The history of financing America, in six crisis episodes

Sept 2 (Reuters) - Concerns over America's fiscal outlook are mounting. Long-dated Treasury yields are at their highest levels since 2007, while the national debt has surpassed $40 trillion.

It is not the first time Washington has faced an imposing financing challenge. Treasury Secretary Scott Bessent says the U.S. can grow out of the debt. But history suggests ‌that when the Treasury cannot rely on the usual mix of investors, instruments and market conditions, it has also created new methods to raise funds.

Here are six financing challenges Washington tackled ‌and how it overcame them.

The Civil War forced Washington to borrow at an unprecedented scale. Federal debt rose from about $65 million in 1860 to roughly $2.7 billion in 1865, approximately doubling annually over that span. By comparison, U.S. public debt has ​compounded at a 6.6% annual rate since 1946, according to Morgan Stanley.

To absorb the new issuance, Washington wrote rules creating a new class of buyers. The National Banking Acts required federally chartered banks to back their currency with U.S. bonds.

Financier Jay Cooke found buyers too, selling debt nationwide through banks, sub-agents, advertising and patriotic appeals. Cooke's 6% "five-twenties" were callable after five years and due in 20, with interest paid in gold; his three-year "7-30" notes paid 7.30%, yielding $3.65 a year and marketed as a penny a day for a $50 investment. The campaigns helped turn federal debt into a mass retail product.

By February 1895, recession, gold exports and fears ‌of a shift to silver had driven the Treasury's gold reserve down ⁠to $41.3 million, far below its politically vital $100 million benchmark. Public bond sales had bought only temporary relief.

With no central bank, President Grover Cleveland enlisted two private financiers, J.P. Morgan and August Belmont Jr., to lead a syndicate that agreed to supply more than $65 million in gold, much of it from Europe, and help ⁠stop further withdrawals. In return, the syndicate received about $62 million in 30-year, 4% Treasury bonds.

The deal stabilized the reserve but made Morgan and Belmont symbols of Wall Street's sway over public policy, energizing an already growing populist revolt.

Financing World War II required both cheap borrowing and the restraint of civilian spending to stem inflation. So Washington turned to war bonds. Through voluntary payroll plans, about 27 million Americans were regularly buying them by June ​1943. ​By the war's end, war bonds had financed roughly half of the wartime debt.