Thursday, March 7, 2013

Components of Debt

Hard to untangle some of these lines, but for the record:
Blue = Household Sector
Red = Nonfinancial Corporate Business
Green = Domestic Financial Sector
Gold = Federal Government
Purple = Nonfarm Noncorporate Business

Graph #1: Change from Year Ago, Components of Total Debt, Annual Data
Click Graph for FRED Source Page

One thing that stands out: the green peaks of financial debt, repeating all across the graph, growing for the most part much faster than any other sector.

Another thing that stands out is the Federal government debt, gold, low on the graph until 1970. Then it gets pretty much lost in the mix. But you can see, rising between the green peaks, gold peaks after the recessions of 1975 and 1982 and 1991.

Third thing that stands out: After the 1982 recession and until about 1993 there is a general downward trend in growth of all these components of debt. Gold first, then the red and purple business sectors, then the blue household sector, and finally even the green financial sector.

These slowdowns of debt growth combine to produce an actual slowdown in dollars of debt accumulated between the last quarter of 1985 and the first quarter of 1993, shown in red on Graph #2:

Graph #2: Total Debt, Quarterly Change in Billions
Click Graph for FRED Source Page

This is actually the only significant slowdown in debt growth since 1950, apart from that big one there at the end.

The big one at the end got a lot of people interested in the economy. But the 1985-1993 slowdown did a lot less damage and had some interesting consequences. In particular, soon after it ended came the latter 1990s, a period noted by economists for unusually good economic performance.

What if that sequence -- less debt, then better growth -- wasn't just a coincidence?


Troy said...

The 1990s had a lot of tailwinds beside the mini-austerity coming out of the late-1980s credit cycle.

Oil was under $15 for most of the decade, PCs were getting very usable, increasing productivity, trade with China was ramping up, giving us a lot of new consumer goods a lot cheaper, there was a pivot from cold war defense investment to global private investment.

Real GDP per employee went from $75,000 to $85,000 during this decade:

The Arthurian said...

Yeah, Troy, and Scott Sumner says Forget about debt.

I say don't forget about debt.

jim said...

Art wrote:
"Another thing that stands out is the Federal government debt, gold, low on the graph until 1970. Then it gets pretty much lost in the mix."

I would say that before the early 70's, the govt debt was weakly counter-cyclical with the peaks and troughs not that well counter correlated to private debt peaks and troughs. After that federal debt becomes very strongly counter-cyclical. The peaks in federal debt match up better with the troughs in private debt and vice versa.

That's interesting because it doesn't agree with the story I've always heard that policy followed Keynesian ideas before 1975 and tended to abandon Keynes after. That graph makes it look like the exact opposite was true.


The Arthurian said...

I'm not looking at a graph at the moment, but the Keynesian response was much stronger, increasingly stronger through the recessions of the 1970s. Larger increases, and also (though this is not necessarily Keynesian) less willingness to decline when growth resumed. (I think that's because growth was weak, and continued countercyclical stimulus was needed.)

Perhaps the smaller peaks before the 1970s occur because less countercyclical was needed to reinvigorate growth back then.