Saturday, June 11, 2011

The Growth of Finance: Homework

Domestic financial debt as a percent of total debt:

Graph #1
DODFS = Debt Outstanding Domestic Financial Sectors
TCMDO = Total Credit Market Debt Owed

The graph above shows the persistent growth of the financial sector, as financial debt grew from less than three percent of total debt to more than 30 percent -- and then suddenly stopped growing for a decade before our recent crisis.

As I understand it, financial debt does not include mortgages and credit-card debt and like that. That debt is part of the other 65 or 70 percent of debt, which is called "non-financial" debt. Financial debt is debt that facilitates lending to the non-financial part of the economy.

Domestic financial debt as a percent of GDP:

Graph #2
Graph #2 shows financial debt again, this time in the context of GDP. Again we see the persistent upward trend of debt. The plateau of the 2000s, visible on Graph #1, appears here as much less of a slowdown because context #1 (total debt) grew much faster than context #2 (GDP) in that decade.

Note on Graph #2 that financial debt reaches 120% of GDP before it begins to decline. That's 20 percent more than all of GDP.

Domestic financial debt compared to the gross federal debt:

Graph #3

The blue line on Graph #3 is financial debt as a percent of GDP, the same as on Graph #2. The red line is the Gross Federal Debt as a percent of GDP.

For the record, the red is the whole federal debt. The blue line is only about 30% of total debt, as Graph #1 shows.

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