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'The Indicator': The Time The U.S. Paid Off All Its Debt


The Senate is poised to go on summer break without raising the debt ceiling. That set off another round of finger-pointing among Washington lawmakers over what to do about it. But as The Indicator's Stacey Vanek Smith and Darian Woods explain, the only time in history the debt was paid down, it didn't go quite as planned.

STACEY VANEK SMITH, BYLINE: The national debt - a lot of people in the U.S. have very strong feelings about it. But back in the 1800s, historian Ann Daly says people were obsessed.

ANN DALY: It was what they talked about over dinner with their families. Everyone had an opinion on this stuff.

DARIAN WOODS, BYLINE: Including presidential hopeful Andrew Jackson - paying down the debt was one of the centerpieces of his run for president.

VANEK SMITH: When Andrew Jackson took office, the U.S. was about $58 million in debt. And the second that Jackson got into office, he went to work figuring out how to get the U.S. out of debt. And he did this in three main ways.

WOODS: First, collecting really high taxes. Back then, there wasn't an income tax. The government made almost all its money taxing imports - tariffs.

VANEK SMITH: The second thing President Jackson did was get the government deeply into the land-selling business. A lot of that land was either seized from Native American tribes or obtained through coercive treaties.

WOODS: The third step for Jackson's debt pay-down - he vetoed spending bills left and right. And after six years of selling land, taxing imports and rejecting spending bills, Andrew Jackson finally makes it happen.

DALY: January 1, 1835.

VANEK SMITH: New Year's Day.

DALY: That is when the last set of bonds had matured. And there's this huge party where everyone in Washington gets together. And people are giving speeches about, you know, how it's this new day for the United States.

VANEK SMITH: So after the debt is paid off, the federal government is in this position it's never been in before. It has extra money. So President Jackson decides that this extra money should go back to the people. So he divides it up between the states and puts that money in a bunch of state-level banks. Those banks turn around and start investing that money and lending it out and printing out money as fast as they can.

DALY: And it fuels this big credit bubble. Banks are sort of issuing money with wild abandon.

WOODS: And at the same time, says Ann, the main safe haven investment is gone. With no debt, the government bond is no more.

VANEK SMITH: At that time, putting your money in the bank wasn't always safe. Banks used to fail all the time, and people would lose everything. So they started putting it into these investment schemes, things like land and railroads and bridges and roads.

DALY: The economy basically goes crazy. And so you have this big bubble, and then you have this burst.

WOODS: That burst was the Panic of 1837, one of the worst economic depressions in the country's history. So why did this happen?

VANEK SMITH: Ann thinks part of the reason is that at its core, debt is a relationship, a relationship of mutual trust that is kind of like a load-bearing beam of the whole economy.

WOODS: For the person who buys the bond, it gives them a stake in the stability and prosperity of the government.

VANEK SMITH: And for the government, it gives it this great responsibility to spend that money wisely so that it can be sure to pay back the people who invested in it. Right now, of course, we are in a record amount of debt, about $28 trillion. U.S. government bonds, though, remain one of the most popular and trusted investments on Earth.

WOODS: Darian Woods.

VANEK SMITH: Stacey Vanek Smith, NPR News.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.

Stacey Vanek Smith is the co-host of NPR's The Indicator from Planet Money. She's also a correspondent for Planet Money, where she covers business and economics. In this role, Smith has followed economic stories down the muddy back roads of Oklahoma to buy 100 barrels of oil; she's traveled to Pune, India, to track down the man who pitched the country's dramatic currency devaluation to the prime minister; and she's spoken with a North Korean woman who made a small fortune smuggling artificial sweetener in from China.
Darian Woods is a reporter and producer for The Indicator from Planet Money. He blends economics, journalism, and an ear for audio to tell stories that explain the global economy. He's reported on the time the world got together and solved a climate crisis, vaccine intellectual property explained through cake baking, and how Kit Kat bars reveal hidden economic forces.