Thursday, December 6, 2012

The Green One is Federal Debt

GREEN: The Federal debt
RED: Everybody else's debt
BLUE: Total Credit Market Debt Owed
See the problem?


Jason Odegaard said...

Or raise GDP.

The Arthurian said...

"Or raise GDP."

Agreed, Jason.

But if the costs associated with massive debt are the thing that hinders growth, then in order to get growth we must cut debt. Catch-22.

netbacker said...

Thanks! I was trying to create this very same graph last night, but wasn't able to get it right :)
Was trying to replicate Prof Keen's graph using FRED

The Arthurian said...

Hey netbacker, click the graph. It'll take you to the FRED page. You can resize the graph, tweak it, save the image, etc.

Interesting link: "The time for action is now. We all know the fiscal path we’re on is unsustainable. Join us and demand a solution."

Cannot reduce government debt by cutting government spending. Can only reduce government debt by cutting cost in the private sector, so that the private sector grows with vigor. Then things like obamacare will become unnecessary because people can afford to take care of themselves. (This is the way we solve medicare costs, too.)

The cost that must be cut is the cost of finance. Everyone speaks of interest rates. But no one speaks of how many times interest must be paid, which goes up as the accumulation of debt goes up.

We need to move income out of finance and into the productive sector, into wages and profits. Then we will see growth of output rather than growth of finance.

The financial sector has been too big (relative to GDP) since the mid or late 1960s. This is a long-term problem.

Joshua Wojnilower said...


Very well said in your last comment. I think this graph also shows how difficult it will be to obtain sustainable long-term growth from a turn around in private debt. The problem has been brewing for a long time and can not be resolved with a few years of private sector devleraging.