Monday, July 18, 2011

Like this?

Non-Federal debt relative to Federal debt, again:

This time I subtract only the Federal debt that is included in the Total debt...
And then divide by the larger Federal debt number that the debt-clocks show.

No matter how I figure it, the pattern is always the same: Up-trends are associated with growth, and peaks are associated with recessions. High levels hinder growth, and low levels encourage growth. No matter how I figure it.


jim said...

I would expect that peaks form at the start of recessions.

During economic downturns the private sector usually reduces borrowing. Government revenues fall during recessions and taxes don't rise enough so federal borrowing increases. So the ratio of two should form a peak at the beginning of recession and a trough at some point after.

The Arthurian said...

And the up-trends? The hinderous highs? The lusty lows?

The things I point out here may be obvious. They should be obvious, I'll give you that. But show me one politician, one Sunday-morning talk-show host who understands that the Federal debt is not the big problem, that the Federal debt is small in comparison to the problem debt, the private debt. Show me one who says the bickering over government spending is irrelevant and absurd.

jim said...

The up-trends are the opposite of the down-trends. The private sector likes to borrows more when the economy is good and the government doesn't need to borrow as much because tax revenues are up. And if you have a president like Clinton that believes during good times the budget should balance then that creates a steeper up-trend.

But I do agree with you that what is happening with private sector debt is far more relevant to the economy than the govt debt and that story has been ignored by the media.

For instance, in 2004 the FBI warned that it looked like a large percentage of mortgages were based on fraudulent applications. That was under-reported then and now that we know that it was true it is still being ignored by both the media and law enforcement.

The problem today is that people are now gun shy about borrowing. People today understand just as people in the 30's understood that houses and real estate is not a sure-fire investment. And as Richard Koo points out if they suddenly forget that lesson (with a shot of tequila) people will start buying houses again and the country will move past this. Otherwise the country will have to find some other way to grow besides borrowing and buying bigger houses.

Personally I hope we turn to manufacturing. Borrowing and importing goods is so 90's.

Jazzbumpa said...

No matter how I figure it, the pattern is always the same: Up-trends are associated with growth, and peaks are associated with recessions.

Not really. Three recessions in the 50's, but your ratio just keeps climbing right through them. Ditto, 69-70. The 80 recession precedes the peak. The ratio fell for a decade before 90-91, and continues falling through it. 2001 is in a plateau. Clearly, the '08-9 recession lags the peak.

That's 8 recessions that do not follow your pattern, vs 2 - 74 and 82 (and 82 is dicey) - that do, the most recent almost 30 years ago.

You are seeing what you want to see.

Seriously - forget this ratio. It doesn't mean anything.


The Arthurian said...

1. I didn't say that recessions are associated with peaks. I said that peaks are associated with recessions. There is a difference.

2. In the 1950s the Non-Federal Relative was still low, accumulated debt costs were still low, and growth was still vigorous.

3. Since the ratio has been high, growth has not been good... except briefly, in the aftermath of the significant fall in the ratio that ended by the mid-1990s.

4. There have been other significant declines in the ratio. Between 1929 and 1946, for example. And since 2007 or so.