US National Debt and Deficit History

Two Centuries of Government Debt

Ever since Alexander Hamilton refunded the debts of the Revolutionary War with a federal debt, the United States only went into debt to pay for its wars. But then in the 1930s the administration of President Roosevelt attempted to get the nation out of the Great Depression with federal borrowings.

Chart 1: Government Debt 1900-2014
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Chart 2: Government Debt 1792-2014
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When charted in dollars, in Chart 1, federal debt looks huge. Looking back over the last century, the debt back in 1900 doesn’t really register. But by charting debt as a percent of gross domestic product (GDP) in Chart 2, you get a look at government debt compared to the size of the economy at the time.

When the US government was created after the election of 1788 the federal debt was floated by the first Treasury Secretary, Alexander Hamilton. Experienced in banking, Hamilton stabilized the dollar and refunded the debts incurred by the states in the Revolutionary War as an obligation of the new federal government. The federal debt stood at 35% of gross domestic product (GDP). By the 1830s the Revolutionary war debt had been paid off—just in time for the Civil War when federal debt climbed back up to 33% of GDP. Still, the Civil War debt was pretty well paid off by the turn of the 20th century.

Government Debt since 1900

Chart 3: Government Debt 1900-2014
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Used to be that the National Debt only went up to pay for wars. After World War I, the federal debt stood at 35% of GDP. But then came the Great Depression, and President Roosevelt decided to spend his way out of trouble. Government debt, including federal and state and local debt rose to 45% of GDP. But it was World War II that really entered new territory. After the end of the war in 1946 government debt stood at 121.2% of GDP. For the next 35 years successive governments brought down the debt, but then came President Reagan. He increased the debt up over 50% of GDP to win the Cold War. Now President Obama is increasing the debt to bail out the banks — and anything else that needs a cool trillion or so.

A Century of Deficits

Chart 4: Federal Deficit 1900-2014
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Today’s federal deficit always seems dangerous and unprecedented. In fact, you need a war to really get a big deficit. The peak deficits came during World War I (16% of GDP in 1919) and World War II (24% in 1945), as Chart 4 shows. The deficits of the Great Depression only came to about five percent of GDP, and the big $1.4 trillion deficit for FY 2009 amounted to 13% of GDP.

A Century of Interest Payments

Chart 5: Interest on Government Debt 1900-2014
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The real risk from government debt is the burden of interest payments. Experts say that when interest payments reach about 12% of GDP then a government will likely default on its debt. Chart 5 shows that the US is a long way from that risk. The peak period for government interest payments, including federal, state, and local governments, was in the 1980s, when interest rates were still high after the inflationary 1970s. Of course, the numbers don’t show the burden of interest payments from Government Sponsored Enterprises like Fannie Mae and Freddie Mac.

There’s More...

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Prepared by Christopher Chantrill.
email: chrischantrill@gmail.com