistics here are given in both raw numbers and in relation to the debt ratio, an expression of the federal debt as a percentage of GDP. Due to World War II, the national debt spiked to a historical peak of 121.2% of GDP in 1946.

National Debt Summary
President Party Years Increase in Debt Annual Increase Debt as a % of GDP
Jimmy Carter D 4 49.1% 10.5% 33.3%
Ronald Reagan R 8 188.2% 14.1% 52.6%
George H. W. Bush R 4 46.2% 9.9% 65.9%
Bill Clinton D 8 13.7% 1.6% 57.7%
George W. Bush to 2004 R 4 26.0% 5.9% 64.8%

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