Tuesday, January 8, 2013

Last time, after the debt stopped going down, we had a golden age

FDR did what was needed: Between 1933 and 1946, debt-per-dollar fell by two thirds:

Graph #1: Total Debt per Dollar of Spending Money
Note: The FDR Presidency 1933-1945

Since 2009, debt-per-dollar has fallen by about one-third:

Graph #2: Total Credit Market Debt per Dollar of Spending Money

We have still a ways to go.

Related post: Graph #1 previously appeared in 18 Years, Same Story


Benjamin said...

Well, you gotta like that deleveraging if you say debt is Satan.

I sense that too much debt makes for a fragile economy. Everything has to be perfect to service the debt.

And the Wall Street computer jockeys will leverage to the moon if you give them the chance (see Long Term Capital management).

This is one a question I have never seen addressed: If someone can leverage 100-to-1, and for failure they124 are not put into slavery and their children too, then of course should not one leverage up 100-yo-1?

Win, and you are rich forever.

Lose--well, it was mostly other people's money and we take a year off and start somewhere else....

Netbacker said...

You said we had still ways to go. Do you think we are there now?
Here's the FRED graph with the latest data:

The Arthurian said...


My gut feel (based on nothing) is that yes, things are picking up. (Just from what I see at work, I guess.) Lots of hesitation, because everyone still expects trouble, but things are picking up anyway I think.

There is always, in the media, doubt about recovery, until recovery is well under way. I think media reports should be largely dismissed. (Based on what I remember from previous recessions.)

But I don't make predictions, and I'm usually wrong when I do. And of course I *want* things to pick up, and that probably affects my judgement.

(Is it right to use the word "judgement" when one is talking about predictions? It doesn't seem right.)


My graph, debt-per-dollar, the graph shows what has happened. It shows the past. Because there are so few major trend changes in the ratio, I think the ratio is important. I mean, I think policy-makers should always keep an eye on it. But it isn't predictive, unfortunately.


I'm not finding any data that shows the economy picking up. Interest rates are still trending down. Output is still trending down. Industrial Production is flat.

Velocity is still falling... Perhaps V is bottoming out. But that's not much to go on. It probably just shows the ending of QE.

My optimism appears to be based on no data.


Back to debt-per-dollar. Components of debt seem to be increasing while money growth is slowing. If these trends continue, DPD will reach a bottom and start trending upward again.

Once we have an uptrend, growth should be really good for a while. (I say this with confidence.)

The trouble, of course, is that DPD uptrend eventually brings crisis. This can only change if policies change. Yes, we need to get people borrowing again. But we also need to people to keep paying down debt at a rapid rate.