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Could 18th Century’s ‘Sinking Fund’ Solve Fiscal Cliff?

Nov. 16 (Bloomberg) -- As President Barack Obama and congressional Republicans seek to resolve the so-called fiscal cliff, the combination of automatic tax increases and spending cuts scheduled for next year, a mutually agreeable solution is lurking in an unexpected place: the 18th century.

In the 1700s, Great Britain had a debt burden that was even more ominous than the $16 trillion the U.S. government now owes. In 1716, Parliament proposed an ingenious, and fairly uncontroversial, way to reduce this debt, called a sinking fund. The scheme was copied 74 years later by the U.S. Congress. And it could work just as well now as it did three centuries ago. The sinking fund was the brainchild of Robert Walpole, who was then the first lord of the Treasury and chancellor of the Exchequer. Its purpose was to chip away at a national debt that had swollen to 55 million pounds, which Parliament considered “insupportable.”