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How Did the Story of American Debt Start?

How Did the Story of American Debt Start?


Till now we have gathered more than enough information about various forms of debts and debt settlement companies along with their debt management plans. However, the knowledge about the beginning and roots of US national debt would be a piece of cake for financial enthusiasts and people who are curious to delve into it. Indeed some handful of people are aware of its past and antiquity. It all started in Sept. 18, 1789 when the new secretary of the treasury, Alexander Hamilton, entered into negotiations for a temporary loan with the Bank of New York and the Bank of North Americathe only two banks in the country at that time. The following February, the deal went through and the government borrowed $19,608.81. And thus, the American national debt under the new Constitution has started. The United States was not exactly a good credit risk at that time, so the government was, perhaps, fortunate to get the loan. The Constitution required the new government to assume the debts of the old one under the Articles of Confederation. To win the Revolution, the Continental Congress had borrowed heavily from the French government and from Dutch bankers and had stopped paying both principal and interest on those debts in 1786. Hamilton, deeply read in economic theory and politics, understood how useful an instrument a national debt could be in asserting national power. And inspired by Britain's acts on debts, he firmly believed that a similar type of national debt, "if it is not excessive, will be to us a national blessing." To achieve it, Hamilton sent to Congress on Jan. 14, 1790, his "Report on the Public Credit." In it, he proposed three things. First, he wanted to redeem the old debt on generous terms by issuing new bonds that would be backed by the revenues from the tariff, the main source of the federal government's income. The second part of Hamilton's plan was to assume the state debts incurred in the Revolution. This was much more controversial because some states, notably Virginia, had paid off their revolutionary debts, while other states, such as those in New England, had not. Hamilton, and many others, thought that since the surest source of funds to pay these debts, the tariff, was now exclusively federal revenue, that the debts should follow the revenue. Hamilton's final proposal was to create a Bank of the United States, modeled on the Bank of England, to act as the government's fiscal agent, provide a sound paper money supply, and be a source of loans for the government. Hamilton's program was an extraordinary success. Within a few years, United States bonds were selling above par in European markets because they were regarded as so safe. Brisk trading in government bonds brought capital markets into existence in this country for the first time, and both the New York and Philadelphia stock markets began in 1792. However the national debt which was being used to build and strengthen US economic system took shape of a tremendous national debt that Hamilton began with a bank loan of $19,608.81and is the largest single entry on any set of books in the world. The federal government pays $19,608.81 in interest on its current debt every 2.4 seconds. Wonder, how Hamilton had reacted if he saw the present debt scenario that have entered every citizen's life.
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How Did the Story of American Debt Start?