Just as the numbers on your phone tick by as the day passes, the National Debt clock in New York ticks by as the national debt grows. The national debt is projected to reach $1 trillion each year over the next 10 years, but what exactly does this mean and where can you find this information?
What is the National Debt?
The national debt is the debt that the federal government holds which includes public debt, federal trust funds, and government accounts. As the total amount of deficit that the government has garnered, it is a number that encompasses what the government owes itself and others. The national debt is looked at in three parts: debt held by the public, gross federal debt, and debt subject to limit. Debt held by the public is the money gathered to fund activities and programs, with money borrowed from external lenders. The gross federal debt includes the public debt, but also adds federal trust funds and governments. Debt subject to limit is similar to gross federal debt, but only includes debt issued by the treasury and Federal Financing Bank.
As of July 2020, the national debt is more than $26.5 trillion. This number equates to $80,422 for every person living in the u.S., and is 123% of the U.S.'s annual economic output. As of June 2020 the debt-to-GDP ratio was 120.5%, due to the economic strain of the COVID-19 pandemic.
What are the Different Debt Clocks and What Do They Mean?
US National Debt Clock
The US National Debt Clock covers the outstanding debt owed by the federal government. Two-thirds of the clock shows the public debt by way of treasury bills, notes, and bonds - this covers individuals, businesses, and foreign governments. The other third of the debt is what the government owes to itself - this covers federal programs like Social Security.
The largest budget items include: Medicare and Medicaid, Social Security, defense, and interest paid on the national debt. The former two items are a part of the mandatory programs that the government is required to fund with federal expenses. To give you an idea of how much more the U.S. spends compared to other countries, for the defense budget alone the U.S. spends more than China, India, Russia, Saudi Arabia, France, Germany, the United Kingdom, Japan, South Korea, and Brazil combined.
The Debt Clock also gives statistics on the demographics of the country, which is helpful in understanding where program funding may go. With a population of over 329 million, 60 million people are enrolled in Medicare and 79 million people receive Medicaid. In addition to this, there are currently 54 million retirees who seek Social Security benefits.
State Debt Clock
In addition to the country's debt clock, there are also state debt clocks that track demographics (such as the overall population, the number of unemployed individuals, and the number of individuals collecting food stamps) and the state's own GDP, debt, revenue, and spending. This resource can be found at the top right corner of the U.S. National Debt Clock website.
California is the state with the largest economy, and in 2018 it was the 5th largest economy in the world. Iowa has the lowest debt per capita in the United States at $870 per resident. Understanding demographics and debt is important to understanding how much borrowing can occur in relation to a state's population. These borrowed funds allow for statewide programs and affect the quality of living for residents.
World Debt Clock
The World Debt Clocks help give perspective on how the U.S.'s debt compares to the rest of the world. To give a comparison, the U.S.'s national debt is more than that of China, Japan, and Germany combined. As of July 2020, the U.S.'s public debt ratio is at 100.67%, while its external debt to GDP ratio is at 120.32%.
The world debt clock is important to understand how different economies around the world are doing. In a world that is becoming more and more interconnected, it is important to understand global connections. One important factor is the fact that many country's hold debt to the U.S. Foreign sovereign debt allows other countries to continue their economic activities. The U.S. can sell Treasury bonds and notes; this helps another country to grow its economy.
Student Loan Debt Clock
The Student Loan Debt Clock gives insight into the current amount of federal and private loans that students have taken out to pay for college. Student debt in the U.S. is increasing by $2,853.88 every second. As of July 2020, the student debt loan clock is at $1.7 trillion. Loan amounts continue to rise as need-based grants are not growing as quickly as the average cost of attending college.
This Student Loan Debt Clock shows different items that are related to student debt in real time. As of July 21 2020, $91 million has been paid towards reducing student debt, but $153 million new student loans were borrowed. Full-time college students spent over $369 million on various college expenses, and federal student aid totaled oner $161 million.
The Peter G. Peterson Foundation National Debt Clock
The National Debt Clock by the Peter G. Peterson Foundation tracks the overall national debt number and provides further details on the factors that affect the national debt, how it affects the country, and why it is important. While 92% of Americans believe that the national debt is a top priority issue, not many understand the caveats of the complex issue.
The main factors that attribute to the rising national debt are demographics, health care costs, and inadequate revenues. The baby-boomer generation is reaching retirement age meaning that more funding will be needed to support their retirement costs. In addition to this expense, the health care system of the U.S. is one of the most funded in the world. Despite this, health outcomes are not better than that of other countries. There is also a discrepancy in spending and revenues. Annual revenues are not enough to keep up with the U.S.'s spending, especially on things like the national debt interest which will soon overtake areas such as education and defense.
Why Is This Important?
Interests costs continue to rise, meaning that much of government spending may go towards paying it off. This means that areas of development such as education and infrastructure could receive less funding as more and more is allocated towards interest payments. In addition to this, higher interest rates create obstacles for private investments which affect economic growth. When the interest rate is high, it can be harder for businesses and individuals to receive funding and investments.
The national debt does not only affect the economy and its growth - it can also have a large effect on individuals and their livelihoods. As investments become harder to gain, businesses increase the costs of goods and services to balance out debt service obligations. In the long term, this can lead to lower investment returns. In addition to the possibility of paying more for goods and services, the average income for a family of four is projected to decrease by $16,000 over the next thirty years if debt continues to grow. This means that the money spent on necessities and luxuries will decrease. In addition to this, rising debt can equate to higher interest rates, meaning that houses, cars, and loans for college or businesses will become more expensive. In addition to this, the government may need to cut budgets around various programs which can affect those who rely on Medicare or Social Security to live.
In 2019, approximately 49 million Americans had student debt. The amount of student debt in the U.S. is larger than the GDP of 175 countries. With an average level of student debt of $30,000, the issue of student debt affects people from all backgrounds and demographics. Growing student debt, high-interest rates, and economic instability can create problems for students who are aiming to pay off their student debt. Low wages and job insecurity are likely negative outcomes of the increasing national debt.
Want to know more about how the debt is affecting our fiscal future? Check out our graphs and see it for yourself!
What Can You Do?
The national debt continues to grow, and it is important to be informed and proactive. Up to Us is an organization that empowers young adults to be educated about fiscal policy through on-campus activities. Get involved by hosting an event, attending a program, and connecting with other like-minded individuals.