The evidence in the evidence

I look a lot at 'Total Credit Market Debt Owed" (TCMDO):

Graph #1

Also, at the year-to-year change in that debt:

Graph #2

In it I see a variety of trends. I took graph #2 and eyeballed-in the trends I see, to make Graph #3:

Graph #3

Reading from left to right on the graph, I see a period of relative stability (green trend line)... a period of relative instability (yellow trend lines)... a surprising, out-of-place decline (red trend line)... another period of relative stability (green again)... and another surprising decline (red again).

The colors indicate similarity of the trend shape, not the significance of the trends. For example, there is a big difference between the red 1989-1992 surprise and the red 2008-2009 surprise. The first occurred during relatively good years in the economy. Relatively good. The second occurred during the recent crisis and recession.

The recent surprising decline caught everyone by surprise. The first one passed unnoticed.

But I'm just eyeballing trends here. Maybe I am misreading things. It would be easy to see the last leg of that yellow relative-instability trend as part of the first surprising downtrend.

Graph #4

Which is it? Hard to say. A little of both, maybe?


When I first started looking into reasons for the decline in debt growth, I looked toward tax policy as an obvious factor. I found a little tax advice from the Los Angeles Times of 27 December 1990, including this:

Personal interest deductions have also fallen to 10% on federal tax returns. That means that the interest you pay on credit card debt and car and boat loans, among other things, is only 10% deductible for 1990 taxes. The deductions will be phased out completely next year.

So okay, I thought, phasing out the interest deduction made debt less attractive. And if you look at the growth-of-debt graph, there seems to be a repeating up-and-down pattern (shown in yellow on the second graph) which changes between 1989 and 1990.

But then I came upon additional tax-policy facts. Wikipedia (of all places!) on the Tax Reform Act of 1986:

Moreover, interest on consumer loans such as credit card debt were no longer deductible.

So, 1986. That would mean the Graph #4 trend markup is more appropriate than my Graph #3 markup. Huh. But what of the LA Times remarks? Perhaps the tax deduction for interest expense was eliminated gradually, reaching 10% in 1990 and zero in 1991? Possible, but Wikipedia gives no hint of it. Nor does my memory.


Having looked even longer now at the debt growth trends, I notice that the first yellow downtrend corresponds to the 1974 recession. And the second yellow downtrend corresponds to the double-dip recession of the early 1980s.

On the other hand, no recession induced the third yellow downtrend. No recession occurs until 1990-91, near the end of that long downtrend. So perhaps it was tax policy, plain and simple, that caused debt growth to slow.

I like that. The notion fits with what I know to be true: Policy works.