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Thread: When The U.S. Paid Off The Entire National Debt (And Why It Didn't Last)

  1. #1

    When The U.S. Paid Off The Entire National Debt (And Why It Didn't Last)

    https://www.npr.org/sections/money/2...-it-didnt-last

    On Jan. 8, 1835, all the big political names in Washington gathered to celebrate what President Andrew Jackson had just accomplished. A senator rose to make the big announcement: "Gentlemen ... the national debt ... is PAID."

    That was the one time in U.S. history when the country was debt free. It lasted exactly one year.

    By 1837, the country would be in panic and headed into a massive depression. We'll get to that, but first let's figure out how Andrew Jackson did the impossible.

    It helps to remember that debt was always a choice for America. After the revolution, the founding fathers debated whether or not to just wipe clean all those financial promises made during the war.

    Deciding to default "would have ruined our credit and would have left the economy on a very agricultural, subsistence basis," says Robert E. Wright, a professor at Augustana College in South Dakota.

    So the U.S. agreed early on to consolidate the debts of all the states — $75 million.

    During the good times, the country tried to pay down the debt. Then there would be another war, and the debt would go up again. The politicians never liked the debt.

    "What the battle was really about was how quickly to pay off the national debt, not whether to pay it off or not," Wright says.

    But, just like today, it wasn't easy for politicians to slash spending — until Andrew Jackson came along.

    "For Andrew Jackson, politics was very personal," says H.W. Brands, an Andrew Jackson biographer at the University of Texas. "He hated not just the federal debt. He hated debt at all."

    Before he was president, Jackson was a land speculator in Tennessee. He learned to hate debt when a land deal went bad and left him with massive debt and some worthless paper notes.

    So when Jackson ran for president, he knew his enemy: banks and the national debt. He called it the national curse. People ate it up.

    In Jackson's mind, debt was "a moral failing," Brands says. "And the idea you could somehow acquire stuff through debt almost seemed like black magic."

    So Jackson decided to pay off the debt.

    To do that, he took advantage of a huge real-estate bubble that was raging in the Western U.S. The federal government owned a lot of Western land — and Jackson started selling it off.

    He was also ruthless on the budget. He blocked every spending bill he could.

    "He vetoed, for example, programs to build national highways," Brands says. "He considered these to be unconstitutional in the first place, but bad policy in the second place."

    When Jackson took office, the national debt was about $58 million. Six years later, it was all gone. Paid off. And the government was actually running a surplus, taking in more money than it was spending.

    That created a new problem: What to do with all that surplus money?

    Jackson had already killed off the national bank (which he hated more than debt). So he couldn't put the money there. He decided to divide the money among the states.

    But, according to economic historian John Steele Gordon, the party didn't last for long.

    The state banks went a little crazy. They were printing massive amounts of money. The land bubble was out of control.

    Andrew Jackson tried to slow everything down by requiring that all government land sales needed to be done with gold or silver. Bad idea.

    "It was a huge crash, and the beginning of the longest depression in American history," Gordon says. "It actually lasted six years before the economy began to grow again."

    During the depression, the government started borrowing money again.

    No one says that paying off the debt caused the depression. The bubble was going to pop sometime. But the result was that we had to kiss a debt-free U.S. goodbye. The country never came close again.
    Donald Trump: 'What you're seeing and what you're reading is not what's happening'

    "Truth isn't truth"- Rudy Giuliani

    Quote Originally Posted by NorthCarolinaLiberty View Post
    I didn't actually read any of the thread. I now mostly just come here to mess with Zip.
    I am Zippy and I approve of this post. But you don't have to.



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  3. #2
    Jackson had already killed off the national bank (which he hated more than debt). So he couldn't put the money there. He decided to divide the money among the states.
    He could have put it in the Treasury against a rainy day.

    But, according to economic historian John Steele Gordon, the party didn't last for long.

    The state banks went a little crazy. They were printing massive amounts of money. The land bubble was out of control.
    State banks aren't allowed to 'print money' without the gold or silver to back it up. That's in the Constitution, which was generally still obeyed in 1837. If this information came from John Steele Gordon, he's a mighty crappy "historian".

    Andrew Jackson tried to slow everything down by requiring that all government land sales needed to be done with gold or silver. Bad idea.

    "It was a huge crash, and the beginning of the longest depression in American history," Gordon says. "It actually lasted six years before the economy began to grow again."[/QUOTE]

    Of course, it didn't hold a candle for duration to the Great Depression , the Stagflation Seventies or the current malaise. But, of course, if you devalue the currency enough, it looks like there's growth where there is just inflation. Jackson didn't hide the depression that way.

    During the depression, the government started borrowing money again.

