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The 20th Century began with the United States having some $2 billion in outstanding debt.  The nation had just begun trading with China, and Theodore Roosevelt would become the youngest person ever to assume the office of the President. The United States would assume the responsibility of finishing the Panama Canal, the most ambitious engineering project of its kind ever to be undertaken.  To fund this project, Congress authorized the Treasury Department to sell 2% bonds in 1906 and again in 1908, raising some $84 million.  A 3% bond was issued in 1911, raising an additional $50 million. In the summer of 1914, the canal was finally completed, improving commerce within the hemisphere.  On a different continent however, war had just begun. America aimed to be non-interventionist in its foreign policy during the initial years of the conflict. But Germany’s unrestricted submarine warfare in the Atlantic, along with the infamous Zimmermann Telegram, pushed public and political sentiments, and the United States would enter the war in 1917. Liberty Loans, (also known as Liberty Bonds), were issued between 1917-1919, and were used to finance America's participation in WWI. Liberty

Bonds were sold to banks, corporations, and to citizens. And this was the first time in U.S. history whereby a substantial number of Americans would purchase bonds as both an investment and as a patriotic duty. William Gibbs McAdoo, then Secretary of the Treasury, was responsible for creating the program, which raised some $21.4 billion over five bond issues:  the First, Second, Third, and Fourth Liberty Loans, along with a Victory Bond. They were sold in denominations ranging from $50 to $100,000, both in bearer and registered formats. Some 66 million individual bonds were sold. The Liberty Loans would indeed mark the beginning of a new era: the modern Treasury securities market.  Treasury bonds would indeed become a global financial instrument in the decades to come, and Congress would utilize bond issuance in ever increasing amounts to finance the nation's expenditures.

1917 $100 3.50% First Liberty Loan_edite

1917 $100 3 ½% First Liberty Loan

The Joe I. Herbstman Memorial Collection

1918 $2 Federal Reserve Bank Note


As the political landscape of Europe was shifting, a major institution of American finance was taking its first steps.  In December of 1913, the Federal Reserve Act was signed into law, allowing for the creation of the Federal Reserve System.  Unlike the First and Second Banks of the United States, this system would come to serve as a permanent central bank for the nation.  Twelve Federal Reserve Districts were established: Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, San Francisco, and St. Louis.  The banks have a public and private component to them; commercial member banks receive a statutory dividend from their stock in the bank, but that stock is not negotiable, and the system is designed solely for the purpose of facilitating the nation's monetary policy.  Congress has oversight of the Federal Reserve System, and can change the responsibilities charged to the Fed. The Board of Governors, loacted in Washington D.C., is tasked with overseeing the operations of the Federal Reserve System. With the creation of the Federal Reserve, a new type of banknote would also be introduced.

The New York Federal Reserve Building

1933, the Federal Open Market Committee was created, providing the authority for the Fed to buy and sell Treasury securities as a way of conducting the nation's monetary policy, which is the way the government attempts to influence the economy via the supply of money available. 


After the end of the Great War, America experienced a decade of prosperity, known as the Roaring Twenties. But rampant stock speculation, financial mismanagement by many institutions, and a drop in consumer confidence turned a recession of 1929 into the Great Depression of the 1930's.  An adherence to the gold standard help spread the calamity around the world, as governments were unable to accommodate changing economic landscapes.  Breadlines, massive unemployment, and a significant decrease in industrial production were but a few of the terrible consequences of the depression.  The national debt, which stood at some $16 billion by 1930, would more than double in seven short years.


Ominous events in Europe unfolded, first with the rise of Fascism, followed with the emergence of Nazism.  By the summer of 1939, Germany had annexed parts of Czechoslovakia and all of Austria. It had retaken the Rhineland, and was massing on the border of Poland.  World War II would soon begin, and with the Japanese attack on Pearl Harbor, the United States would enter the war in the winter of 1941. On the eve of war, the national debt stood at some $58 billion.  By the summer of 1945, that number would increase by $200 billion.  The sale of Savings Bonds (also known as Defense Bonds) was vital in raising the needed money to finance the American war effort.  As in WWI, bond drives were ubiquitous throughout the country, as patriotism was encouraged through the purchase of government bonds.

WWII War Stamp & Bond Advertising Poster

1970 $1000 Treasury Bill .gif

1970 $1,000 6-month Treasury Bill

The Joe I. Herbstman Memorial Collection

In 1945, the Allies were victorious over the Axis powers, and the Second World War came to an end.  The victory came with tremendous sacrifice, as America over lost over 400,000 soldiers. The national debt had soared to $260 billion.  But the United States was about to experience a tremendous economic expansion- the largest the nation had ever seen. The Great Depression of the 1930's and 40's gave way to a golden age of prosperity. As millions of servicemen came home from the war, new families started. They had children, built homes, bought cars, appliances, and a lot of other household goods. Changes in living patterns meant that the suburban population exploded during the post-war years. And as war bonds matured, cash was injected into the economy.  By the mid 1960's, nominal GDP had increased from just under $130 billion, (before the start of the war), to some $800 billion.  By 1970, a whole generation had grown up living under this prosperous economic expansion.  But like all economic cycles, the nation's post-WWII boom would come to end.

