The US national debt clock is ticking – why people are now paying attention

Talking Points:

  • US public debt hits $30.5 billion in summer 2022
  • Why America’s National Debt Will Never Be Repaid
  • How the USD remains the world’s main reserve and trading currency

Recommended by Darrell Delamaide

Get your free USD forecast

The US national debt clock doesn’t count hours or minutes, but for many people it shows the country is running out of time. For others, not so much. The National Debt Clock display near Times Square in New York records government debt in real time, so the numbers are constantly flashing at the end of the 14-digit string, which currently displays a national debt of $30.5 trillion. Similarly, the US Debt Clock website tracks debt in real time and breaks it down into debt per citizen ($91,734) and debt per taxpayer ($242,986).

The purpose of these debt clocks is to make people aware of the size of the national debt and how fast it is growing, but the issue of debts and deficits is a controversial issue and subject to interpretation.

When interest rates are low enough, as they have been since the 2008 financial crisis, people worry less about the size of the debt. Modern Monetary Theory, which has gained popularity in recent years, asserts that any country with its own fiat currency can issue virtually unlimited debt.

The advantage of the USD

The two constraints on debt are debt servicing – which becomes a bigger issue as interest rates rise – and the credibility of the country’s economy in sustaining that debt. The United States is in a privileged position in this respect, as it is the world’s largest economy and the US dollar is the world’s main reserve and trading currency. (A French finance minister called the American advantages “exorbitant privilege.”)

The surge in inflation has forced people to rethink monetary theory and revisit the monetarist principle that the money supply determines the rate of inflation and the sustainability of debt. In short, people are starting to pay attention to the national debt clock again.

The federal government normally spends more than it receives in tax revenue, running a sizable deficit. Emergency spending for the Covid-19 pandemic has exacerbated this trend, swelling the deficit and deepening the debt.

The federal government has run a deficit in 77 of the past 90 years and the last time it posted a surplus was in fiscal year 2001, amid rising tax revenues and deficit reduction policies of the Clinton administration.

The people behind the debt clock

In fact, the Durst family, which operates the National Debt Clock, unplugged it in 2000 because it seemed to have served its purpose of alerting the public and policy makers to the importance of debt reduction. The clock was stopped at $5.7 trillion – but two years later it was restarted at $6.1 trillion.

Politicians, when it suits them, like to use the debt clock to scare voters. They use craft metaphors about how we max out our credit card and burden our grandchildren, who they say will have to pay off all that debt.

It’s not true. No one will ever repay the US national debt. What matters is what proportion of the debt of the national economy represents and what are the costs of servicing this debt.

Inflation can have a much more dramatic impact on public welfare. The landmark $550 billion infrastructure program passed in late 2021, for example, has already suffered drastic cuts with 8.6% inflation forcing states to cancel projects as costs rise.

There are many theories that public debt crowds out private borrowers, drives up interest rates and drags the economy down, but for the most part there is little historical evidence of this in the US economy.

Much of the current debt of over $30 trillion is money budgeted for future spending, like the Social Security trust fund. An academic economist calculated that $8 trillion of the $30 trillion falls into this category.

Many states and some countries have laws requiring a balanced budget. But the situation is different for these governments. States do not have their own fiat currency and must face market prices to sell their debt.

The special case of Germany

Among sovereign governments, Germany has a balanced budget requirement (on hold for now) because many economic theories there are archaic (some would say outdated). In any case, as part of the European Union’s common currency, the euro, Germany is bound by the so-called Stability and Growth Pact to keep debt at 60% of GDP and spending deficit at 3%.

But these limits have hardly ever been respected by member countries in the 20-year history of the euro. Limits were suspended as a result of the pandemic and will likely never be reinstated.

It is equally unlikely that any other currency will overtake the dollar as a reserve and trading currency, and thus remove the country’s exorbitant privilege. No other currency can match the dollar in terms of convertibility, and no other country’s financial markets can match those of the United States in terms of depth and liquidity.

Recommended by Darrell Delamaide

Best Trading Lessons

element inside the

element. That’s probably not what you wanted to do! Upload your application’s JavaScript bundle to the item instead.

Comments are closed.