U.S. Treasury
Pay the debt. Buy the trust.
Alexander Hamilton, Secretary of the Treasury, pitching the First Congress.
Series A(ssumption) · New York, 1790
The United States of America
Funded Six Per Cent Stock
$1,000
Paid at par · Interest from January 1, 1791
The problem
Our IOUs are not worth a Continental.
Under the Articles, Congress could not tax. It printed, borrowed, and stopped paying interest.
Loan Office Certificate
The United States promise to pay the bearer
$100
with interest at six per cent
$13M of interest owed and unpaid
The insight
Credit is reputation. Keep the promise, money gets cheap.
A debt paid faithfully works like money: it can be sold, pledged, and borrowed against.
1Pay every coupon on time
2Bonds trade near par
3Lenders compete to lend
4The country borrows cheaper
The plan
Four moves, one balance sheet.
- 01 Assume
The federal government takes on the states’ war debts.
Report on Public Credit · Jan 1790 - 02 Fund at par
Swap old paper for new federal stock at full face value.
Funding Act · Aug 1790 - 03 Bank
A national bank to hold the money and lend to the Treasury.
Report on a National Bank · Dec 1790 - 04 Mint
One dollar, coined in gold and silver, on decimals.
Report on a Mint · Jan 1791
The debt dashboard
Thirteen state debts. One federal number.
- Click a state to leave its debt out.
The objection
Bought at 15 cents, paid at par. Madison was furious.
His fix, paying the soldiers who sold, lost in the House 36 to 13.
Speculator's return: 6.7x on money paid to a veteran
Objections
Virginia had objections. We had answers.
- Madison, House
Speculators get rich off soldiers.
A promise to the bearer is kept to the bearer. Otherwise no bond can be sold.
- Virginia
We already paid down our own debts.
A final settlement credits every state for what it paid.
- Jefferson, State
The Constitution never mentions a bank.
Necessary and proper: a bank is how you collect taxes and borrow.
The deal · June 20, 1790
Assumption lost 31 to 29. So we booked a dinner.
- July 16, 1790Residence Act: a Potomac capital by 1800.
- July 26, 1790Assumption passes the House, 34 to 28.
The bank · Report of December 1790
$10 million of stock. Sold out in an hour.
Investors paid three quarters in federal bonds, so every share created demand for the debt.
$10M
- The government
- Investors, in gold and silver
- Investors, in federal bonds
- Shares
- 25,000 at $400
- Charter
- 20 years, 1791 to 1811
- Opened
- Dec 12, 1791, Philadelphia
Traction
The new federal bonds went from 70 to par in nine months.
100
Price of the 6% stock, per 100 of face value
- Bank stock
- Sold out in an hour, July 4, 1791
- Branches
- Boston, New York, Charleston, 1792
- The Mint
- Coinage Act, April 2, 1792
Team
A founder, a president, and two bankers who had done it before.
- AH Alexander Hamilton Secretary of the Treasury. Wrote the credit, bank and mint reports.
- GW George Washington President. Signed the Funding Act and the bank.
- RM Robert Morris Senator. Ran the nation’s finances from 1781.
- TW Thomas Willing Banker. First president of the new bank.
The ask
Assume it, fund it, bank it. Never miss a payment.
Pass the Funding Act, then charter the Bank of the United States.