Although President Barack Obama and the establishment media routinely describe a potential federal default as “unprecedented,” the United States government has flaked on its debt service several times, and one expert says the current default has already begun.
The historical default precedents should be of limited comfort to Obama, however. One of the deadbeat presidents was the commander in chief during a disastrous war that saw Washington, D.C. occupied and the White House burned to the ground. The other was Jimmy Carter.
According to Connie Cass of The Associated Press, the U.S. government “briefly stiffed some of its creditors on at least two occasions.” The first default took place in November 1814, during the administration of James Madison, America’s tiniest chief executive. Just a few months after the British conquest of Washington, D.C. during the War of 1812, the Treasury was unable to move enough precious metal to service its debt, and missed interest payments on bonds. Boston bondholders, according to Wayne State College history professor Don Hickey, were paid off in short-term interest-bearing treasury notes or more bonds. These debt service troubles, and the war, were resolved within a few months.
A more recent default came in 1979 under President Carter, who, until Obama, held the record for presiding over the country’s longest post-World War II period of economic stagnation. Cass attributes the ’79 default to “a back-office glitch that ended up costing taxpayers billions of dollars.” She writes, “The Treasury Department blamed the mishap on a crush of paperwork partly caused by lawmakers who — this will sound familiar — bickered too long before raising the nation’s debt limit.”
The Carter default is potentially more relevant because it occurred under the 14th Amendment, a post-Civil War change to the Constitution that declared the “validity of the public debt….shall not be questioned.”
These precedents for an event the president describes as unexampled in U.S. history are unlikely to get much attention from media that have been eager to ape the administration’s terror-mongering over the debt ceiling increase. Executive branch efforts to whip up hysteria have gotten wide distribution and arguably caused minor financial panic. (Related: Obama talks, the market drops)
The Obama administration has energetically promoted an apocalyptic view of the debt ceiling fight, even though default would not automatically result if Congress failed to hike the U.S. borrowing limit. (Related: Social Security Administration instructs employees to warn recipients about debt ceiling)
These efforts may be bringing diminishing returns, however, as hysteria fatigue sets in among a public that has now listened to six years of flop-sweat screaming from Washington Chicken Littles. Americans were assured of a global financial meltdown during the real estate correction of 2007 and 2008. This did not happen, although the government’s “solution” — multi-trillion-dollar bailouts and stimuli, coupled with a quadrupling of the U.S. monetary base — inflicted persistent, low-level, widespread economic agony that has so far stretched over half a decade, with no end in sight.
A new round of threats came at the beginning of this year. The “fiscal cliff” fight was, as its name implied, advertised as an abysmal plunge in America’s economic well-being. The U.S. briefly went over the fiscal cliff, with no ill effects. (Related: House Republicans pass Senate fiscal cliff deal, send it off to president for approval)
This spring, Americans were warned that the sequester — a slight decrease in the rate of growth in government spending — would cause large-scale economic turmoil. This too occurred, without causing any noticeable damage to the already anemic U.S. economy. (Related: Obama promises sequester pain until GOP raises taxes [VIDEO])
At the end of September, the much-abused American people were again warned of economic Armageddon in the event of a government shutdown. The shutdown is now well into its third week and the economy continues to function. (Related: US economy boomed during 1995/1996 shutdown)
Even Tuesday’s news that Fitch may downgrade U.S. debt is something we’ve seen before, in January of this year. (Related: Fitch warns it may downgrade US over debt standoff)