The US Debt Crisis: A History of Borrowing and Lending - Essay Sample

Introduction

The history of the United States of America is intertwined with its incursion of debt. Since the nation's inception, handling debt has been on the docket of many American politicians through many different eras throughout the history of the country. Taking on and lowing debts is rooted in American history, yet now many Americans fear the present state of our national debt. If the young American nation were mired in debt, then it would be no understatement to say that modern American society is completely drowning in it. The United States is in over twenty-three trillion dollars of debt, and this number is ever-expanding. Many citizens wonder, how and why did it get this severe? There are multiple answers to this question, and none of them would be as clear cut as many would hope for them to be. We can better explain the current national debt by looking at the past. Through analysis of pivotal moments in history, can we better understand the present and even the future of the nation's debt? By looking at the events, the policies, and the men and women that shaped this nation, one can see how the national debt has taken hold of the country and perhaps how to combat it.

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Understanding the origins of the US public debt is pivotal to understanding how it can be better addressed in the future. While it would be nigh impossible to analyze every minutia of the history of US debt, there are key moments that cannot be left out. America is a nation born through debt and tax controversy. After winning its independence, the United States was in heaps of war debt, and its financial state was anything but organized. By freeing itself through a costly war, the United States found itself very quickly mired in debt as it was still in its infantile state. The nation could not collect enough revenue through tariffs and what little taxes there were. The rules assumed various debts and this lead to the American dollar becoming a weak and undesirable currency. It became more useful as wallpaper in American homes (Staff 69-74). In a controversial move, Alexander Hamilton, the Secretary of the Treasury, proposed that the nation would assume the states' debts collectively (Hamilton 105). This assumption was not smooth nor wholly agreed upon. Very quickly, the heavily indebted northern countries began to bicker with the mostly debt-free southern states until a compromise was reached in 1790. Commitment is necessary to get things moving in government. In today's political climate, it can always seem so hard to get the ball rolling. The modern politicians have been significantly hard to compromise on the national debt and tax cuts. The tax cuts have had significant impacts on the federal budget and the national debt. For instance, in Bush's administration, the tax cuts led to an additional $2.023 trillion to the national debt for a period projection of between 2011 and 2020 (Hall 38). According to the Congressional Research Service projections, the current state of the national debt would lead to an additional $450 billion as service costs.

Hamilton suggested that the national treasury should shoulder the financial responsibility incurred during the American Revolution War. He planned that the treasury should provide bonds to wealthy people in society. These people would buy bonds and share the tangible success made by the national government. He would then pay off the new relationships with earnings from corresponding tariffs on imports. The assumption of the debt introduced a whole new swathe of issues for the United States. After assuming 21.5 million dollars in debt politicians were scrambling to repay the funds as quickly as possible (Khademian 105). A slew of new taxes and tariffs were raised as well as bonds being sold to help lower the debt. Prominent figures such as Alexander Hamilton, James Madison, and Thomas Jefferson had different takes on how to quickly pay back the obligations as well as find investors to hold American bonds. President Bush and his administration in 2001 - 2003 introduced tax cut acts. The administration proposed and signed the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The president also presented the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) with the sole purpose of reducing taxes paid by the citizens (Smith 238). According to the act, the taxation rates on dividends, as well as the capital gains, would decrease by 15 percent. An examination of these tax cuts concerning the national debt indicates that they did not have a significant improvement in economic growth. Nevertheless, the tax cuts led to an explosion in the budget deficit and an increase in the national debt. As a result, there was an increase in income inequality all over the country.

At the beginning of Trump's administration, the national debt reduced by approximately $102 billion, especially the six months of his term in office. However, the national debt increased immediately after his inauguration. The corresponding increase in the national debt was due to the rise in the federal debt ceiling. Trump's administration had proposed and signed a bill that raised the debt ceiling. The increase in the debt ceiling led to a rise in the national debt to approximately $20 trillion. This was the highest national debt ever experienced since the inception of the United States. The tremendous effect of the raised debt ceiling was experienced early this year when the bill was suspended. The law had been active for only two years. Within the two years, the national debt was at $22 trillion. It was the swiftest increase in the national debt in history. Besides the debt ceiling, the federal deficit experienced in the country in the 2019 budget maybe the result of the tax cuts introduced by Trump in 2017.

