Widespread municipal defaults in the late 19th century prompted U.S. states to pass laws restricting the amount of debt cities could incur. These restrictions generally did not bind until the 1920s, when suburban growth spurred local governments to invest in infrastructure, most of which was financed by bonds. We study the relationship between several major debt restrictions – debt limits, supermajority voting referenda, and debt exceptions – and municipal indebtedness in the Roaring Twenties. We find that cities that faced more restrictive debt rules were less indebted by 1929. We also find that debt limits reduced the amount of capital spending in cities during the 1920s and 1930s, while stricter voting rules reduced the likelihood of municipal default in the 1930s. These rules thus determined not only the degree of debt accumulation in early 20th century cities, but also their infrastructure investment and financial health.

In 1786, the Van Staphorst brothers, America's Dutch investment bank, entered the French office of the Director General of Finance, intent on making an offer for a portion of France's holdings of American bonds. Unknowingly, their offer set off a bidding war that could have ended with poorly capitalized American financial adventurers owing a large portion of bonds which could threaten the fragile health of American credit. At the eleventh hour, the Van Staphorsts conjured up a bold, unprecedented, scheme to persuade the French that it would be unnecessary to sell their American bonds at discounted prices.

In 1918 the United States Treasury delegated to the War Finance Corporation, a newly created off-budget federal agency, the task of buying Liberty bonds and later Victory notes in an effort to stabilize prices. Bayesian vector autoregression analysis of the security purchases indicates that the WFC purchases provided statistically significant price support, and marginally lowered bond yields while the program operated. Once WFC purchases ended, war bond yields increased substantially. Between bond issues, the Treasury financed its operations, including security purchases from the WFC, by issuing short-term debt, which affected the money market interest rate. The WFC's bond purchases are found to have a positive and significant impact on the call loan rate. Thus the WFC's bond purchases twisted the yield curve.