Tic toc on the U.S. debt limit provides worthy cause to look back to 1931, to the travails of then superpower Britain. Bear in mind that the peak of the British Empire had been 1914, thus the following events took place 17 years after the peak.
The U.S. saw its peak in 1999.
“On August 1, 1931, the Bank of England inquired of the U.S. government whether it would be permissible to borrow $250 million from private U.S. banks. Hoover encouraged this act ion to be taken immediately. But the selling pressure against the pound by private investors forced the Bank of England to request a $400 million loan on the 26th of August. Both loans were made giving Britain a $650 million loan, but even this proved to be far from enough to stem the tide.
Within Britain, turmoil had besieged the government. Montagu Norman still reigned as a dominant force within economic policies. Norman turned to his handy textbook and relied upon what under normal conditions would dictate the solution to the problems at hand. In addition to raising the interest rates, which failed to prevent the panic withdrawals, he then surmised that confidence could only be restored by cutting government expenditures, thereby forcing on its own people a greater level of deflation. The Brits also organized what was dubbed the "May Committee" which reviewed public expenditure. This committee recommended drastic cuts in government expenditures, including a 20% cut for government employees and unemployment benefits for its people. Only two out of the seven members of this committee dissented on this opinion.
Norman obviously relied upon the report of the May Committee in his suggestions which he delivered to the government. During August this led to the resignation of most of the Labour cabinet, which simply disagreed that the salaries of government workers and unemployment benefits should be cut drastically. In the aftermath, the formation of Macdonald’s National Government resulted.
Norman demanded that these drastic cuts must be made immediately and he made them a prerequisite for obtaining the loans from the United States. These were the only steps that could save the pound, Norman asserted. From Invergordon, news spread around the world that the British Navy was in "mutiny" as a result of the drastic cut in pay. This news of mutiny did not help restore confidence whatsoever and the pay cuts had been hastily pushed through upon Norman’s direction.
Another committee, which history has referred to as the "Macmillan Committee," presided over finance and industry matters within the British government. Two prominent men sat on this committee; they were John Maynard Keynes and Ernest Bevin. The Macmillan Committee had recommended that the pound should be devalued. Of course, Norman had disagreed with this wholeheartedly. Keynes was also opposed to devaluation, but it is said that on August 5, Keynes wrote a letter to the Prime Minister in which he reversed his opinion and advocated a devaluation of the pound using the words: "The game is up."
Finally, on September 21, 1931, the Bank of England abandoned the gold standard and effectively defaulted on its foreign obligations. This, added to revolutions in South America, defaults by Germany, Austria and most of Eastern Europe, left the United States as one of the few nations which still clung to the gold standard.” The Greatest Bull Market in History, Martin Armstrong