Thursday, January 10, 2013

A story about the Federal debt and everybody else's debt

The blue line is the Federal debt.

The blue line always goes up at the gray bars. The gray bars are recessions. Federal debt always goes up during recessions. See for yourself:

Percent Change from Year Ago, Total Public Debt as a Percent of GDP

The blue line mostly goes down where there is no recession. If you want to get the Federal debt down, be on the side of more and better economic growth.

On the left-hand scale, the numbers go from 30 down to -10. When the blue line is below zero, the Federal debt is getting smaller as a share of GDP.

When is the blue line below zero?

It was below zero until 1970. Of course, there was not much debt relative to GDP (other than Federal debt) in those days. And GDP growth was good.

And the blue line was below zero most of the time until the 1982 recession. There was still not a huge amount of "other" debt relative to GDP in those days.

But after 1982 the blue line almost never goes below zero again, because there was lots and lots of debt relative to GDP, Federal and other debt -- mostly other. And all of that debt hindered economic growth. And when growth is slow, the blue line goes up.

Oh yeah. The blue line does go below zero from 1994 to 2000, when the economy was growing well again. That was right after the years 1990 to 1993 when debt other than Federal debt went down. Relative to GDP, of course.

If you want to get the Federal debt down, you want to think about calling for all sorts of policies to reduce private debt so we can get the economy growing again.


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