    No one says that paying off the debt caused the depression. The bubble was going to pop sometime. But the result was that we had to kiss a debt-free U.S. goodbye. The country never came close again.
    Of course, we're implying paying off the debt caused the depression. If the reader gets confused by the text on that point, that' fine with the author. And, of course, we didn't have to borrow then, and we sure didn't have to borrow throughout forevermore, even after the recovery. But, you know, propagandists hate little factoids like that...
    Quote Originally Posted by Swordsmyth View Post
    Ron is wrong...
    Quote Originally Posted by Swordsmyth View Post
    Amash is wrong...

  4. #3
    State banks aren't allowed to 'print money' without the gold or silver to back it up. That's in the Constitution, which was generally still obeyed in 1837. If this information came from John Steele Gordon, he's a mighty crappy "historian".
    This was the "free banking era". Lots of "competing currencies" abounded with over 3,000 different notes available at one point.

    https://thismatter.com/money/banking...ing-system.htm

    Because of the importance of banks and money to an economy, a bank could not be formed by just anyone. They required a bank charter from the state to legally exist, and, although not just anyone could start a bank, anyone with the right political connections could, whether they knew how to manage a bank or not. Before 1837, a state bank charter could only be obtained by the approval of the state's legislature; federal charters were not available until 1863. And because banks could print money in the form of banknotes, naturally, many people wanted to start banks. This fostered corruption and favoritism.

    So that bank charters were not just granted to political cronies, Michigan, in 1837, began the trend of free banking where a bank charter could be obtained without an act of the legislature; only very minimal requirements had to be satisfied. Other states followed, with New York enacting a free banking law in 1838, but required that banknotes be backed by government bonds. Presumably, this would protect depositors and noteholders, since if the bank failed, then the collateral could be sold to satisfy the bank's customers.

    The Suffolk Bank in Boston Massachusetts began a new practice of redeeming banknotes of other banks, but only if the banks had enough deposits with the Suffolk Bank to cover the redemptions. Because Boston was a major trade center, many banks in New England began to accept this new system, referred to as the Suffolk banking system, which encompassed virtually all New England banks by 1825.

    New York also developed a safety fund system, in the early 1800s, requiring member banks to contribute a small percentage of its capital annually to a state managed fund that could be used to reimburse noteholders when a bank failed. This was probably the earliest form of deposit insurance. Another law to protect noteholders was an early form of a reserve requirement, enacted by Louisiana in 1842, limiting the number of banks and requiring them to maintain at least 1/3 of their assets in cash and 2/3 as short-term obligations.

    Other states also enacted free banking laws, but there was little regulation, so many banks failed. Indeed, many of them actively conducted fraud. With little oversight of the banks, restrictions were not effective. Instead, banks proliferated and printed more banknotes than what they had in specie. In fact, some banks—referred to as wildcat banks—deliberately located in the remote wilderness expressly to make it difficult for any of its banknote holders to redeem their notes for specie. The free banking years, from 1837 to 1863, became known as the Wildcat Banking era.

    Unfortunately for merchants, this proliferation of banks created a proliferation of banknotes. The value of banknotes depended on the distance from the issuing bank, both because the banknote holder had to travel to the bank to redeem them in specie and because people were less familiar or unfamiliar with distant banks, and, hence, would not accept the banknotes as payment, at least not at full face value. It was, thus, difficult to know the value of a particular banknote, and it was difficult to distinguish counterfeit notes from real banknotes. To solve this problem, registers of banknotes were published periodically and distributed to merchants so that they could look up the value of a particular banknote. This was an inefficient process at best, and it created an appeal for a national uniform currency.
    More at link.
    Donald Trump: 'What you're seeing and what you're reading is not what's happening'

    "Truth isn't truth"- Rudy Giuliani

    Quote Originally Posted by NorthCarolinaLiberty View Post
    I didn't actually read any of the thread. I now mostly just come here to mess with Zip.
    I am Zippy and I approve of this post. But you don't have to.

  5. #4
    True, state-chartered banks are not restricted from issuing fiat by the constitution the way the states themselves are. Though it would have been interesting to have seen a suit on that subject. If a state is not allowed to do something, how can a state charter allow a company to do it?
    Quote Originally Posted by Swordsmyth View Post
    Ron is wrong...
    Quote Originally Posted by Swordsmyth View Post
    Amash is wrong...

