On this day in economic and business history...
President Bill Clinton announced the first balanced federal budget in a generation on Sept. 30, 1998. In a speech at the White House, Clinton hailed the event as a "landmark achievement," saying further:
For 29 years, the last day of the fiscal year was not a day of celebration, but a day we were handed a powerful reminder of our government's inability to live within its means. In the 12 years before this administration took office, the debt quadrupled, partisan gridlock intensified, and a crushing debt was being imposed upon our children. These deficits hobbled economic growth, spiked interest rates, robbed too many people of their chance at the American dream.
The end of this fiscal year obviously is different as the flashing sign behind me shows.
Tonight at midnight, America puts an end to three decades of deficits and launches a new era of balanced budgets and surpluses. While the numbers will not be official until the end of the month, we expect the 1998 surplus to be about $70 billion.
This marked the first of four consecutive years in which the Clinton administration reported a surplus on the federal government's annual budget, which, between the 1998 and 2001 fiscal years, added up to roughly $560 billion in extra funds. The last time the government had enjoyed four consecutive years of surplus occurred from 1927 through 1930 -- hardly a good analogue, given the wretched state of the economy after 1929.
However, it has been argued -- and perhaps fairly -- that Clinton was not entirely up-front about the nature of the supposedly balanced budget. The official numbers, which included "off-budget" items including the Social Security trust funds, did show surpluses for all four fiscal years of Clinton's second term. However, the "on-budget" totals alone showed a different picture -- only the 1999 and 2000 fiscal years recorded on-budget surpluses, and over these four years, the total surplus added up to a mere $26 billion. And because most of the surplus was calculated from money flowing into the Social Security trust funds, the national debt did not get paid down in the aggregate: From 1998 to 2001, more than $280 billion was added to the tab.
Ironically, the debt increase was largely because of the trust fund surpluses as well. The funds, which are required to invest in Treasuries, funneled their extra money into government bonds, so despite a temporary reduction in debt held by the public, total debt increased because of a bloating of debts that one part of the government owed to another.
Because a budgetary surplus (either official or strictly on-budget) is so rare in modern times, it's difficult to assess their value to the economy against deficit years. However, it is worth noting that the Dow Jones Industrial Average (DJINDICES:^DJI) delivered weak performances following the four years of Clinton's balanced budgets. Its five-year annual growth rate from 1998 to 2003 was 1.5%; from 1999 to 2004 the Dow lost 0.5% per year; from 2000 to 2005 the Dow lost 0.4% per year; and only from 2001 to 2006 did the Dow approach its long-term average growth rate with annualized gains of 5.7%. The Dow's forward growth following the federal government's earlier streak of surpluses was even uglier: All four surplus years from 1927 through 1930 suffered some of the worst half-decade forward growth rates in the Dow's history.
A megabank is born
The present-day Bank of America (NYSE:BAC) took shape on Sept. 30, 1998, when NationsBank completed its acquisition of BankAmerica. The $62 billion buy, which had been announced in the spring, ranked as the second-largest takeover in history, and it created the largest bank by assets ($525 billion) in the United States.
The deal came amid a flurry of huge banking deals that would eventually lead to the dismantling of Glass-Steagall, but this was not one of the deals that would drive that dismantling; the two banks were then both principally commercial operations, though each owned brokerage subsidiaries. After they combined, the new bank accounted for about 8% of all American banking deposits. It also vindicated the long-held national ambitions of BankAmerica founder Amadeo Giannini, who had established its earliest antecedent as the Bank of Italy nearly a century before. NationsBank CEO Hugh McColl quoted the forward-thinking founder in his statement to The New York Times when the merger was first announced:
"I have made no secret of my desire to create a nationwide franchise," [McColl] said, "and [BankAmerica CEO] Dave [Coulter]'s company was founded by the man who had the idea before any of us were born: A.P. Giannini."
"In 1930, five years before I was born, Mr. Giannini was asked by members of Congress what he thought about nationwide banking. He said, and I quote, 'It is coming, gentlemen, and there is nothing you can do to stop it."'
Of course, strict Depression-era banking regulations did stop nationwide banking for decades, but those old walls had fallen by the 1990s. The new Bank of America got off to a rocky start as a result of a poorly planned BankAmerica investment in a floundering hedge fund. No one could have known how bad an omen that would be for long-term shareholders -- for the 15 years following the merger, Bank of America's shares (after peaking with gains of more than 150%) have lost roughly 10% of their value.
Excuse me, I believe you have my stapler patent
Samuel Slocum received a patent for a "Machine for Sticking Pins into Paper" on Sept. 30, 1841. This device is popularly known as the first stapler, which any office worker should be familiar with -- and if you've grown up in a "post-paper" age, you're probably still familiar with staplers thanks to Office Space, a modern cult classic film about the drudgery of office work -- and staplers.
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