What's the difference?

Financial:

Graph #1

Financial debt looks to run about ten percent below trend until 1967 or so. Then it trends upward, peaking around 1988. After that, it falls to the crisis, then falls faster.

Government:

Graph #2

Government debt declines markedly, relative to trend, until 1974, then rises to about 1993. Then it falls (during the "Macroeconomic miracle"), then trends flat until the crisis.

Household:

Graph #3

Household debt is all over the place. It rises to trend by 1955, then stays on-trend until 1966. Then it falls until 1971. Then it trends upward until 1989 or 1990. Then it falls, to the end of the millennium. Then it rises, until just before the crisis.


And, to repeat a graph and summary from yesterday...

Business:

Graph #4

Business debt grew more slowly than I would expect until about 1964. Then it grew faster than I would expect, until about 1989. Then it grew slower again.


The exponential trends are all different, of course. So these four graphs cannot be compared directly. But the trends and turning points are significant, and the timing of the turning points -- though I have only eyeballed them here -- could be important to an analysis of debt and the economy.

If we have too much debt today (as I always say), then the graphs show actual debt growth compared to too much debt growth (increasingly as we move to the right on the graphs). And perhaps they show actual debt growth relative to too little debt growth toward the left.

That said, it appears that business and financial debt both began increasing (relative to trend) in the mid-1960s and continued to do so until the late 1980s. After that, both started falling behind their debt-growth paths.

Household debt follows a similar history, but slightly delayed and with substantially more variation.

Government debt goes its own way, sometimes similar to, sometimes different from the paths of other debt. As you would expect to be true if the nature of government debt is wholly different from that of private-sector debt. Which I think it is.

Finally, all of these graphs show a general downtrend, from the late 1980s or early 1990s to the onset of crisis. But remember, this is a downtrend relative to the exponential growth curve. The graphs do not show that debt growth was slowing. What they show is that debt growth had already become unsustainable by 1990.

Convergence:

Set the dates aside. Set the explanations aside. Look at the point of agreement. In remarks yesterday, one finds the following...

From Jazzbumpa:

What is unmistakable is that growth has slowed dramatically since the 1982-ish peak. This is the inevitable failure of exponential growth.

From Clonal:

In the graph you show on the business debt, the trend is definitely not exponential. It is growing, but not exponentially - the divergence is too great since 2000.

From Liminal Hack:

The exponential prior to 2000 is still remarkable though... The post 2000 behavior is much more about mature economies reaching peak debt and then hunting for some kind of equilibrium.

And from my conclusion, above:

... this is a downtrend relative to the exponential growth curve. The graphs do not show that debt growth was slowing. What they show is that debt growth had already become unsustainable by 1990.

Maybe, since 1982. Maybe, since 1990. Maybe, since 2000. But without doubt, the exponential growth of debt could not continue. It had to fail.

Economic policy built on the growth of debt was doomed from the start.