US Building

Have you ever wonder how federal (U.S.) debt surpassed $26 trillion? Part 3

  • Wisdom
Reading Time: 5 minutes

Please read …… Part 1 and Part 2 before starting reading part 3

Can be used eternally means to distribute new government bonds to pay the old government debt. When the old debt has met its expired date, they just need to pay the old debt using new bonds and pay some interest on their own. As long as the credibility is there, a government bond is literally a good tool. Since then, U.S. federal never tends to decrease the scale of government debt. After several decades of peaceful development, in 1917, U.S. involved in World War I,U.S. distributed 5 times of government bond in the next 2 years. The amount they collected 21,500,000,000 USD (21.5 Billion) . Government debt increased by 8.4 fold, reaching 25,000,000,000 USD (25 Billion), which is 35% of GDP. This money also is 2 per 3 of the total money the U.S. used for war. 

These bond buyers are still those big capitalists and bankers. After World War I, the whole of Europe is ruined. However, the effect on the U.S. is not so critical. They became the main factory in Europe. Calvin Coolidge(30th President) management successfully develop the economy of the U.S. rapidly. There is an increase in government income residual after government income is used for development. Other than using it on investment, a small part of it is used for paying government debt. This has caused a decrease in government debt that now is 20% of GDP. This is also the last time any action was done to decrease government debt in the whole U.S. history.

World War I is followed by the Great Depression in 1929. At that time, Franklin D. Roosevelt (32nd President) started the government involvement in the economy. He builds a lot of basic infrastructures to stimulate growth in the economy. However, if the government wants to build infrastructure, they need money. The economy was in a depression at that time, tax income cannot become their hope. All they left was to use government bonds. At 1941, government debt has reach 50,000,000,000 USD (50 Billion) , which increased 3 fold comparing to 1929. It also exceeds 40% of GDP.

As the government bond increasing, the Attack on Pearl Harbor occurred. U.S. has to involve itself in World War II. War requires money, tax collection is still not their choices. From 1942 to 1945, U.S. military expenditure is 248,200,000,000 USD (248.2 Billion) ,which caused an increase of 210,000,000,000 USD (210 Billion) . By comparison to these numbers, we can also say that the U.S. won World War II through government debt.

At 1945, government debt amount exceed 260,000,000,000 USD (260 Billion) , which is 122% of GDP. This is also the first time government debt exceeds 100 percent of GDP. Supposedly, this should be a big crisis for the U.S. However, the same as World War I, the whole of Europe is ruined again after the war. The U.S. has become a world size super factory this time. Also, Bretton Woods established a system of payments based on the dollar, which defined all currencies to the dollar, itself convertible into gold, and above all, “as good as gold” for trade. U.S. currency was now effectively the world currency, the standard to which every other currency was pegged. This is known as the Bretton Woods system. All the big countries in Europe have no choice but to obey the U.S. now. This is also the initiation of how the U.S. dollar reaps the world economy.

At the same time, the U.S. is world economy development engine, their economy increases rapidly and consist of 1/3 of industry export trading of the whole world. Government income residuals become more however they are not interested in decreasing the amount of government debt. In order to attract the votes during the election, all the politicians promised to decrease the percentage of tax collection and improve the welfare of citizens. 

If you still remember we mentioned in part 1 that the parliament include the rights of tax and bonds into the constitution of the country that the main purpose of the tax is to clear out the debt, then to improve other sectors of the country. The politicians’ action totally opposes the right mentioned.

Get to know what happens next in Part 4

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

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