Thursday, June 2, 2011

FYGFD: The Trend


From yesterday's post:

Graph #2

The graph shows a developing problem. First, the hints of it. Then the anomalous uptrend. Then a downtrend that proves unsustainable. Then, rapid return to the uptrend path by 2004. Then brief downtrend followed by eruption of crisis.

I am fascinated by the return-to-path of 2004. After the ramp-up of debt from the mid-1970s to the early 1990s, we finally managed to contain debt growth and force it down. But then we lost control of it after 2001. And what happened? It bounced right back up to where it would have been if we never managed to contain it at all, and debt growth had instead continued on its 1974-1992 trend.

Debt growth could have peaked anywhere. How did it happen to peak on the same trend-line it had followed for the two decades before we managed to contain it? Was this only chance? Fascinating.

If we look at the interesting part of this graph -- starting in 1973, say -- and zoom-in by ending in 2008 to chop off the tall part of the tall spike, we see this:

Graph A

I took the first part of this graph (1973-1994) and had Excel determine a trend line:

Graph B
TIP: To use the formula Excel calculated
y = 18.081x - 1318.5
for x I had to use two-digit year-values. Perhaps there is some setting for this in Excel?

When I move the data from FRED into Google Docs, I can duplicate Graph A and add the trend-line:

Graph C

The big pink hole there wouldn't be quite so impressive if I let the blue spike of 2008 continue up through 2009 and 2010. And that got me wondering: If we cut off the big spike of federal debt, the 2008-2010 spike, and used it to fill the pink 1992-2003 low spot in Gross Federal Debt, would the spike fill the hole? Would it more than fill the hole? Or would it leave the hole unfilled?

Just as a quick check, I added up all the Gross Federal Debt numbers from 1973 to 2010. It came to 13,092.9 billion.

Then I added up all the Excel-trend numbers from 1973 to 2010. It came to 12,764.6 billion.

So the recent spike of debt more than fills the hole, but just barely.

There is, of course the matter of the 2011 and future debt, which puts us above the straight-line trend.

But then, we were getting hints of this problem since the 1960s. An honest man cannot stand up now and say See what has happened in the last three years?

An honest man cannot.


Jazzbumpa said...

And an honest man doesn't.

"Here, have a lantern."
---- Diogenes

My gut reaction is that hitting the trend line was just a coincidence. OTOH, many economic phenomena seem to have great respect for trend lines.

Exhibit A
Exhibit B

Here is the story on federal debt.

And I think you mean trillions, not billions.


The Arthurian said...

My gut reaction is that hitting the trend line was just a coincidence.

Mine, too.

Diogenes and you have not been optimistic, lately.