US Debt Clock: Tick, Tock, Boom

US Debt Clock - Tick, Tock, Boom

Debt Races Higher at $50,000 Per Second

When the U.S Government debt topped $1 trillion dollars for the first time in late 1981, New York real estate magnate Seymour Durst sent a card to every member of Congress that said: “Happy New Year! Your share of the federal debt is $5000.” ¹

Durst, the brother of notorious killer Robert Durst, outed in the HBO series The Jinx, took it a step further eight years later when he added a digital debt clock to the side of one of his buildings viewable from Times Square and for all to see. His goal was to publicly embarrass Congress into action. At the time in 1989, our national debt stood at $2.7 trillion.

The clock was first installed on Sixth Avenue between 42nd and 43rd streets.² Seymour Durst vowed that the clock would “be up as long as the debt or the city lasts,” and that “if it bothers people, then it’s working.” After he died in 1995 his son, Douglas, became the President of the Durst Organization and caretaker to the debt clock.

Today, instead of a “2” in the first digit position, we have a “3”.

Our national debt has risen more than 31 times since 1981 and currently stands at over $31.4 trillion. To put this number into perspective - assuming no breaks, no sleep, and no snacks, it would take a person 980,000 years to count to 31 trillion.

What was initially intended to be “embarrassing” is now “ominous” for those who look for signs. Durst’s debt clock remained under the $10 trillion mark for about 20 years. It then stayed under the $20 trillion mark for 8 years. It then held under the $30 trillion dollar mark for about five years. How long will it take before we get to $40 trillion?

While the numbers seem alarming, debt on its own is a meaningless number. To find relevance and more deeply understand inflation and banana republics, we must compare debt to productivity. Only then can we really know if escalating debt is an issue to concern ourselves with.

When Durst initially sent postcards to Congress 42 years ago, our nations GDP was $2.7 trillion and we had a debt-to-GDP ratio of 35%. Our GDP has increased 10 times since then. Sadly, our debts have increased 3X's as fast. Our debt to GDP ratio is now 121%.

This is a problem.

Now, instead of racing higher at $10,000 per second as our debt clock did in 1992, our national debt soars higher at a pace of nearly $50,000 per second. If Durst were writing postcards and looking to bother Congress today he would say, “Happy New Year, your share of the federal debt is $94,209.”

Is anyone bothered by this?

Certainly not Congress, and that may be our biggest problem of all.

Our nation's debt is far too large for human comprehension. It’s why so many have thrown in the towel on even worrying about it. What does it matter anyway? It’s climbed higher for forty years. We haven’t had any big problems, right? We have come to realize that the government will do what it wants. Regardless of our outrage. Regardless of our demands. Regardless of who we elect.

I was reminded this morning in a tweet by James Lavish that we don’t need to visit New York City to see the debt clock in action. We can visit the anonymously run online website https://www.usdebtclock.org/. I encourage everyone to take the time and do so. You may find yourself moved.

The first time I saw this debt clock website was in 2015. It moved me so much, I wrote a book. I was just beginning my research for Gold Is A Better Way and our national debt was an alarmingly high $18 trillion. Back then, I was fascinated with various aspects of our debt, the size of the number, the automatic scroll. My big question then was how on earth would we ever pay for it all?

Today I am most interested in forward-thinking about where it all will end.

The U.S. National Debt represents all of the money the U.S. has borrowed from people, companies, other governments, and other countries as well. It represents all of the U.S. Treasuries outstanding that at some point will need to be paid back. These are loans that we owe. We can’t play around here.

Janet Yellen announced last week that we would reach our country’s debt ceiling by this Thursday.

If Congress doesn’t raise the debt limit, our Treasury will not be able to pay our bills. This is money that we have already spent. If this were to happen to you or me personally, we would be freaking out. When it happens to Congress, nobody blinks an eye. The debt limit is a political football that gets kicked around and threatened and horse traded on. There are always extraordinary measures, and tricks up the sleeve of the Treasury that allow the limit to get extended. Yellen has informed Congress that emergency measures to fund the government will expire in early June. This means our politicians will finalize a back alley deal in the middle of the night just before the deadline.

It’s a game of chicken that plays out every couple of years. So, not to worry, right?

We keep running trillion-plus budget deficits. We keep spending as if there were no limit whatsoever. The custodial reputation of Congress over our finances is comical. We have political extremists willing to go nuclear and shut down our government over what’s become a meaningless debt ceiling. Why would anyone, any entity, any country want to lend us any money at all?

Perhaps more importantly. What happens when there is no one left that’s willing to buy our debt at all? Who then will buy it? Would you?

The 10 YR Treasury pays about 3.5% per year. Inflation is running closer to 6%. Does this seem like a great opportunity? How would you like to buy a 10-year treasury to get 3.5% to find that we didn't pass the debt ceiling and now the 10 YR is offering 8%?

The following images are pulled from usdebtclock.org and allow us a closer look at the current situation:

Our national debt is now $31.49 trillion and counting.

We can see that our “official” Federal Spending, reported by the Congressional Budget Office (CBO), equals $5.99 trillion and our “official” budget deficit is $1.36 trillion. However, our “actual” spending (in the grayed out third row) is $6.15 trillion and our “actual budget deficit” is $1.527 trillion. These actual numbers include off-budget items and will continue to be updated by the U.S Treasury and will likely be modified higher over the course of the year.

Our fiscal year began in October. In the first ten weeks through January, our “actual” budget deficit is $163 billion higher than reported and is actually on pace to be $2 trillion this fiscal year.

