When the U.S. last defaulted

[cross-posted from History of Economics Playgroundoriginal here]

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.

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About Benjamin
see www.mitrakahn.com

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