U.S. National Debt Clock
The U.S. National Debt Clock shows the extreme debt the government has acquired and continues to acquire every second. This clock breaks down everything you could want to know about the government's unfortunate financial situation. The main way the government will pay off this debt is by cutting benefits and increasing taxes on its citizens.
Click here to see the clock updated in real-time.
Is the National Debt just a number?
Many people believe that the national debt is just a number and that it doesn’t mean much. Common arguments are that the government can just keep raising the debt ceiling, the government can just print more money, or since the majority of the debt is domestically owned, it’s not a huge issue. These arguments are incorrect for many reasons. Before tackling each one, let’s start with what the national debt is, what our debt path looks like, and the consequences of this path.
First, let’s start with what the national debt is and the current debt situation.
- The national debt grows when the federal government spends more than it collects in revenue. In order to spend this money it doesn’t have, it sells treasury bonds and agrees to pay bondholders back with interest. This interest grows over time and contributes even more to the national debt.
- Sometimes, the national debt can be a useful tool for the government, allowing for programs, and projects to be undertaken without necessarily having the funds to do so at the time. Some things that have contributed to our current debt situation are low tax rates, the wars in Iraq and Afghanistan, the financial crisis, and overall increases in spending on social programs such as unemployment benefits and food stamps (which drastically increased after the financial crisis).
- Having some debt is not a problem, and even if debt itself is getting larger, that’s not necessarily a problem, as long as the tax revenue of the country also rises to match it. The issue comes when our debt rises faster than our tax revenue rises. There reaches a point where the interest on the debt begins to grow faster than our ability to pay it off. This means that a larger and larger percentage of our annual budget will go towards not even paying off the debt (which would likely still grow during this time), but just paying off the interest on that debt.
- As of March 1, 2018, the official debt of the United States government is $20.9 trillion. This amounts to about $63k for every person living in the US and about $165k for every household in the US. This isn’t the complete picture though as it doesn’t consider all financial obligations, only a select set of obligations. If federal employee retirement benefits, current Social Security obligations, and current Medicare obligations are taken into consideration, we get a total of about $90 trillion in debts, liabilities, and funded obligations. This amounts to about $272k for every person living in the US and about $704k for every household in the US. Even with this currently substantial debt, the debt path we are on will likely lead to an even worse financial situation for the United States government.
- Unfortunately, the current debt situation is no longer useful and based on the current debt path, the country’s economic, political, and social power are threatened.
Next, what does our debt path look like?
- The average life expectancy is increasing - As the average life expectancy of a population increases, spending on Social Security and Medicare increases as well. Not only that, but the older Americans will not be working either, making it harder to pay off their debt contribution.
- Interest rates are increasing - Interest rates have been extremely low since the financial crisis (in order to help stimulate the economy), but those interest rate cuts are being reversed. Higher interest rates will cause the cost of the interest payments on the debt to increase as well.
- Growth of the interest on the debt is accelerating - The longer the debt is allowed to grow, the longer the interest on that debt will experience compounding growth. According to forecasts from the White House and Congressional Budget Office, by 2021, the government will be spending more on the interest on the debt (not even considering the actual debt payment itself) than on all national defense.
- Overall, our debt path looks like it will only get worse as time goes on if spending and/or revenue aren't drastically altered. One likely consequence of this, will be an increase in taxes.
What are the consequences of our debt path?
- Higher tax rates - Tax rates have historically been very low, which means the government doesn't receive as much revenue needed to pay off the debt and the interest on that debt. Tax rates will likely increase in the future in order to try to collect more revenue.
- Reduced spending on government programs - Besides by increasing revenue, the government will likely need to cut spending on benefits and services in order to pay off debt. Also, as the national debt increases, the worry of a default on the debt increases as well, causing less people to purchase treasures. This reduction in treasury purchases leads to the government raising the yield on treasuries to try to attract more investors. This money going towards paying the increased yield on treasuries can’t go towards increasing the standard of living for the American people.
- Financial markets (and the retirement accounts linked to them) doing poorly - As interest rates increase, the interest payment on debt taken out by corporations will increase as well. As corporations spend more to pay off their debt, their earnings will decrease, and as a result, their valuation will decrease as well.
- Not only that, but as treasury yields increase during this time (as mentioned in the “Reduced spending on government programs” section), less money will be invested into equity and corporate debt, since they are now less appealing as they are riskier. This means that it will be more difficult for corporations to offer a high enough return on their bonds and stock dividends to attract investors. Without as much investment, corporations cannot expand, reducing their earnings and valuation. This leads to a shrinking of the private sector and a growth in the public sector, also known as the “crowding out effect”. To learn more about the crowding out effect, click here.
