US War

Have you ever wonder how federal (U.S.) debt surpassed $26 trillion? Part 2

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Please read …… Part 1 before starting reading part 2

We know that China–United States trade war caused conflict between China and the U.S. During this pandemic, one U.S. politician suggested forfeiting the government bond hold by China. This action obviously violates its credibility. We can only say this politician “TOO YOUNG TOO SIMPLE”, as he does not know how damaged his action will bring to the U.S.

Until now, there were 45 American presidents in total. All of them have their own philosophy and some might have a big difference with each other. Among them, there were some presidents who trying to pay out government debt. They are Thomas Jefferson (3rd President) and James Madison(4th President). Both of them think that government debt is a tool that rich people use to reap the wealth from average people. They advocate to decrease the debt and use government income to pay back the debt.

Until 1829, Andrew Jackson(7th President) inherit this concept and insist to eliminate the privilege and status of rich people. Until 1836, this president succeeded to make the very first time all the debt have been clear in the whole U.S. history. However, he was also the first president in the history that gets assassinated, just that the assassination is unsuccessful. 

The rumor was there that the assassin was a psycho. But, who knows right? Is he a psycho?

Due to the elimination of government bonds by President Jackson, all the capitalists are trembling with fear. To avoid such things happen again in the future, they organize the Whig Party (Political Party) to control the federal government in the redistribution of government bonds. 

In 1846, the Mexican–American War occurred. This war costed U.S. 64,000,000 USD (0.064 Billion) . This also caused government debt to be huge again. All the capitalists are happy again. In 1865, the American Civil War (between northern states loyal to the Union and southern states that had seceded from the Union to form the Confederate States of America.), government debt is now 2,700,000,000 USD (2700 Billion), which is 30% of GDP. In this war, the key factor of winning is economic strength (which means which side has more money). 

At that time, the southern state implement slavery economically, this economic model does not have government debt. However, war requires a lot of money. So they use the easiest and violent tactic—-printing money in huge amounts. At last, they released around 1500,000,000 USD (1500 Billion) cash. This caused critical inflation.

In the northern state, they use government bonds to collect money. This is equally to borrow money from the future. Comparing to northern, what southern did is just depleting their present resources. During the war, northern commodity price increased by 80 percent but southern commodity price increased by 90 fold. Even if we see from the economic side but not the military side, the southern state is lost for sure.

From this war, we can conclude that distribute government bond have obvious advantage comparing directly printing money. Government debt can be payback slowly using government income in the future. But print money, still acceptable if a few only, but it will be a disaster if massive.

After the Mexican–American War, U.S. undergoes Second Industrial Revolution, they have a huge leap in terms of economy. After paying all the war debt (not included in government debt), government debt is controlled within a certain scale. The long peaceful period makes the U.S. aware that government debt seems like can be used eternally.

Get to know what happens next in Part 3.

We hope that this post is insightful for you. Good luck and all the best!

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