Sunday, October 31, 2010

And There You Have It



I took the numbers from yesterday's graph and added in some more: Federal debt from the September 12, 1996 Z1 release (from the Fed), and M1 & M2 money from the Historical Statistics (Bicentennial edition).

There is a glitch in the matrix, a discrepancy in the money numbers between 1970 and '71, because I'm using "older" and "newer" sources. I have to look for more numbers, to see about getting around this glitch.

But the graph shows that Federal debt was higher than savings during the 1947-73 "golden age" and again approximately at the time of the 1995-2004 "golden decade."

And the graph shows that Federal debt was lower than savings when the economy's performance was less than golden.

Now that's remarkable.

Thanks again, Greg. Oh -- but I should point out that the Federal debt numbers are "outstanding" debt, not the domestically-owned portion of it.

6 comments:

Greg said...

I think the differences you see are insignificant. The graphs clearly show linear relationship between federal debt and private savings. Thats because they are the two sides of the same coin, which is the number of financial units in the economy. Each financial unit has two sides, a debit and a credit. If you think about it, what other US dollars could a person be saving other than those created or issued by the US govt? Every US dollar created sits in a reserve account at the fed, it exists nowhere else.

The Arthurian said...

I accept what you say, Greg, except maybe change the word "insignificant" to "small."

There is a lot of similarity between the two trend-lines. I did not find numbers for domestically owned federal debt... and I don't know the best numbers to use for "savings"...

Despite my "potluck" choice of numbers, the differences between the two trend-lines appear rather small. This suggests to me that there is strong evidence behind your statement.

The differences between the two lines can largely be attributed to economic and/or political trends, and trend-reversals, coupled with time-lags. Even when balancing a checkbook, one must allow for lags in check-cashing and check-clearing!

But I say the differences are significant, too. I say this because there appears to be some correlation between times of higher federal debt and times of "golden" economic performance.

If there is a correlation between higher levels of federal debt and improved economic growth, then the differences are extremely significant.

Tschäff said...

Federal Debt = Private Sector Savings + Current Account Deficit. To the penny. This isn't a theory. It is a bit more complicated to show this in the data. M2-M1 won't give you it.

The only way one sector can increase their net assets is for them to acquire the liabilities of another sector. There can be no other way.

Here is the chart you are trying to make properly constructed.

http://neweconomicperspectives.blogspot.com/2009/07/sector-financial-balances-model-of_17.html

The Arthurian said...

Helloo, Big-T...

The only way one sector can increase their net assets is for them to acquire the liabilities of another sector. There can be no other way.

I understand: A penny can only be heads or tails. Your statement, your expression of this, is beautiful.

Here is the chart you are trying to make properly constructed.

No-no, that is only the chart Greg suggested I make. I got distracted by my trendline differences and went off on a tangent. (Did I not make that clear? Oops.)

Actually I've seen those graphs (link Figures 2 & 3) before... on Seeking Alpha, I think. I remember being impressed by them. However, no graph is necessary to express the relation, if one puts it in words as well as you do.

My graph shows something different. My graph shows a possible reason for changes in productivity. I relate the graph to the "good-no-good" dates shown here and to the 1995 "hump" in M1 money visible here.

Art

Greg said...

Art

You are within millimeters of being an MMTer.

Dont fight it. Embrace it.

The Arthurian said...

C'mon, Greg... You guys can move an inch!