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Has the U.S. Ever Defaulted on the National Debt?


Obama and Congressional Leaders Continue Talks on Deficit and Debt Ceiling

Obama and Congressional Leaders Continue Talks on Deficit and Debt Ceiling

Chip Somodevilla/Getty Images
Updated July 19, 2011

Has the United States ever defaulted on payments toward the national debt? To hear policymakers and the U.S. Department of the Treasury tell it, the nation has never failed to meet it national debt obligations.

"Failing to increase the debt limit would have catastrophic economic consequences. It would cause the government to default on its legal obligations - an unprecedented event in American history," the Treasury stated on its website.

Also see: What is the Debt Ceiling?

"That would precipitate another financial crisis and threaten the jobs and savings of everyday Americans - putting the United States right back in a deep economic hole, just as the country is recovering from the recent recession."

And in January 2011, the chairman of President Barack Obama's Council of Economic Advisers stated: "If we hit the debt ceiling, that's essentially defaulting on our obligations, which is totally unprecedented in American history. The impact on the economy would be catastrophic."

But both the Treasury and the president's adviser aren't completely accurate. The United States defaulted or restructured its national debt obligations at least twice in its history, according to researchers.

U.S. Defaults on National Debt

The United States defaulted on its national debt obligations in 1790 and again in 1933, during the Great Depression, according to The Forgotten History of Domestic Debt, a 2008 report published by two National Bureau of Economic Research analysts.

Also see: Debt Ceiling History

"Clearly, the assumption embedded in so many theoretical models, that governments always honor the nominal face value of debt, is a significant overstatement, particularly for emerging markets past and present," concluded researchers Carmen M. Reinhart of the University of Maryland and Kenneth S. Rogoff of Harvard University.

1933 Default on National Debt

The 1933 default on the national debt was sparked by the nation's abrogation of the gold clause, which allowed investors who purchased U.S. bonds to help finance World War I to be repaid in gold coin, according to Reinhart and Rogoff.

"In effect, the U.S. refused to pay Panama the annuity in gold due to Panama according to a 1903 treaty. The dispute was settled in 1936 when the US paid the agreed amount in gold balboas," the researchers stated.

Also see: 5 Presidents Who Raised the Debt Ceiling

Alex J. Pollock, an American Enterprise Institute fellow writing in The American Spectator, described the 1933 default on the national debt as an "intentional repudiation of its obligations."

President Franklin Roosevelt and Congress, acting during the financial crisis brought on by the Depression, chose not to honor the nation's obligation to repay investors in gold.

1790 Default on National Debt

The 1790 "default" on the national debt was actually orchestrated by Treasury Secretary Alexander Hamilton. It resulted in the deferment of debt payments for 10 years and a restructuring of the national debt.

Also see: Did Obama Double the National Debt?

Researchers and historians describe this act as less of a default, though, and more of a restructuring of national debt following the Treasury's assumption of state-owned Revolutionary War debts.

Under the restructuring, investors who held state-backed war debt were permitted to exchange it for Treasury bonds under the provision that the federal government would defer payments of interest until 1801.

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