Tuesday, March 16, 2010

Funding Act of 1790

In the "as the twig is bent, the tree's inclined" department, I found the article reproduced below in The University Encyclopedia of 1902, volume 8, page 5701. The Funding Act of 1790 is often mentioned, but never explained in any great detail. It does not currently have its own page at Wikipedia. Here's the article (you can skip to the last sentence if you get confused):

Sinking Fund, First National. Everything was done by the 1st Congress of the United States that could be to raise and sustain the public credit. For this purpose a sinking fund for the reduction of the public debt was provided for. The Funding Act required the interest on the public debt to be converted into capital. This left a considerable unappropriated sum to accumulate in the national treasury. Congress provided that all the surplus in the treasury on the last day of December 1790, after payment of the appropriations of the current session, should be applied to the reduction of the public debt. This sum, with $2,000,000 more which the President was authorized to borrow, was made to constitute a fund to be employed under the management of a board composed of the Chief-Justice, the president of the Senate, the Secretary of the Treasury, and the Attorney-General, in the purchase of the securities of the United States at their market value, if not above par. The securities so purchased were to be vested in the board, and the interest thereon, by the provisions of the subsequent act, was to be applied to the purchase of further securities, with a reserve, however, toward the discharge of the borrowed $2,000,000, principal and interest. This measure was intended to raise the stock market so as to prevent the transfer of securities to Europe at Depreciated rates.

Yes, that was complicated. The more-commonly told story is that many if not most Congressmen, knowing that the Revolutionary War notes were going to be paid off in newly issued dollars, sent out agents to buy up the old notes at about 10 cents on the dollar. I've never seen the sinking fund mentioned elsewhere. The next time I'm near a major library hopefully I'll be able to get a copy of the Act of Congress in question.

Today the Board of Governors of the Federal Reserve said they would keep interest rates they charge to banks near zero for the foreseeable future. Banks promptly announced that they would, in the interest of stability, keep credit card interest rates to the peons at steady levels too.

At this stage of a recovery normally the Federal Reserve would be raising rates. Four quarter point rises in 2010 would only raise rates to 1%, which is far lower than is normal even in pretty bad recessions.

I think the Fed is keeping interest rates low because that keeps interest on the national debt low. There is no Sinking Fund to pay off the national debt. What we have is a sinking government, sinking under an out of control military-industrial-financial complex.

The first Congress was as corrupt as the current Congress, but they inherited a lot of land stolen from American Indian tribes that could be developed. The entire population of the U.S. was only 4 million, and people were breeding as fast as they could. Within a couple of decades by taxing alcohol, selling stolen lands, and establishing customs duties (taxes on imports and exports) the early government managed to pay off the national debt.

Now we tax everything but imports. And inheritances [See estate tax rate]. You can see who really rules a nation by the way tax burdens are distributed. In America, trust fund kids rule.

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