In 1971, the national debt stood at $400 billion.  President Nixon was in the White House, and the Vietnam War was in its sixteenth year. The monetary system that had governed the economies of the major industrial nations was about to break down.  The Bretton Woods system, enacted in 1944, operated by having the member nations fixing their currency exchange rates to the U.S. dollar. The U.S. dollar would become the global reserve currency.  Separately, America agreed to back the dollar at a gold valuation of $35 per ounce.  But as the economies of Europe and Asia changed throughout the years, the system would have problems. The dollar was seen as overvalued, especially when compared to the West German mark and the Japanese yen- nations that had built robust economies in the decades following the war. America had a ballooning national debt as the Vietnam War continued to rage.  And for many years, there was a steady drain upon the nation's gold reserves.  Bretton Woods was no longer feasible, and President Nixon was forced to unilaterally cancel the direct convertibility of the dollar into gold. By 1973, the U.S. faced an oil embargo from the OPEC member nations. By 1974, the nation faced a stock market crash. Only in March of 1975 would the recession officially come to an end.  The national debt stood at half a trillion dollars, with unemployment peaking at 9% that year.   By 1977, Jimmy Carter had taken office.  And during his presidency would, the nation's economy would drift into stagflation: an economic period whereby inflation and unemployment remain high, while economic growth remains slow. Interest rates on government bonds would climb in the late '70s to levels previously unseen in American history. Despite attempts to fight the economic malaise, the Carter administration was unable to stave off the effects of stagflation during the later years of his presidency.  The Iran-Hostage Crisis did not help his political fortunes either. He lost the 1980 election to Ronald Reagan, leaving office in January of 1981 with the country some $900 billion in debt.

1976 $5000 8% Treasury Note .gif

1976  $5,000  8%  10-year  Treasury Note 

The Joe I. Herbstman Memorial Collection 

Paul Volker, then Chairman of the Federal Reserve Board, was determined to end the high inflation plaguing the U.S. economy.  Through a series of unpopular interest rate hikes, Volker was able to bring down double-digit inflation.  The Federal Funds Rate, (the interest banks lend to each other on balances held at the Federal Reserve), peaked at 20%. The 30-year Treasury Bond would see a 1981 issue topping 15 ¾%, an all-time high for the benchmark security.  Stagflation ended, and the U.S. economy experienced another period of economic expansion. Reagan was committed to winning the Cold War, and believed in economic policies favoring deregulation and free-markets.  Spending on defense increased in his administration.  The U.S. stock market experienced a crash in 1987, but that event proved to be short-lived as equities gained during the decade. 


During the Reagan Presidency, a decision was made to phase-out all paper U.S. Treasuries, starting with bearer format securities. The Treasury and the Federal Reserve had been dealing with electronic, or book-entry securities, for some time.  This transition began in 1977, when the last bearer Treasury Bill was issued.  (T-Bills were never issued in a registered format).  The Treasury Department would issue its last bearer bond in 1981, and its last bearer note in 1982.  Registered bonds were the only paper now left. 1986 would be the last year the United States would print a marketable Treasury security, as all debt going forward would be issued as book-entry.  A history of paper bonds some 200 years in the making had come to an end.  Technology, security, convenience, and expediency had replaced the desire to issue or hold paper debentures.

By the time George H.W. Bush took office, nominal GDP stood at some $5.6 trillion.  The national debt stood at some $2.8 trillion.  President Bush would preside over economy that battled a mild recession in the early 1990's.  During his Presidency, he would break a campaign pledge not to raise taxes, an event that may have indeed cost him reelection.  But by taking steps necessary for political compromise, he did in fact lay some groundwork for the balanced budgets of his successor.  In 1992, President Bill Clinton took office.  The national debt stood at some $4 trillion.  The Clinton years would see economic expansion for the nation, with Chairman Alan Greenspan heading the Federal Reserve.  The growth and development of the Internet added a new dimension to the economy, and GDP expanded along with government revenues.  Bipartisan political compromises lead to balanced budgets in President Clinton's second term in office.  It is worth noting however that the national debt did not go down in any year, as the government continued its program of intragovernmental borrowing from revenues paid into entitlement programs.  While nominally minimal, the national debt grew from $5.3 trillion to over $5.6 trillion during Clinton's second term.  In the fall of 2000, a contested election resulted in George W. Bush becoming the 43rd President of the United States.

Copyright The Joe I. Herbstman Memorial Collection of American Finance ™   All rights reserved.

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