Remember When the National Debt Was Only a Trillion Dollars?


Let's go over some momentous events that took place on this day in economic and financial history.

A billion here, a billion there, and pretty soon you're talking real money. It wasn't so long ago that the national debt of the United States was still measured in billions, but that changed on Oct. 22, 1981, when routine Treasury transactions pushed the debt into the not-at-all-routine trillion-dollar level.

The U.S. government successfully paid off its debt for a brief period in 1835. By the middle of the Civil War it had passed the billion-dollar level, and by 1974 it had reached $500 billion. Seven years of deficit spending added another $500 billion to that total by 1981.

High yields on the Treasuries of the time meant that the government expected to spend $100 billion on interest payments for the 1982 fiscal year. Three decades later, despite a 16-fold increase in the national debt, interest payments have increased only fourfold. The national debt remains a huge political issue. Unfortunately, solutions are far harder to find than talking points.

"If we as a nation needed a warning," President Reagan said of the 13-figure debt, "let this be it." By the end of his term, the national debt more than doubled.

Let there be light
Thomas Edison developed the first successful carbon-filament light bulb on Oct. 22, 1879. Just over a year later he founded the Edison Illuminating Company to capitalize on this world-changing invention, and the Electric Age began in earnest. Edison General Electric was formed a decade later, and it soon merged with the Thomson-Houston Electric Company to form General Electric (NYS: GE) .

GE quickly became a national leader in electricity distribution and was one of the founding members of the Dow Jones Industrial Average (INDEX: ^DJI) in 1896. Where would it be today if not for that first faintly glowing glass bulb?

A panic takes hold
The Knickerbocker Trust Company, a large New York bank, became a Lehman Brothers of turn-of-the-century Wall Street on Oct. 22, 1907. The bank became insolvent after a major bank run removed $8 million from its coffers in a single morning. It was then several days into a panic sparked by a failed stock-manipulation scheme, but the collapse of the Knickerbocker Trust became the first in a chain of bank failures that soon threatened to wipe out the entire stock market, which at the time depended on short-term loans from the banks for much of its trading volume.

The Dow was by then already in free fall -- the natural result of an economic contraction that had been under way since that summer and which would continue well into the following year. It bottomed out in November, having lost 10% of its value since the day of the Knickerbocker Trust's collapse -- but it had already lost 38% of its value, from a peak reached at the beginning of 1907, by Oct. 22.

J. P. Morgan, eponymous founder of a part of JPMorgan Chase (NYS: JPM) , then wielded more power over the financial world than current CEO Jamie Dimon does today. He quickly moved to arrest the crisis, arranging substantial loans to many of the largest banks in amounts that eventually totaled more than $100 million. The crisis reached an end in early November -- just as the Dow bottomed out -- when Morgan arranged for goliath United States Steel (NYS: X) to acquire the Tennessee Coal, Iron and Railroad Company, the distressed shares of which threatened to break a major brokerage firm.

The Panic of 1907 -- and Morgan's outsize impact on its outcome -- spurred renewed national calls for banking reform. The U.S. at the time lacked a central banking institution, but a National Monetary Commission, formed shortly after the panic, would eventually devise a central-banking structure that would inspire the Federal Reserve Act of 1913.

Copy that
The process that gives Xerox (NYS: XRX) its name was successfully tested for the first time on Oct. 22, 1938. Chester Carlson, an independent inventor, managed to create an electrophotographic image in his New York City lab, combining electrostatic printing with photography. The technique took many years to find commercial success. Carlson couldn't even find a company to license his patented technology until the Haloid Company, a small photo-paper manufacturer, signed a licensing agreement in 1946.

By the time Haloid announced its commercial intentions, a decade to the day after Carlson's first successful effort, electrophotography had been renamed "xerography," for the Greek words "xeros" and "graphein," for "dry writing." The process became the financial backbone of the renamed Xerox Corporation by 1959, when it released the Xerox 914. Within two years, revenue doubled, and by the end of the 1960s Xerox's stock had driven one of the earliest tech booms, growing 6,600% over the course of the decade and creating a group of "Xerox millionaires" who rivaled any of today's modern dot-com successes.

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