Subscribe to the Official Financial Highway Newsletter Here!
14,284,723,029,854. That number look familiar to anyone? Oh wait, look again, now it's at 14,284,723,094,234. Now it's 14,284,723,512,812… now it's 
at…
Yup, that's the national debt of the United States of America.
But, as with anything else, this number will mean more to you after a little perspective. Yes, this will be a history lesson, an economic history lesson. I know, I'm never gonna get a date at this rate.
When the Debt Was Good
Believe it or not, there was a time back in the day when having debt was a good thing. It was a simpler time, a time when the world was basking in the afterglow of revolution (except for France… they were doing their own horribly bloody, revolutionary, and ultimately pointless thing). I'm talking of course about during and after the revolutionary war.
See, to the rest of the world, this little thing called America was the new kid on the block, with absolutely no history and a completely unproven form of government. Basically, we had no credit. How does anyone establish credit? We borrow money, and then prove we can pay it back, with interest, on time, if not earlier. Or you could buy other people's debt.
Alexander Hamilton's Plan
Enter Alexander Hamilton, federalist extraordinaire (meaning he was all for a big ol' strong, central government). This is the man who spearheaded the plan for the central government to assume all of the debt that the individual states had racked up throughout the revolutionary war, thus giving America as a country the chance to pay back it's debtors, thereby establishing credit.
There were also other intended results, such as the strengthening of the union within. This was done by issuing bonds to help fund this plan, thus giving the states and their citizens an incentive to help the federal government grow.
This also helped to have America seen as a more powerful, singular entity to the rest of the world, instead of a bunch of squabbling, laughable states, as was often the case.
This act of Hamilton's (there were others involved, but he was the most passionate one), did many things:
- Established the First Bank of the United States (in 1791)
- Set our official currency, the Dollar (before, individual states used various types of currency)
- Created the cabinet position of Secretary of Treasury (of which Alexander Hamilton was the first)
- Introduced An excise tax (sin tax), on things such as sugar, tobacco, and snuff (the first ever federal tax on American citizens, by the way, aside from a tariff tax on imports and exports established in 1789)
- Introduced the U.S. Mint, in 1792.
Basically, Hamilton's plan set into motion the entire American economic policy that we're familiar with today. It gave us credibility, strength, and success that we're all still enjoying today.
So if the federal government assuming debt was so good for us back then, why isn't the massive amount of debt we have today even better?
Differences Between Then and Now
Honestly I thought this section was going to be easier to write than it actually was. I started researching the last time the budget was balanced, GDP to Debt levels in 1800 versus today, and various other things, to try and explain why the debt level today is bad. Then I realized that…
A). There is some incredibly creative accounting going on out there
B). I'm not an accountant
and
C). Statistics and "facts" can be manipulated and interpreted in ways beyond my imagining.
So instead of giving you false info or info that I don't understand, I'm going to go with what I know. You as a individual cannot buy a house that has higher mortgage payment than you can afford to pay every month. If you do, eventually you will get that house taken away from you.
The federal government however has taxpayers and an unlimited "credit card" to help them make that mortgage payment they can't afford. This unlimited credit card is called a moveable debt ceiling. Basically congress chooses when to raise their credit limit and by how much. So, after voting to allow themselves to go deeper into debt (aka, raising the debt ceiling), they search out entities to get loans from, be it internally or abroad.
I know that this isn't right from a moral standpoint. Nor is it sustainable, because eventually, either we'll stop being able to tax our citizens enough to cover our debt payments, other countries and entities will stop seeing us a safe investment and refuse to lend us money, or both.
In fact, I argue that it's possible that the government increasing its debt past a certain point could even be unconstitutional. If the debt gets so out of hand that American citizens get taxed into the poor house, doesn't that qualify as denying us the right to our pursuit of happiness? I don't care what anyone says, money can equal a certain amount of happiness… you know you're happier living in a $400,000 house stocked full of food and clean clothes than you are living on the street.
Caveat: I'm nowhere close to being in any way shape or form educated on constitutional law… just making a point.
Although…
I also know that there was one time in the history of our country when we were 100% debt free. This occurred in 1835, under the instruction of President Andrew Jackson. This actually caused a depression.
Long story short, Andrew Jackson did away with the National Bank that Alexander Hamilton created, and so when the government had paid off the national debt, and didn't have a bank to put the extra cash in, it got divided up between the states.
This influx of easy cash resulted in massive spending and the creation of a "land Bubble", quite similar to the housing bubble, just with land. Eventually, like all good bubbles do, it burst, sending America into a 6-year depression. Then the government needed to start borrowing again.
The Moral of The Story?
Personally, I don't think the idea of a debt-free America has been explored well enough. It could still be done successfully, although we all know it's incredibly unlikely we'll ever get there again.
The common thread between both of these viewpoints, the one of more national debt and the one of absolutely no national debt, is restraint. in both situations, our willingness to spend spend spend, with our cash or with our credit cards when the cash is gone, is what has led to many, if not all, of our financial troubles. The same can be said for us as individuals and companies as well.
I'm all for living it up, buying expensive things, and driving unnecessarily powerful, gas-guzzling vehicles, but only if it's done responsibly and if it's within our means. This is something both the government and its citizens need to think about just a little bit more often.
