Friday, June 17, 2011

The world in red and blue

This is the last graph from my "Homework" post of the 11th:
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 red line is the Gross Federal Debt as a percent of GDP.

The vertical gray stripes are recessions. The graph shows a recession at 1970 and then one at 1974 (among others).

Economists say there was a "golden age" for our economy that lasted from 1947 to 1973. That golden age appears on this graph in the red line, starting at the left, sweeping downward rapidly, then less rapidly, then less again until the 1974 recession when the line goes flat. And that is when the golden age ended.

There were some troubles in the economy around 1970 -- there was stagflation, and we went off gold in 1971. And since the mid-1960s inflation was becoming a problem. These troubles occur during the slow decline of the red line.

Then with the 1974 recession the red line goes flat. It is the end of the golden age, the end of Keynesian economics, and the beginning of a time of "disarray".

With Ronald Reagan in 1980, everything changes. The red line rises, and runs parallel to the blue line for 15 years. And then in the 1990s we balance the federal budget. The red line turns downward, crossing the blue.

After 2000 or 2001 the budget goes into deficit again, and the red line rises -- not much for a few years, but then more quickly at the end. And at the end we see the red line shooting up and the blue line shooting down. That shooting is the crisis.

At right, after the red and blue lines stop, the white is the undiscovered country.

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