Postwar Turbulence

Series H bond, 1952

Series H bond, 1952

1950: Postwar

There was a budget surplus each year from 1946 to 1949, but the total debt never fell below $250 billion. Fiscal theory no longer centered on balancing the budget, but, following Keynes, took into account the effect that government spending had on economic growth and stability and demanded that government spending should be used as a tool for controlling the economy. To help bring order to the sprawling post-war bureaucracy, the Bureau of the Public Debt was given new headquarters, and began to take advantage of many new technological advances, like punch cards and microfilm. With the outbreak of hostilities in Korea in June, 1950, defense spending jumped from $17.7 billion to $40.4 billion in 1953, and the Treasury again became concerned with the problem of financing a war effort.

In 1957, Under-Secretary of the Bureau of the Public Debt, W. Randolph Burgess, approved Parkersburg, West Virginia, as the Bureau's new electronic processing center. The new location benefited from its rural location as "a non-critical target area" (this being the height of the Cold War), and enjoyed an abundant local workforce. Soon after, the DATAmatic Corporation is authorized to install a "state-of-the-art" 25-ton DATAmatic Model 1000 computer system, called "The Great Brain," at Parkersburg. The computer alone occupied 6,000 square feet!

1960: Turbulence

No one could have forecast the increase of government activity and debt at the beginning of the 1960s. Up to that time, the post-World War II period had seen only seven years of government deficits (associated with the Korean War or economic recession) mixed with seven years of budgetary surplus. The total debt rose by a modest $30 billion (from $260 billion to $290 billion). And if inflation is taken into account, the real value of the debt would be seen to fall during this time!

The Bureau of the Public Debt grew by leaps and bounds during the '60s, introducing new paper- and time-saving processes to help investors. In 1968, regulations were put into place for the use of book-entry accounting in which Treasury securities would be recorded as entries in the accounts of the Federal Reserve Bank that issued them, instead of as definitive securities issued in the form of printed pieces of paper. This new system reduced the amount of paperwork involved with government securities transactions!

Freedom Shares, 1967

Freedom Shares, 1967

But the war in Vietnam, and the country’s deeper intervention from 1966 onward, as well as the Johnson administration’s "Great Society" programs, raised the budget deficit to $25.2 billion, the most it had been since World War II. With a tax increase, the budget for 1969 actually showed a surplus of $3.2 billion, marking the last time the federal government’s finances would be "in the black" until 1998. (By 1970, total debt would rise to $382.6 billion, increasing $92 billion over the decade.)

1970: Tightening Our Belts

President Nixon inherited the expensive Vietnam War, as well as Johnson’s "Great Society" programs. Deficits rose through the early '70s to levels previously unheard-of except during World War II. In 1973, the budget deficit was $14.3 billion. Then, with the sharp rise in the price of petroleum products due to the OPEC-engineered shortage of 1973, inflation increased dramatically. Monetary policy was tightened to fight inflation, but interest rates hit new highs and the deficit reached $59 billion by 1980.

By 1980 total federal debt stood at $914 billion, an increase of $532 billion since 1970. (Sales of Savings Bonds continued to rise but could not keep pace with the increase in the total debt. At the end of the decade, the total of $72.7 billion in Savings Bonds and Notes was only 8% of the public debt.)

In 1971, Treasury began selling new issues of Treasury Notes for cash at "competitive auctions" instead of employing its longtime policy of offering securities for subscription at fixed prices and interest rates announced in advance. This left it to the financial markets to set prices and rates of interest on the securities, ensuring that each offering could be sold with minimal intervention by the Federal Reserve.

Also in 1971, Public Debt installed a "faster" computer, a Honeywell H-1250, to handle the increased workload from growing savings bond sales. But by mid-decade, the Honeywell gave way to a UNIVAC 1110 computer, which was installed in Public Debt’s first "raised floor" data center at Parkersburg.

Throughout the 1970s, there was an increase in the amount of public debt securities owned by foreign governments. Sales of these securities reached $28.5 billion in 1973.