The US National Debt Clock and Its Warning

Did You Know There's a Clock to Track the Debt?

debt clock 10
••• National Debt Clock in 2008, when it was expanded to 14-digits. Photo: Getty Images

The national debt clock tracks the U.S. debt, which topped $21 trillion on March 15, 2018. The clock is physically located at One Bryant Park, west of Sixth Avenue between 42nd and 43rd Streets in New York. You don't need to fly to Manhattan and see the debt clock to find out. Simply go to the U.S. Treasury website .

Real estate investor Seymour Durst created the debt clock on February 20, 1989. He first put it up at Sixth Avenue and 42nd Street. That's when the national debt was nearing $2.7 trillion and 50 percent of gross domestic product. Durst said, “If it bothers people, then it's working.”

In addition to installing the clock, Durst bought ads on the front page of the New York Times. His May 26, 1991, message was prophetic: "Federal debt soaring, national economy shrinking, soon the twain shall meet." (Source: "The Times Square Debt Clock," Time Magazine, October 14, 2008.)

The debt clock faithfully recorded the increasing U.S. debt until 2000. That's when the prosperity of the 1990s created enough revenue to reduce the federal budget deficit and debt. It seemed as if the debt clock had done its job.

Unfortunately, that prosperity didn’t last. The 2001 recession and the 9/11 terrorist attacks meant lower revenues and higher spending. That added more deficits to the debt. The Durst Corporation reactivated the clock in July 2002. It moved it in 2004 to West 44th Street and Avenue of the Americas  When the debt exceeded $10 trillion in September 2008, one more digit was added. 

The Debt Clock Tracks the Growing U.S. Debt

Once Durst installed the clock, it took 13 years for the debt to double. By 2002, it had grown to $6 trillion. It was 46 percent of GDP, around $45,000 per household. It only took eight years to double again. The $700 billion bailout raised it to $12 trillion in 2010, which was 85 percent of GDP and $86,000 per household.

If you look at national debt by year, you'll see that the debt has exceeded a milestone every year since the Great Recession except 2015. There are two causes for that: lower tax collection and spending to recover from the recession. On August 31, 2012,  it reached $16 trillion, exceeding the country's annual economic output. It exceeded $17 trillion on October 17, 2013, and $18 trillion on December 15, 2014.  It  hit $19,000 on January 29, 2016. 

Today's debt costs $63,117 per citizen, and $170,436 per taxpayer. It would take today's millennial generation 63 years to pay it off if they paid $10,000 every second. 

Why the Debt Clock Is Important

The debt clock shows how much the U.S. government owes its citizens, other countries, and itself. Most (79 percent) of federal revenue comes from individual taxes. That means the government counts on you to pay it back one day. Corporations pass their tax costs through to you by raising prices. That means your, your children, and your grandchildren must pay 100 percent of the debt through higher taxes. That looming tax increase dampens expectations of future economic growth. It's a big threat to the quality of life for future generations.

Second, increasing debt means the government is becoming more involved in your life through the programs the debt is paying for.

Third, much of the debt is financed by loans from foreign governments. That means they now have a voice in what happens in the United States.

Fourth, when the debt approaches the debt ceiling, politicians must vote to raise the ceiling. If the vote fails, as it nearly did in 2011, the United States could be plunged into crisis. In short, the higher the debt, the greater the risk of fiscal crisis. By watching the national debt clock, you will be aware of this risk and how much you ultimately owe.

Why the Debt Keeps Growing

The debt is an accumulation of budget deficits. Year after year, the government cut taxes and increased spending. In the short run, the economy and voters benefited from deficit spending. Furthermore, foreign debt holders like China and Japan, allow the United States. to run a large tab because it's such a good customer. They haven't demanded the higher interest payments that usually keeps government debt in check.

How the Debt Is Financed

The of all outstanding debt owed by the federal government. Nearly two-thirds is the public debt, which is owed to the people, businesses, and foreign governments who bought Treasury bills, notes and bonds.

The rest is owed by the government to itself. Most of this is owed to Social Security and other trust funds, which were running surpluses. These securities are a promise to repay these funds when Baby Boomers retire over the next 20 years. 

The Debt Clock Warning

Two factors that allowed the U.S. debt to grow are now being withdrawn. First, the Social Security Trust Fund took in more revenue through payroll taxes leveraged on Baby Boomers than it needed. Ideally, this money should have been invested to be available when the Boomers retire. In reality, the Fund was "loaned" to the government to finance increased deficit spending. This interest-free loan helped keep Treasury Bond interest rates low, allowing more debt financing. However, it's not really a loan, since it can only be repaid by increased taxes when the Boomers do retire.

Second, many of the foreign holders of U.S. debt are investing more in their own economies. Over time, diminished demand for U.S. Treasuries could increase interest rates, thus slowing the economy. Furthermore, this lessening of demand is putting downward pressure on the dollar. That's because dollars, and dollar denominated Treasury Securities, are becoming less desirable, so their value declines. As the dollar declines, foreign holders get paid back in currency that is worth less, which further decreases demand.