Saturday, December 3, 2011

Lessons from Hamilton


[..] Hamilton — the nation's first Treasury secretary — began pushing to pay off the Revolutionary War debts of the federal government, as well as the states. Congress owed its creditors about $54 million, and the 13 states collectively owed about $25 million, [..]. Creditors feared the young Congress and states would not be able to pay the combined $79 million, a staggering sum in those days. [US was] in worse shape than Greece. This debt threatened to crush the government.

But Hamilton, with the strong backing of President Washington, refused to consider default. Hamilton consolidated debts and promised that Congress would raise taxes high enough to pay them off. Persuading lawmakers to go along wasn't easy. It was very, very tempting to repudiate the debt to avoid raising taxes.

But Hamilton and Washington insisted. They wanted the United States to be taken seriously as a grown-up country. They repudiated the idea that we would be a Third World country. And paying off debt became the basis of US's success. because investors came to see the United States as a stable place to do business.

Q&A - 19/6

Bank of England The vast majority of money held by the public takes the form of bank deposits. But where the stock of bank deposits com...