Sunday, May 29, 2011

Krugman's graph

From Paul Krugman's Inflation and Debt (Wonkish) (May 28, 2011, 10:44 am):

Household debt as % of personal disposable income

The rapid increase of household debt between 1950 and 1965 created the demand that drove the golden age economy.

The lack of increase between 1965 and 1985 brought the golden age to an end and produced a listless economy.

The large deficits and optimistic expectations of the Reagan era gave consumer spending a boost in the mid-'80s.

Consumer debt growth slowed then in the late '80s and continued at a slower pace for a decade, probably because the tax deduction for interest expense was eliminated.

Rapid debt growth resumed after 2000, perhaps in part because of pent-up demand from the previous decade.

And then the inevitable crisis changed everything.

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