Wednesday, September 28, 2011

And I'm gonna keep saying it until you start to think there might be something to it.

This one, again:

Graph #1

After interest rates peaked, around 1980 (see yesterday's Graphs #2 and #3) net interest flattened as a percent of Gross Domestic Income. After a few years net interest dropped significantly. Then it flattened again (though it would not be right to call it "stable").

I want to look at the drop. Zoom in once...

Graph #2
...and it appears that the drop begins around 1990 and ends around 1996. Zoom in again...

Graph #3

...and those dates are pretty well confirmed. 1989 to 1996, maybe. The drop doesn't look so significant, stretched out like this. But it is the same drop, and the same significance as before.

Suppose we look at TCMDO (Total Credit Market Debt Owed) for the same period. It goes up, of course. Graph #4 shows how much it went up, as a percent change from the year before:

Graph #4
The growth of debt was relatively low in the 1989-1996 years, the same years that Net Interest dropped so fast.

Graph #4 looks at growth of accumulating debt. Increases of debt. But what is an increase in debt? It is more credit use, the record of more credit use. When I borrow a dollar, my debt increases.

When I borrow a dollar, it's likely because I plan to spend it.

Spending. We can only spend money we borrowed, or money we didn't borrow. Two kinds of money. How much of each there is in the economy, is a big deal:

Graph #5
Graph #5 adds money to picture #4. M1 money, annual data, percent change from previous year, shown in red. From 1989 to 1996 there is a good big bump in the growth of money. We have looked at this before.

When the quantity of money rises faster than the accumulation of debt, the factor cost of money is reduced. This is the reason we saw a significant drop in Net Interest relative to GDI in Graph #1 above.

Oh, and for the record: The two data series shown in graph #5 are the two components of my Debt-per-Dollar ratio.  It looks like this:

Graph #6

For the 1986-2000 period it looks like this:

Graph #7

That big drop in the ratio was created by faster growth of money and slower growth of debt. That big drop started around 1990 and ending around 1994. Immediately after that big drop, we had an economic boom. This is no coincidence. The reduced factor cost of money was the necessary precondition for growth.

This is not the first such drop that I know of. The first occurred after the onset of the Great Depression. It occurred during the years of the FDR presidency. Immediately after that big drop, we had an economic boom that lasted two decades or more.

That was no coincidence, either.


Jazzbumpa said...

Yes there is something to it.

However, while you have a laser-like focus on a single tree, there is a vast, tangled forest of neo-liberalism (aka, inexplicably, neo-conservatism) that you tenaciously refuse to become aware of.


Jazzbumpa said...

Note that since 2007, debt/dollar has dropped like a freaquing stone.

Do you notice things getting any better?

Naaahhh. Me neither.


Liminal Hack said...

"When the quantity of money rises faster than the accumulation of debt, the factor cost of money is reduced."

yes, and all those periods are associated with bloody great recessions, and still the credit grew.

fact is art, if you want a society that operates with less debt, that society needs to not write so much stuff down, which is only possible with circulation of physical coins.

That stuff you think is money, isn't. Its just financial records like all the rest of it. But those financial records you call money today, are the seeds of tomorrows debt.

They are interchangable (subject to the social imperatives and policy decisions of the time), just like vast quantities of what was previously considered debt suddenly becomes as money.

I really do think you are barking up the wrong tree, and that reducing our general level of debt, even if it is possible, will actually turn out to do no such thing.

Societies without debt don't operate accounting systems, and you can't account for a single damn thing without it being someone's liability.

There are certainly different kinds of debt and perhaps the mix really matters. I'll give you that.

What really matters here is not or debt levels nor interest rates, but how the wealth of one man stacks up against the others. That's what's out of whack, and its why we keep such records, so we can see when stuff has gone too far.

The Arthurian said...

Jazz, I describe the process and the forces behind the process. You identify the laps that the results of the process fell into.

"The seeds of tomorrow's debt"??

Liminal, the wealth of one man stacks up against others via the accumulation of debt as asset and as liability.

I agree it was much easier to distinguish money from credit when money was metal and credit was paper. I do not agree that it is impossible to have money made of paper.