When the U.S. last defaulted
by Benjamin on July 15, 2011
I am grabbing this across from a seperate blog (the history of economics playground) because I think this is something to bear in mind as the media enters its final stage of Debt-ceiling coverage over the coming fortnight. Of course there may be more, but for now…
Two things seem to be taken for granted in the current debt-ceiling debate: 1. The parties will come to an agreement on the debt ceiling because 2. These United States have never defaulted and will not start now. Well, Lexington has eight pretty good reasons why an agreement is not inevitable and as far as I can tell, the United States has defaulted in the past, and we need to recognize that fact…
The historical trick revolves around ‘these united states’ because these 50 States are somewhat recent. Hawaii and Alaska would finalize statehood in ’59. but various make-ups of the USA have indeed defaulted or re-structured its debt. Most recently – I think – was in 1933 when the then 48 State government refused to repay the gold annuity it owed to Panama. This was eventually repaid in 1936. I take that observation, and many more from Rogoff and Reinhart’s book (2010: 112-3) which I have commented on earlier.
We can add to that list debt restructuring in 1790, where interest was deferred by the government for ten years. Then there are State cases where the central government allowed default on debts and – I would suggest – implicitly accepts government default: 1841-42 when three States repudiated their debts altogether and 1873-83/4 where ten states were in default, with West Virginia not settling its account till 1919. One could throw in the confederate army debentures and bonds which for various reasons were never repaid to foreign investors, but whether that is legitimate US debt, I am not sure.
My point is simply that the USA has deferred, restructured or cancelled its debt before. If Lexington is right that “compromise may still be possible, but there is nothing inevitable about it,” then on track record you might expect to see an announcement to delay repayment of certain debts, for a long while, on 2 August.
Tags: crisis, debt ceiling, USA
Benjamin,
Wouldn’t the ‘slamming shut of the gold window’ in ’71 constitute a default – or would the more casual actions, and formalization, into ’73 place that in another category?
I believe most would consider it a default no matter that the paper gold relation began breaking down much earlier,
Regards