US Federal Debts and Taxes
1775-2024
Progress Report
Project with George Hall, Jonathan Payne, Balint Szoke
(and Julia and Python and Pandas)
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Collect data on promised pay outs, prices, and quantities of US government notes and bonds and on federal government expenditures and tax collections from 1775 to 2024
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Interpret them in light of
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Government budget constraints
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Arrow-Hicks asset pricing theory
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Barro and Lucas-Stokey tax smoothing models
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18th Century Britain
US 1776 - 2023
US 1776 - 2023
Data Assembly
US Federal Debt 1776 - 1960: Quantities and Prices, github 2018
(with George Hall and Jonathan Payne and Balint Szoke)
http://www.tomsargent.com/research/ReadMe_Pub.pdf
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Pay out streams, prices, and quantities of every bond US Congress issued 1775-1940
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Organize with Python and Pandas
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Share on github
US bonds Outstanding
Accounting Framework
Interest Rate Risk and Other Determinants of Post-WWII US Government Debt/GDP Dynamics , AEJ Macro, 2011; (with George Hall)
https://www.aeaweb.org/articles?id=10.1257/mac.3.3.192
- Government accounts don't answer questions macroeconomic theory wants
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Therefore, we use government budget constraint and Arrow-Hicks price formulas to construct
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values of government debts
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returns on government debts
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Properly accounting for interest payments
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Exercise 28.1 of Recursive Macroeconomic Theory, fifth edition
- Why deficits in Italy and Brazil were once extraordinary proportions of GDP
Official and economic interest
Market and par values
Par Value Debt-GDP by Owners
Other Applications
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Martin Ellison and Andrew Scott for historical UK data
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3039029
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Piyali Das and Chetan Ghate for India
States' Rights and Responsibilities
United States Then, Europe Now, JPE 2012
https://mfidev.uchicago.edu/files/Sargent_Sweden_11.pdf
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Evidence and interpretations coincide with Jonathan A. Rodden's
- Hamilton's Paradox: the Promise and Peril of Fiscal Federalism, University of Cambridge, 2006
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Murray Rothbard's perspective
- Conceived in Liberty, volume 5: the New Republic, 1784-1791, Mises Institute, 2019.
Who bails out whom?
United States Then, Europe Now, JPE 2012
https://mfidev.uchicago.edu/files/Sargent_Sweden_11.pdf
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Who controls power of the purse?
- 13 states?
- Confederate or Federal Congress?
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War finance
- money
- bonds
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Strings attached?
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Haircuts
Credible Policies
United States Then, Europe Now, JPE 2012
https://mfidev.uchicago.edu/files/Sargent_Sweden_11.pdf
- Reputational lessons for money and bonds
- poisoning paper money
- August 17, 1787 debate
- Fudenberg-Kreps audience-specific reputations?
Sustaining Reputations
Fiscal Discriminations in Three Wars, JME, 2014
(with George Hall)
https://www.sciencedirect.com/science/article/pii/S0304393213001220
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Inflationary finance and post-war returns
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James Madison and War of 1812
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Civil War – Ulysses S. Grant versus Andrew Johnson
- Money versus bonds
- greenbacks, legal tender, and gold
- 5-20 bonds
- creating then resolving ambiguity
Price levels – two wars
Cumulative real returns after two wars
Unanticipated Consequences
Complications for the United States from International Credits: 1913-1940, IMF, 2019 (with George Hall)
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Before 1914, the US was a net debtor to foreigners.
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In 1887 Henry Carter Adams forecast that US economic growth and falling returns on US securities would eventually transform the US into a net foreign creditor.