- Not only that, but as treasury yields increase during this time (as mentioned in the “Reduced spending on government programs” section), less money will be invested into equity and corporate debt, since they are now less appealing as they are riskier. This means that it will be more difficult for corporations to offer a high enough return on their bonds and stock dividends to attract investors. Without as much investment, corporations cannot expand, reducing their earnings and valuation. This leads to a shrinking of the private sector and a growth in the public sector, also known as the “crowding out effect”. To learn more about the crowding out effect, click here.
- Decreases in the value of homes and the net worth of homeowners - As treasury yields increase, the interest rate on mortgages increases as well. Potential home buyers will no longer qualify for as large of a mortgage loan since they will have to pay more of their money to cover the interest on the loan. This causes a reduction in the demand for homes, pushing down the value of homes in general. This results in a lower net worth of all homeowners.
- Less flexibility for our government to respond to challenges - Large amounts of debt restrict policymakers’ ability to use fiscal and monetary policies to respond to unexpected challenges, like economic downturns or financial crises. As a result, once those challenges appear, they will have even larger negative effects on the economy and people’s standard of living.
- Compromised national security - As a larger and larger portion of the annual budget is spent on servicing the debt and the interest on the debt, less can be spent on maintaining the military and defense. By 2021, we are projected to pay more just on the interest on the debt than on our entire military and defense spending.
- Generational inequality - By not fixing the current debt situation, our children and future generations will have to deal with a higher debt burden. Reducing their standard of living and making it harder for them to retire. Ironically, this directly contradicts the idea of no taxation without representation, which was arguably the main idea that eventually led to the formation of the United States of America.
- Overall, the consequences can be summed up as a reduced standard of living for the American people. The US pays hundreds of billions of dollars a year just to service the interest on the national debt. That is money that can’t go towards improving the country or benefiting the people in the country.
Common arguments on why the debt is not a big deal
- The government can just keep raising the debt ceiling!
- This only delays the issue by preventing a complete government shutdown. Like mentioned earlier, the more debt accumulated and the higher the interest payment on that debt gets, a larger and larger portion of the annual budget will be dedicated towards servicing that debt. The consequences of this have already been outlined, an overall reduction in the standard of living of the American people.
- This only delays the issue by preventing a complete government shutdown. Like mentioned earlier, the more debt accumulated and the higher the interest payment on that debt gets, a larger and larger portion of the annual budget will be dedicated towards servicing that debt. The consequences of this have already been outlined, an overall reduction in the standard of living of the American people.
- The government can just print more money!
- The government cannot just print money to make this problem go away. Printing money causes the value of that money to decrease, otherwise known as inflation. As a consequence, the cost of goods and services will also increase to attempt to maintain the same value as before the inflation – not changing the actual situation for the better, just what the numbers look like. As a further consequence, the value of your money is now lower, lowering your purchasing power. If the value of your money and your purchasing power decreases, printing money is just a "hidden" form of taxation – the government is taking value from you for their own needs.
- A good example of how printing more money won’t fix fundamental debt problems is the hyperinflation that occurred in Zimbabwe after trying to print more money to pay off their deficit spending. Some more information about the hyperinflation that occurred in Zimbabwe can be found here and here.
- The government cannot just print money to make this problem go away. Printing money causes the value of that money to decrease, otherwise known as inflation. As a consequence, the cost of goods and services will also increase to attempt to maintain the same value as before the inflation – not changing the actual situation for the better, just what the numbers look like. As a further consequence, the value of your money is now lower, lowering your purchasing power. If the value of your money and your purchasing power decreases, printing money is just a "hidden" form of taxation – the government is taking value from you for their own needs.
- Most of the debt is domestically held!
- This is technically true, but it doesn’t really change the situation. The only thing it might change is a reduction in other governments’ ability to use the debt as leverage (which is good), but the costs to the citizens are the same. Also, foreign governments do hold a substantial portion of US debt, so the concern about foreign leverage is still valid, it's just that technically not the majority of the debt is foreign-owned.
Some further reading:
https://www.justfacts.com/nationaldebt.asp
https://www.fiscal.treasury.gov/fsreports/rpt/finrep/fr/08frusg/08frusg.pdf
https://www.gpo.gov/fdsys/pkg/BUDGET-2000-CITIZENSGUIDE/pdf/BUDGET-2000-CITIZENSGUIDE.pdf
https://www.brookings.edu/wp-content/uploads/2016/06/0208_budget_outlook_auerbach_gale.pdf
https://www.fiscal.treasury.gov/fsindex.htm
https://www.investopedia.com/articles/economics/10/national-debt.asp
https://www.gao.gov/new.items/d05958sp.pdf
https://www.bea.gov/iTable/iTable.cfm?reqid=19&step=2#reqid=19&step=2&isuri=1&1921=survey