Sunday, November 28, 2010

If you pray...

At The Great Recession, Peter Murray posts a graph of total U.S. debt relative to GDP. It's a version of the graph we've seen before. But Peter has labeled the high points.

I show this graph because it highlights the same high points that I used to stare at, looking for meaning. Eventually, I had a useful thought.

Notice how the two run-ups to peak are different? The recent peak, Peter's 360%, is fast, but it seems to be an accelerating trend. By contrast, the older peak is a sharp spike, quick up and quick down. A departure from the trend.

The older peak is a spike generated by the collapse of GDP during the Great Depression. We have not had anything like that yet, this time around.

The second graph is a duplicate of the first, but I added a red trend-line to make the spike stand out. I also added a black arrow, below my trend-line. The arrow points to a location comparable to where we are now, before the collapse.

I don't make predictions. I don't know that there will be a collapse. But I know that if there is one, total debt will spike to 600% of GDP, maybe more.

1 comment:

The Arthurian said...

In Steve Keen's Debtwatch post of 11 April 2011, Keen writes: "...deflation ruled from 1930 till 1934, and the debt to GDP ratio rose not because of rising debt, but falling prices."

The ratio rose during the Great Depression because prices fell.

Thus we must prevent deflation.