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The US National Debt Clock is Ticking – Why People Are Now Paying Attention

The US National Debt Clock is Ticking – Why People Are Now Paying Attention

Darrell Delamaide, Contributor

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Talking Points:

  • US national debt reaches $30.5tn in summer 2022
  • Why the US national debt will never be paid back
  • How USD remains globe’s main reserve and trading currency
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The U.S. National Debt Clock doesn’t track hours or minutes, but for many people it shows that the nation is running out of time. For others, not so much. The National Debt Clock display near Times Square in New York City registers government debt in real time, so the numbers are constantly flickering at the end of the 14-digit string, which currently shows a national debt of $30.5 trillion. Similarly, the U.S. 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 quickly it is growing, but the question of debts and deficits is a vexed one open to interpretation.

When interest rates are quite low, as they have been since the 2008 financial crisis, people worry less about the size of the debt. Modern monetary theory, which gained some currency in recent years, says any country with its own fiat currency can issue debt virtually without limits.

USD’s advantage

The two constraints on debt are servicing it – which becomes a bigger issue as interest rates rise – and the credibility of the country’s economy in sustaining that debt. The U.S. is in a privileged position in this regard because it is the world’s largest economy and the U.S. dollar is the world’s main reserve and trading currency. (A French finance minister famously called the U.S. benefit an “exorbitant privilege.”)

The surge in inflation has forced people to re-think monetary theory, and look again at the monetarist principle that money supply determines the rate of inflation and the sustainability of debt. In short, people are starting to pay attention once again to the National Debt Clock.

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

The federal government has run a deficit in 77 of the past 90 years and the last time it showed a surplus was in fiscal 2001, amid surging tax revenue 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 fulfilled its purpose of alerting the public and policymakers to the importance of keeping debt down. The clock was stopped at $5.7 trillion – but two years later it was plugged back in at $6.1 trillion.

Politicians, when it suits them, like to use the debt clock to scare voters. They use homespun metaphors about how we are maxing out our credit card and burdening our grandchildren, who, they say, will have to pay back all that debt.

That is not true. Nobody will ever pay back the U.S. national debt. What counts is what proportion of the national economy debt represents and what are the costs of servicing that debt.

Inflation can have a much more dramatic impact on public welfare. The landmark $550 billion infrastructure package passed in late 2021, for instance, has already sustained drastic cuts with 8.6 percent inflation forcing states to cancel projects as costs spike.

There are numerous theories about government debt crowding out private borrowers, pushing up interest rates, and dragging down the economy, but for the most part there is little historical evidence of this in the U.S. economy.

Much of the current $30 trillion-plus in debt is money budgeted for future expenditure, such as the Social Security trust fund. One academic economist has calculated that $8 trillion of the $30 trillion falls into that category.

Many states and some countries have laws prescribing a balanced budget. But the situation is different for these governments. States do not have their own fiat currency and they must contend with market prices for selling their debt.

Germany’s special case

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

But these limits have hardly ever been observed by member countries in the 20-year history of the euro. The limits have been suspended in the wake of the pandemic are unlikely to ever be restored.

Equally unlikely is any other currency overtaking the dollar as reserve and trading currency, and thus removing the country’s exorbitant privilege. No other currency can match the dollar for convertibility, nor can any other country’s financial markets match those of the U.S. for depth and liquidity.

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