Wednesday, August 17, 2011

Debt again

Two graphs from mine of 30 July. One shows Total Debt, GDP, and M1 money for Japan, 1980-2009. The other shows Total Debt, GDP, and M1 money for the US for the same period.

The big number in both cases is debt.

Japan shows convex, a grand hump, a long-term gradual deceleration of debt increase. The US shows concave, opposite-of-hump, a long-term acceleration of debt increase.

Both graphs have a kink in the debt trend at the point where the troubles reached crisis stage.

I want to line up the data for the two countries so that these kinks coincide. And I want to use the US dates on the graph, so that Japan's experience serves as a visible estimate of how long things may continue bad in the US economy.

I pulled out the Japan numbers from my JAPAN STATS spreadsheet
Same caveats apply as given at the end of my Checking my Numbers post

and the US numbers that I got from FRED

I rearranged things a bit, eliminated graphs and columns I didn't need, and looked for those kinks in the debt numbers. For Japan, total debt kinks at 1989. For the US, total debt kinks 29 years later, in 2008.

In 29 years, nobody could imagine that it might happen here. And after 29 years, when it *did* happen, nobody saw it coming. What was it Lucas said?

My thesis in this lecture is that macroeconomics in this original sense has succeeded: Its central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades.

The classic example of an utter failure to understand the economy.

Anyway, first I took all the US values and divided each one by US Total Debt for 2008. And I took all the Japan values and divided each one by Japan Total Debt for 1989. That made the two debt graphs equal at the kink years, and scaled everything else in proportion. That showed me what I wanted to see, but the vertical axis showed "index" numbers instead of dollars.

So then I did it again. This time I used the original US numbers. And for the Japan numbers, I multiplied each one by US Total Debt for 2008 and divided by Japan Total Debt for 1989. This gave me the same set of trend-lines. But the vertical axis numbers were now meaningful.

I did everything in Google Docs. But when I went to save the graph image, there was an error. Redid the graph and got the same error. Downloaded the spreadsheet and used OpenOffice to recreate the graph. That worked okay.

Graph #1: If we follow in Japan's footsteps...

If we follow in Japan's footsteps, our economy will still be junk in 2028. We still will have too much debt -- more, even, than we have today. Twenty thousand billion dollars more debt than we have today. The Fed will still be trying quantitative easing, and it will still not have worked. And the economy will still not be growing. Because of all that debt.

Anything else you need to know? Oh... just this: Excessive Federal debt hinders the growth of the Federal government. Excessive private-sector debt hinders the growth of the private sector.

1 comment:

Jazzbumpa said...

Art -

In comments at the 7/30 link you asked me why MZM is a better measure than M1. Here at long last is the answer.

A measure of the liquid money supply within an economy. MZM represents all money in M2 less the time deposits, plus all money market funds.

MZM has become one of the preferred measures of money supply because it better represents money readily available within the economy for spending and consumption. This measurement derives its name from its mixture of all the liquid and zero maturity money found within the three "M's."