The first element called for paying off in full the loans that foreign governments had made to the Continental Congress during the Revolution. In 1790 the principal on these loans amounted to roughly $10 million. The United States owed two-thirds of these debts to France, one-third to the Netherlands, and a small amount to Spain. In addition, unpaid interest of about $1.6 million had accrued. Hamilton proposed that the federal government pay the interest out of tax revenues and borrow, over a fifteen-year period, enough capital to repay the principal of the loans.
These debts, amounting to about $42.4 million, had resulted from the selling of bonds to supporters of the Revolution and the issuing of various notes to pay soldiers and farmers and merchants who had supplied the revolutionary armies.
Hamilton recommended that the federal government maintain this new debt as a permanent feature of the fiscal landscape. To demonstrate the commitment of the federal government to maintaining the value of this permanent debt, Hamilton proposed creating a "sinking fund," based on the method used by the British government to manage its debt.
Hamilton, however, believed that the federal government would be unable to determine who had been the original owners of federal securities. Moreover, he was convinced that the best way of demonstrating the trustworthiness of the federal government was to pay back the debts at something close to their full value. This demonstration was necessary, Hamilton was certain, in order for the federal government to borrow in the future without having to pay excessive rates of interest. Hamilton was persuasive,
Hamilton's economic policies may have undermined the future of the Federalist