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Adams said that would unleash political forces for the US to abandon its isolationist foreign policy
Unanticipated Consequences, 2
Complications paper is about how Adams' forecast came true
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Debt and Entanglements –IMF volume
Unanticipated Consequences, 3
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Irving Fisher and price level targetting
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Franklin Roosevelt's bombshell message to London Economic conference
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Roosevelt as Chicago economist
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permanent versus temporary
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price stability
- HANK
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Bombshell Message, 07/03/1933
I would regard it as a catastrophe amounting to a world tragedy if the great Conference of Nations, called to bring about a more real and permanent financial stability and a greater prosperity to the masses of all Nations, should, in advance of any serious effort to consider these broader problems, allow itself to be diverted by the proposal of a purely artificial and temporary experiment affecting the monetary exchange of a few Nations only.
Wireless to the London Conference
I do not relish the thought that insistence on such action should be made an excuse for the continuance of the basic economic errors that underlie so much of the present world-wide depression.
The world will not long be lulled by the specious fallacy of achieving a temporary and probably an artificial stability in foreign exchange on the part of a few large countries only.
Roosevelt's bombshell message
The sound internal economic system of a Nation is a greater factor in its well-being than the price of its currency in changing terms of the currencies of other Nations.
It is for this reason that reduced cost of Government, adequate Government income, and ability to service Government debts are all so important to ultimate stability.
Wireless 07/03/1933
Let me be frank in saying that the United States seeks the kind of dollar which a generation hence will have the same purchasing and debt-paying power as the dollar value we hope to attain in the near future.
That objective means more to the good of other Nations than a fixed ratio for a month or two in terms of the pound or franc.
Debt Limits
Brief history of US debt limits before 1939, Proceedings National Academy of Sciences, 2018
https://www.pnas.org/content/115/12/2942.short
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No debt limit
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Instead Congress designed each bond 1775-1921,
- Bond-specific quantities and purposes
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Congress delegated design authority to treasury gradually, 1921-1939
- Standardization and liquidity motives
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We construct pre-1939 debts limit by adding up bond-by-bond limits
US debt limit
US debt limit
US debt limit
8 + 2
Debt and Taxes in Eight U.S. Wars and Two Insurrections, Handbook of Historical Economics, 2021 (with George Hall)
http://www.tomsargent.com/research/war_compare.pdf
Fractions of expenditure surges financed by debt and taxes
- Bond sales
- Marketing – retail or wholesale?
- Banks or brokers or movie stars?
- Central bank role?
- Real returns to bond holders
- Consequences for price levels
8 + 2
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Self-insurance? Barro tax smoothing via precautionary saving
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Insurance? Lucas-Stokey tax smoothing
https://python-advanced.quantecon.org/smoothing_tax.html
Log Price Levels in Four Wars
Log Price Levels in Four More Wars
Cumulative Returns after Four Wars
Cumulative Returns after Four More Wars
Gold as Nominal Anchor
Costs of Financing US Federal Debt Under a Gold Standard: 1791-1933, January 2024
(with Jonathan Payne and Balint Szoke and George Hall)
Yield Curves
Historical yield curves for US government debt
- Arrow-Hicks formulas
- Dynamic Nelson-Siegel model
- time varying coefficients
- Hidden Markov formulation (HMM)
- Bayesian inference
- Hamiltonian Monte Carlo
- NUTS
- Julia (Turing.jl)
Gold Yield Curves
yields on zero coupon bonds
Estimate Nelson-Siegel (1987)
-period gold dollar zero-coupon yield curves
Random walk, stochastic volatility models for
level, slope, curvature
Long Yields
Short yields
Long minus short yields
UK and US yields
Nominal Anchor
Smoothed Conditional Moments of Inflation
Term Spread and Inflation Risk
US Budget Surpluses and ex ante Real Bond Yields
Output and Inflation
Three World Wars
With George Hall
http://www.tomsargent.com/research/Three_Wars.pdf
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WWI, WWII, War on COVID-19
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Common patterns
- Labor supply shocks
- Consolidated Government Budget Constraint
- Fed Balance Sheets
- Real Returns on portfolio of federal government debts
- Price level paths after wars
G and T in 3 World Wars
Post-War Price Paths
