The Creation of the Debt Ceiling and the First Man on the Moon

The Creation of the Debt Ceiling and the First Man on the Moon

On this day in economic and business history ...

"That's one small step for a man, one giant leap for mankind." Those were the words of Neil Armstrong, upon taking humanity's first step onto an extraterrestrial celestial body, to more than 1 billion people watching on live television around the world, July 20, 1969. Armstrong later claimed he had been misquoted, the "a" obscured by static interference.

The New York Times and The Chicago Tribune published remarks by Wernher von Braun, one of the key figures behind the creation of America's space program, on the occasion of Apollo 11's successful landing on the Moon's Sea of Tranquility:

Apollo 11 will be remembered as a magnificent achievement of applied science and technology. All Americans should be justifiably proud.

In reality, however, the team that brought Apollo 11 to fruition is an international one. The mission actually began not on July 16, 1969, but several centuries ago. ...

It was men such as Konstantin Tsiolkovski, Robert Goddard, and Hermann Oberth who worked out the basics of astronautics, drawing in turn on the earlier works of Sir Isaac Newton and Johannes Kepler. Without knowing why a rocket works, we could not hope to place an artificial satellite around the earth or on the moon. ...

It is interesting to note that the three modern pioneers in astronautics -- Tsiolkovski, Goddard, and Oberth -- all had one thing in common: imaginations inspired by Jules Verne. He helped turn serious minds to scientific problems at the turn of the 20th century.

The Los Angeles Times also took the occasion to consider the Apollo program's contributions to scientific and industrial progress. A list of advances developed as a result of Apollo technology, curated by NASA, was 185 items long at the time Apollo 11 touched down. Medical breakthroughs were plentiful, as were advances in computer technology. General Motors , which developed Apollo's guidance system through an electronics subsidiary, adapted that system for use in Boeing's 747, which was to fly commercially for the first time several months later. Today, aircraft guidance systems can practically fly planes from runway to runway.

Want to read more about the technology behind the Apollo program? Click here.

Roosevelt's wild market ride
The Dow Jones Industrial Average was barely above 50 points when Franklin D. Roosevelt became president in 1933. It went on an incredible run during his early tenure, cresting 100 points by mid-July. However, something spooked Wall Street in late July, and on July 20, 1933, the Dow collapsed by 7.1%, falling below triple digits again in the process. The break, at 8.1 million shares then the seventh most active trading day on record, caused 20-minute delays in the ticker feed as a number of overleveraged margin traders got their feet cut out from under them by falling prices.

One source of confusion centered on the "liquor stocks," which were then every bit as speculative and uncertain as medical-marijuana stocks are today. Prohibition was still in force, and although President Roosevelt had pledged to overturn it, that would not occur until the end of 1933, with the passage of the 21st Amendment. Tightening margins and valuation writedowns wrecked the value of these stocks, and many traders were pulled down into the vortex.

This wildness had a secondary effect of creating confusion over potential regulatory implementations, which was then still very much in the air following the passage of the Securities Act two months earlier. Some investors thought daily price movements would be limited, which is a common practice now thanks to circuit breakers, but which would have been difficult to control in an analog trading era. Others thought margin trading would be eliminated. One visionary suggestion, spelled out in the pages of The New York Times, posited that "specialists" would be replaced by machines like those allowing automated betting at racetracks. "This fantastic idea," wrote the Times, would do away with the human element in the execution of orders by mechanically matching buying with selling orders." This, of course, is currently accomplished thousands of times per second on any given stock of the thousands on the market, since trading is entirely computer-based now. None of these ideas came to fruition in 1933, but it didn't stop skittish Wall Streeters from stampeding away from the Dow's first 100-point close since 1931.

The origin of the debt ceiling
The Public Debt Act was enacted on July 20, 1939. It was the first implementation of an aggregate debt limit for the U.S. federal government, which had previously split its restrictions by individual bond issues. The Public Debt Act set the debt ceiling at $45 billion, which was at the time about half of national GDP. Within two years, stimulus spending had brought the United States near that limit, which necessitated a further increase, and a consolidation of federal borrowing power in the hands of the Treasury.

Want to learn more about the U.S. debt ceiling, from its origins in 1919 to the present day? Click here to read a complete history, or click here for an interactive history on the growth of the U.S. debt ceiling.

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