Saturday, March 3, 2012

I've asked this question before...

If you go to FRED, type TCMD in the search box, and hit ENTER, you get a list that starts out like this:

It's pretty useful. You can check some checkboxes and click Add to New Graph and FRED will graph them for you. But that's not my question.

Every one of these categories except the first one is identified as either DNS or DFS -- as Domestic Nonfinancial Sector debt or as Domestic Financial Sector debt.

Everything is categorized as either Financial or Nonfinancial.


Why not categorize them as either Financial or Productive?

Better yet, why not categorize them as Productive or Nonproductive?

That's my question.


Anonymous said...

I like the productive vs. non-productive designation of debt types. Productive vs. destructive ( for the financial sector debt) might be even better.

I have more to say on the destinctions between financial and other forms of debt , but it's too late tonite. Still , I wanted to share this quote from David Stockman on the topic of the stable nonfinancial debt ratios pre-1980 :

Q: Why are you so down on the U.S. economy?

A: ( Stockman ) It's become super-saturated with debt. Typically the private and public sectors would borrow $1.50 or $1.60 each year for every $1 of GDP growth. That was the golden constant. It had been at that ratio for 100 years save for some minor squiggles during the bottom of the Depression. By the time we got to the mid-'90s, we were borrowing $3 for every $1 of GDP growth. And by the time we got to the peak in 2006 or 2007, we were actually taking on $6 of new debt to grind out $1 of new GDP.

The Arthurian said...

Destructive? Sure, but they'll never use that label in the official statistics!

When I'm being less facetious, I think of the "nonfinancial" sector as productive and the "financial" sector as facilitative.

That is a great quote from Stockman. As it happens, I was looking for a way to finish a post that gathers together several sources examining change-in-debt relative to change-in-GDP. And your Stockman quote gave me a way to wrap it up. Thanks!

The Stockman interview is great.

jim said...

Thanks Anon,
for the Stockman link.

I see Stockman has had a supply-side conversion and is now in favor of taxing capital gains as ordinary income.

Stockman says:
"Typically the private and public sectors would borrow $1.50 or $1.60 each year for every $1 of GDP growth."

Where exactly did Stockman think that extra $0.50-$0.60 was going? It was going into inflating capital gains.

The big problem now is that you can't jack up capital gains tax without creating a gold rush as the markets cash in all their gambling chips ahead of the new tax.

That sell off would send the equity and housing prices back to 1960 levels.

Jazzbumpa said...

Prior to 1986, the finance sector take of total corporate profits had been growing irregularly YoY, but at an average rate of about .33% per year, for three decades.

By that time, they weretaking too much of the pie, but post 1986, their grasp tightened - a lot. The average increase per year almost doubled. The finanace sector has used leverage to skim wealth from the productive economy.

So, they have transformed from the facilitative sector to the destructive sector.

It's all pieces of one great puzzle.