Another critical moment in the history of the US debt was when the debt was paid back in full. This feat was accomplished by Andrew Jackson, who became the US president in 1828. When Jackson became the president, the national debt stood at approximately $58 million. Jackson, who at one point suffered a financial crisis as a result of debts viewed this as a "national curse." He, therefore, took an initiative to service the national debt by trading off the land owned by the federal government. In January 1835, Andrew Jackson successfully managed to clear all the national debt. With the debt-free state of the US government, it means that the government had surplus funds. The government had a lot of problems regarding what to do with the surplus funds. The situation did not prevail for long since an economic recession followed immediately, making the government start borrowing again. After the full payment of the national debt in 1836, civil wars followed, leading to a sharp rise in the national debt. The public debt rose from $65 million to $1 billion in three years, between 1860 and 1863 (Murphy 215). By the end of the civil war, the federal debt was about $2.7 billion. The following 47 years involved normal fluctuations in public debt. The surplus in the national budget was about 36, with 11 deficits for that period. As a result, the government was able to service roughly 55% of the public debt.

During the revolutionary war, the Continental Congress held the same position as the current U.S. Congress. The Continental Congress was not authorized to tax the citizens of the United States. As a result, the national debt kept on growing at an alarming rate. The national date had reached $75 million in 1790 (Murphy 670). According to the financial report of that year put forth by Alexander Hamilton, the debt implied a 31 percent debt against the GDP ratio. However, the economy of the United States grew significantly, leading to a corresponding decrease in the debt-to-GDP rate to values lower than 10 percent. The state of the economy was growing steadily until 1812 when the country got into borrowing to win the war with Great Britain.

The Civil War of 1866 led to the explosion of the national debt to figures above $2.76 billion. The US government maintained the national debt around these values until the 19th century when the country experienced a combination of economic growth and inflation (Phillips 330). These two factors played a vital role in reducing the debt to a much lower figure compared to the economic output of the country in the early 19th century. Nevertheless, the country's debt-to-GDP ratio rose to over 33 percent during World War I. The national debt vat that time was over $25 billion, which is approximately equivalent to $334 billion in the current economy (Killick 505). The rate with which the national debt was rising was alarming. As a result, the National Congress passed the motion to empower the Treasury Department with flexible means of raising funds by selling its bonds. Under these changes, Congress would set a limit on national lending, an approach referred to as the debt ceiling.

Franklin Roosevelt and Harry S. Truman are the two notable US presidents who led the country to register the most significant increase in the national debt. During their leadership, the national debt increased by over 100% of the country's GDP. The rose in the national debt during the period is attributed to the need to fund mobilization during the war. In 1945 during the end of the war, the national debt was at $251.43 billion, which is equivalent to a gross domestic product of 112% (Eichengreen 33). In 1950, the national debt was $260 billion.

The US national debt rose dramatically during the Great Depression. World War II followed the rise in national debt closely with a debt-to-GDP ratio of over 77 percent during this period. By the end of World War II, the country had registered an all-time highest debt-to-GDP rate of 113 percent. The country experienced significant economic periods leading to a drop in the national debt and the debt-to-GDP rate to approximately 24 percent by the end of 1974 (Eichengreen 78). The recession during the first term of the presidency of Ronald Reagan was full of increased interest rates and overspending on defense programs leading to an upward inclination on the national debt. It is important to note that there was a permanent tax slash introduced in Reagan's administration. As a result, the debt-to-GDP ratio rose once again to approximately 50% in the early 1990s.

The leadership of presidents Bush and Bill Clinton towards the end of the 1990s experienced economic growth as a result of the peaceful environment that favored economic activities. In the late 1990s, there was a considerable increase in taxation in the country, leading to the reduction of the debt load. By June 2001, the debt-to-GDP was slightly below 33 percent (Weaver 340). However, the 9/11 attacks in the major US cities led to increased budgets and spending on the military to protect the country against terrorist attacks. President Bush introduced tax cuts, which had a significant impact on the country's GDP. During this period, the country experienced the Great Recession, which farther worsened the GDP. As a result, there was a colossal collapse of business activities and government revenues from taxation.

Unlike the colonial era, when the government of the United States was borrowing funds from the Netherlands and France to attain its independence during the revolutionary war, the US administrations in the '20s spent a lot of funds on wars in Afghanistan and Iraq (Hofstadter 350). Despite the current peaceful environment in the country, the government spends a lot of money funding the military fighting in Afghanistan and Iraq. As a result, the country's debt-to-GDP ratio remained over 100 percent following the wars in Afghanistan. According to the financial report of the fiscal year 2017, the national debt was over $20 trillion. The 2017 federal deficit was the highest in...