The National Debt: Will it Ever Be Paid? No!

By |2019-03-04T18:42:08+00:00March 4th, 2019|Annuities, Annuities 101|

The National Debt keeps growing and growing, who will ever pay it?

 

The US Treasuries provides funds to run our country. Often there is not enough revenue to cover the national budget, and the budget runs as a deficit. The deficit is covered by the government agreeing to owe the money, and this is called the national debt. With the national debt approaching $22 trillion it is crucial to understand why we have the debt and how it is going to be repaid. The simple answer is this: it probably will never be repaid, it has been and probably always be part of our American heritage.

The history of US Treasuries is a fascinating story in and of itself. It began when our country began. US Treasuries go back to this country’s independence. The Revolutionary War was fought against Great Britain by the colonies as a united front but funded and manned by each state.

The result of the war was an overall debt of over $80 million, more than the states could afford due to the breaking of the American economy and the temporary loss of our biggest trading partner, Great Britain. The newly formed government made two very critical decisions which set the path of our country and our basis of trust in the country on a road of success.

It was decided to relocate the head of our government to an independent location, Washington DC. This kept any specific state from gaining an advantage from other states as the seat of the Federal Government. This kept the playing field level for the Federal Government and State’s Rights (Federalist Papers)

The Federal Government absorbed all debt from the Revolutionary War. ($80 million) This freed states from over taxation and allowed the economy to begin anew, fresh from overbearing and disastrous debt. It also allowed the states to provide essential services from state collected taxes instead of paying for long ago spent funds (war). The US Treasuries were sold to foreign sovereigns who wanted to expand trade with the colonies, The United States of America.

The obvious concern was how to pay off the debt left over from the war, who cares who has to pay….someone has to!
Alexander Hamilton created the first real debt management system when he created the funding vehicle to pay the $80 million, and he created US Treasuries. The whole country was obligated, not just individual states. The debt was sold mostly to our largest trading partner at the time, France. (France had already loaned the US money and ships, per Benjamin Franklin)

Just think of it…a new country deeply in debt sells its obligations to a foreign power sound familiar? Why would France buy the debt? Napoleon was not yet in power and France was an industrial powerhouse with products for sale. By purchasing the debt, France gained an advantage over Great Britain in the form of docking rights and tariff relief.

But debt is debt, and we still needed to pay right?

Not really. The world would soon learn that the United States was a nation of vast expanse and unlimited future, plus it was growing fast as immigrants came. When the debts (US Treasuries) became due, most were refinanced with other foreign powers such as Portugal and eventually Great Britain.

We have a long history of borrowing from our trading partners. The question now, of course, is dealing with the massive number, $22 trillion. But think, think how much $80 million was in 1785 dollars, massive.

So to convert this short lesson into our reality, over the past 227 years the safest possible place on Planet Earth to keep your money is in US Treasuries.

This concept bridges to our economy and US Treasuries are the backbone of almost every safe place, banks, and insurance companies. People want safety and security. Insurance companies and banks provide that by using US Treasuries as the backbone of their investment portfolio.

 

 

 

 

About the Author:

Bill Broich
Bill Broich is a well-known annuity expert with over 30 years of experience. He has written hundreds of articles on annuities and other financial topics, and has been a featured commentator on TV, Radio and the Internet. To follow Bill's profile, click here.