Three Decades (2)

Graph #1: The Growth of Debt (blue) and Output (red), 1950-1980

In the 1950s debt grew slowly, and accumulated debt (not shown) was not great. Economic growth was rapid, sometimes more rapid even that debt growth.

In the 1960s this pattern continued, but debt was accumulating. By the mid-1960s the cost of the accumulated debt was becoming a burden that interfered with economic growth. The two lines separate then, as economic growth slowed and debt growth increased.

At that point, the increasing reliance on credit, as growth-promoting policy, failed.

After the mid-1960s, there is some similarity in the up- and down-trends of the red and blue lines. Increases in debt growth are associated with increases in real growth, and decreases with decreases. But it took more and more debt to produce a dollar's worth of output. Much of the economic energy created along with that debt was dissipated as inflation, instead of boosting growth.

When there is too much debt, it is necessary to reduce debt.