Oliver Hazard Perry's message to William Henry Harrison after the Battle of Lake Erie began with what would become one of the most famous sentences in American military history: "We have met the enemy and they are ours".[citation needed] This 1865 painting by William H. Powell shows Perry transferring to a different ship during the battle.
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WASHINGTON
(AP) — You hear a perfect record cited over and over in the debt limit
debate: The United States has never defaulted. Better put an asterisk by
that.
America has briefly stiffed some of its creditors on at least two occasions.
Once,
the young nation had a dramatic excuse: The Treasury was empty, the
White House and Capitol were charred ruins, even the troops fighting the
War of 1812 weren’t getting paid.
A second
time, in 1979, was a back-office glitch that ended up costing taxpayers
billions of dollars. 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.
As
Congress again tests the limit, Washington could learn some things from
its past. But those periods of missed payments, little noted outside
financial circles in their day, are nearly forgotten now.
Indeed,
Treasury Secretary Jacob Lew frequently declares that the United States
has always met all of its obligations; a Treasury spokeswoman declined
to discuss any possible exceptions. President Barack Obama, reminding
Congress of the urgency of raising the debt limit before a Thursday
deadline, warned there could be chaos ‘‘if, for the first time in our
history, we don’t pay our bills on time.’’
‘‘He doesn’t know his history,’’ says historian Don Hickey. ‘‘It’s that simple.’’
That kind of omission doesn’t surprise Hickey, who called one of his books, ‘‘The War of 1812: A Forgotten Conflict.’’
Even
Americans who study that war won’t find the failure to pay some
bondholders on time in many history texts, said Hickey, a professor at
Wayne State College in Nebraska. Naval heroics and the rockets’ red
glare tend to get the ink.
The narrow
lapses of the past don’t compare with the kind of turmoil Lew predicts
would occur these days if Treasury couldn’t borrow enough money to pay
what it owes to all sorts of people, from overseas bondholders to
retirees on Social Security. If that’s a financial hurricane, the 1979
Treasury bill glitch was more like a draft of chilly air.
Still, there are lessons in history:
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PLAYING WITH FIRE IS RISKY
Tea
party Republicans weren’t the first to make the debt limit a bargaining
chip. Over the years, congressional Democrats and Republicans alike
have held it up for strategic reasons.
In
1979, it was lawmakers determined to attach a strong balanced budget
amendment to the bill. They finally relented, the day before Social
Security checks were expected to start bouncing.
The
tumult contributed to Treasury’s failure to redeem $122 million in
maturing T-bills, touted as one of the world’s safest investments.
Some
investors that April and May waited more than a week for their money.
Treasury blamed problems with its newfangled word-processing equipment.
The system was stressed, officials said, when the booming popularity of
T-bills collided with the last-minute debt ceiling increase from
Congress.
Investors called it a ‘‘default’’ and sued for interest to cover the gap. Treasury called it a ‘‘delay.’’
Most Americans didn’t notice at all. But the bond market did.
T-bill
interest ticked up 0.6 percent, a lasting bump that added about $12
billion to the cost of paying the national debt, according to a 1989
study in The Financial Review journal. It’s title: ‘‘The Day the United
States Defaulted on Treasury Bills.’’
That
certainly counts as a default, even though it was unintentional, said
Urban Institute economist Donald Marron, a former member of Obama’s
Council of Economic Advisers.
‘‘History
tells us that mistakes sometimes happen,’’ Marron said. When Congress
keeps Treasury waiting for an increase in its borrowing limit, he said,
‘‘the cushion against mistakes gets smaller and smaller.’’
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