Now, let’s measure this against our revenues:

U.S. federal tax revenue is anticipated by the CBO to be $4.625 trillion. This is the sum of income taxes, payroll taxes, corporate taxes, and tariff receipts. Taxes are by and large a function of GDP, which as we can see in the lower left-hand of the image, is reported at $25.9 trillion.

When we consider that two-thirds of the private and public sector economists project that we will have a recession this year, we need to have a sober view of where we are headed.³ If we have a recession and U.S GDP falls, our tax revenues could be headed much lower, all while our government spending and deficits will continue heading higher.

Same old story. Less in, more out, who cares?

Keep in mind that tax receipts are already down 3% through the first ten weeks of the fiscal year.⁴ We anticipate more pain to come on the revenue side as the Treasury collects less capital gains taxes this year than last. There’s also the bad math behind our additional cost of living (COLA) adjustments where we now pay 8.7% inflation increases in Medicare and Social Security. Don’t forget the lack of Ponzi funding from our central bank (payments from the Federal Reserve from profits on their bond book) which this year are negative and therefore amount to $0.

When we add it all up, it’s a lot more out and a lot less in.

Our national debt is going higher. There is nothing we can do to stop it. Even lowering interest rates won’t help our debt spiral at this point. We are past the point of no return. This is the conclusion of The Great Devaluation.

An asymptote is a curve on an X and Y axis that at some point along the curve shoots up toward infinity. Asymptotes are the result of unsustainable exponential growth. Once the curve shoots toward infinity, it becomes unmanageable and it’s too late to stop. I covered the phenomenon in the book in Chapter 17, Contagion.

According to the power of the asymptote, our national debt will be $36 trillion by 2024. It will be over $60 trillion by the end of this decade.

You don’t have to agree with this forward thinking. Nobody would have believed Seymour Durst 33 years ago when he first built the debt clock that we would be in this precarious situation. While the numbers are inconceivable, we must agree that it is the math and it’s precisely where we are headed.

Which brings us back to our main question. Who is going to buy our bonds in this extreme situation? Before you answer, it may help to review one last image from our debt clock. Tucked away in the lowest right-hand corner of the debt clock is the current math on our existing liabilities.

We owe Social Security $22.4T. We owe Medicare $34.43T. Our total unfunded liabilities equal a staggering $173T. If Seymour Durst were writing to Congress today he might say, “Happy New Year, your share of the national debt is $94,210. Oh, and by the way, you owe another $519,433 for all the other promises you have already made.”

Knowing everything you’ve just learned. Suppose you are a retiree and fortunate enough to have saved $1MM. That’s the good news. The bad news is that when you add up your mortgage, your car insurance, your food, and other costs of living, you find that your monthly budget is $5000. A 5% after-tax return is what you need to maintain your lifestyle without dipping into your principal. This means you need to make about an 8% return on your $1mm.

Where do you go?

Do you really want to buy a 10 YR Treasury that offers 3.5% during a time when inflation is running at 6%? To do that, you must feel confident that inflation is coming down in a huge way and won’t keep rising. Even then, $3500 a month doesn’t cover your expenses. However, when you consider our soon-to-be $60 trillion debt, it seems logical that others will want much higher rates in order to lend us money in the future if they agree to lend to us at all. Locking in now for 10 years on this deal seems a bit risky.

Or, you could sling it all in the stock market and hope that the 10% average return for the last 50 years continues. That is until you consider that equities are significantly overvalued based on virtually all historical metrics. Then you factor in the experts' calls for 3200 on the S&P 500 before the end of this year and you ask yourself, do you really want to risk 20% of your capital for what is likely to only be a modest gain? Keep in mind, most optimistic averages are calling for 4100 on the S&P at the end of the year.

These are the terrible choices and why investors are so stuck at the present moment.

Our fiscal situation requires lower interest rates. Our debt situation requires dramatically higher interest rates. Stocks thrive on lower rates and are hungry for the Fed to cut. Inflation thrives on lower interest rates and why the Fed probably needs to keep rates high.

As we ponder that conundrum, do pay attention to the one thing that Wall Street prays you won’t look at. Gold.

Over the last 50 years, there have been two decades where gold prices rose eight times (’70s, ’00s). There were three decades where gold offered no positive gains or lost value (’80s, ’90s, ’10s). Conversely, there were three decades where stocks offered great returns (‘80s, ‘90s, ‘10s) and two “lost” decades (‘70s, ‘00s) where stocks lost or were flat.

After seeing this, you may recognize that the decades where stocks do well, gold does not. The decades where gold does well, stocks do not. Lastly, you may want to consider that the last decade has been a boom for stocks and gold was flat.

Then you will want to consider why. Stocks do well in decades when the Federal Reserve is lowering interest rates. Gold does well in the decades when the Fed is raising interest rates.

Hmm...

The bottom line is that on a relative basis, gold prices are significantly undervalued relative to equities at this moment. The S&P/Gold ratio is at 2.1X. The historical average is closer to 1X over time. If we had a 1X ratio today, the price of gold would be $4000 per ounce.

While I am not a financial advisor, I can tell you that I have asked myself these very same questions. I have considered these very same options. I personally have chosen gold for the next decade. I could end up being wrong, but at least I have a reason. Whatever you decide with your financial future, please try to ask yourself these questions.

Impossible problems require impossible solutions. That is until we realize that monetary resets are not really impossible and have happened twice in the last 90 years. Each time the price of gold skyrocketed as a result.

Higher gold prices are the reset.

In the next essay, we will analyze how we get there.