  6. #5
    Quote Originally Posted by Zippyjuan View Post
    This was the "free banking era". Lots of "competing currencies" abounded with over 3,000 different notes available at one point.

    https://thismatter.com/money/banking...ing-system.htm



    More at link.
    So you are admitting that the banks were the problem?
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  7. #6
    Quote Originally Posted by Zippyjuan View Post
    This was the "free banking era". Lots of "competing currencies" abounded with over 3,000 different notes available at one point.

    https://thismatter.com/money/banking...ing-system.htm



    More at link.
    Wow that sounds like cryptocurrencies.
    In New Zealand:
    The Coastguard is a Charity
    Air Traffic Control is a private company run on user fees
    The DMV is a private non-profit
    Rescue helicopters and ambulances are operated by charities and are plastered with corporate logos
    The agriculture industry has zero subsidies
    5% of the national vote, gets you 5 seats in Parliament
    A tax return has 4 fields
    Business licenses aren't even a thing nor are capital gains taxes
    Constitutional right to refuse any type of medical care

  8. #7
    Quote Originally Posted by idiom View Post
    Wow that sounds like cryptocurrencies.
    Not really the same situation.

  9. #8
    No country can exist without debt, all countries do, sure spending cuts could make a little difference, in reality, there will always be debt, that is the price of life, and people for good and bad. Liberty doesn't work to make the world a more better place, it just makes life even harder than it needs to be. Strict ideology like that only leads to a bigger mess than some here think wouldn't happen.

    1837, life was tough then, few want to return to a society which had some similarities with that time.



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  11. #9
    Quote Originally Posted by Republicanguy View Post
    No country can exist without debt, all countries do, sure spending cuts could make a little difference, in reality, there will always be debt, that is the price of life, and people for good and bad. Liberty doesn't work to make the world a more better place, it just makes life even harder than it needs to be. Strict ideology like that only leads to a bigger mess than some here think wouldn't happen.

    1837, life was tough then, few want to return to a society which had some similarities with that time.
    Your arguments are very convincing.

  12. #10
    Oh I get it now..So debt is good and how we keep the economy rolling along.. its so simple.. just keep spending more money

  13. #11
    Quote Originally Posted by Republicanguy View Post
    No country can exist without debt, all countries do, sure spending cuts could make a little difference, in reality, there will always be debt, that is the price of life, and people for good and bad. Liberty doesn't work to make the world a more better place, it just makes life even harder than it needs to be. Strict ideology like that only leads to a bigger mess than some here think wouldn't happen.

    1837, life was tough then, few want to return to a society which had some similarities with that time.
    Government debt is not needed and makes things worse for almost everyone.
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  14. #12
    Zippyjuan.... 100,ooo thanx for this short, brief & wise essay in Jacksonian Democracy!

  15. #13
    Quote Originally Posted by Zippyjuan View Post
    This was the "free banking era". Lots of "competing currencies" abounded with over 3,000 different notes available at one point.

    https://thismatter.com/money/banking...ing-system.htm


    More at link.
    Yes. Indeedy, yes.

  16. #14
    In my country trying to save, hasn't changed anything. Saving more would create more problems.

  17. #15
    Quote Originally Posted by Republicanguy View Post
    In my country trying to save, hasn't changed anything. Saving more would create more problems.
    In my country we have food. But you won't find it. -RG
    Quote Originally Posted by TheCount View Post
    Drudge is a traitor to the Leader and the Revolution.



    Quiz: Test Your "Income" Tax IQ!


    Short Income Tax Video

    The Income Tax Is An Excise, And Excise Taxes Are Privilege Taxes

    The Federalist Papers, No. 15:

    Except as to the rule of appointment, the United States have an indefinite discretion to make requisitions for men and money; but they have no authority to raise either by regulations extending to the individual citizens of America.

  18. #16
    In America you have expensive education. In my country we have none. -RG
    Quote Originally Posted by TheCount View Post
    Drudge is a traitor to the Leader and the Revolution.



    Quiz: Test Your "Income" Tax IQ!


    Short Income Tax Video

    The Income Tax Is An Excise, And Excise Taxes Are Privilege Taxes

    The Federalist Papers, No. 15:

    Except as to the rule of appointment, the United States have an indefinite discretion to make requisitions for men and money; but they have no authority to raise either by regulations extending to the individual citizens of America.



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  20. #17
    In my country, hammer nails you! -RG
    Quote Originally Posted by TheCount View Post
    Drudge is a traitor to the Leader and the Revolution.



    Quiz: Test Your "Income" Tax IQ!


    Short Income Tax Video

    The Income Tax Is An Excise, And Excise Taxes Are Privilege Taxes

    The Federalist Papers, No. 15:

    Except as to the rule of appointment, the United States have an indefinite discretion to make requisitions for men and money; but they have no authority to raise either by regulations extending to the individual citizens of America.

  21. #18
    Quote Originally Posted by Republicanguy View Post
    In my country trying to save, hasn't changed anything. Saving more would create more problems.
    Nobody anywhere in the world has even come close to doing it right in living memory, sometimes they do it wrong on purpose so they can claim it doesn't work.
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  22. #19
    Yes because society costs, despite government bull$#@! at the same time. There is also some movement of money, like the banking sector, just today I read the government was considering toying with the middle class pensions to raid to pay for the national health service extra funding. They have to be careful.



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