Beating the dead horse, again

We looked at household debt the other day, relative to GDP:

That's Krugman's graph, used by Sumner and Nunes and me. Sumner foolishly said it shows one "debt surge" ending in 1964 and another starting in 1984. I say that between 1964 and 1984, the Great Inflation pushed the denominator up, and flattened the curve.

Let us look at that. Let's us separate out CMDEBT and GDP as two separate lines, and compare their growth rates:

Graph #2: Growth Rates of Household Debt (blue) and GDP (red)
Click for FRED source page

At the very start, the red line is high. But the blue line didn't even start yet. And at the end the red line is higher than the blue, but the blue line is down because of the crisis.

Other than that, there are only four times that the red line is clearly above the blue line: around 1965 and 1969 and again around 1975, and 1981. That's it. For those four brief moments, GDP grew faster than household debt.

All four of those moments are within the period called the Great Inflation. In all four cases, GDP grew faster than household debt because inflation drove prices up, so the dollar-value of GDP went up. It was not so much that output increased, but the rising price of output pushed the red line above the blue. At all other times, with inflation more moderate, GDP growth ran lower than the growth of household debt.

Oh, oh, oh -- There is something else. After the 1990 recession the red line rose briefly above the blue, and again, ever so slightly, maybe around 1998.

But you know what? Those two glaring highs of GDP growth both fall within Sumner's second golden age, 1991-2007. So again it isn't necessarily that debt growth slowed, but that actual improved real growth gives the impression of slower debt growth.