Early Uses and Defaults

• The first municipal bonds in the U.S. were issued by New York City in 1812. They were backed by the city's taxing power and tax revenues. Their popularity grew, but with that problem came the danger of the over-issuance of debt. Three of the country's depressions --1837 to 1843, 1873 to 1879 and 1893 to 1899 -- were blamed in part on the issuance of too much municipal debt, according to the City Mayors Finance website. It was like someone charging a lot to a credit card and then being unable to make the minimum payments. This led to safeguards being put into place to prevent governmental entities from issuing too much debt. The Great Depression experienced 4,770 municipal bond defaults compared to 79 in the 1940s, 112 in the 1950s and 300 in the 1960s.
  
  

Creation of Credit Rating Agencies

• Credit rating agencies came from an effort to classify bonds in the late 1800s. In 1890, Poor's Publishing Company published "Poor's Manual." Today the company is known as Standard and Poor's. John Moody began rating bonds in 1909 in "Analysis of Railroad Investments." Moody's Investor's Service rates a wider variety of financial vehicles today.
  
  

Bonds in the First Half of the 20th Century

• Between 1902 and 1927, outstanding state and local debt financed by bonds jumped from $2.1 billion to $14.9 billion, according to City Mayors Finance. During this time, municipal bonds funded the first interstate authority, the Port Authority of New York and New Jersey. World War II and the Great Depression began to slow the issuance of debt, but this only created increased demand for public infrastructure that was delayed because of lack of funding.
  
  

Bonds in the Late 20th and Early 21st Century

• Public debt then saw a large increase between 1960 and 1981 from $66 billion to $361 billion, according to City Mayors Finance. During this time, municipalities began using short-term bonds as well as long-term bonds. Between 1998 and 2010, municipal debt grew from $1.3 trillion to $2.8 trillion. Even with safeguards in place, the tremendous amount of municipal debt is beginning to worry investors once again, according to the "New York Times."