Wednesday, April 3, 2013

About the growth of debt

Total debt (TCMDO) less the Federal portion... Call it Non-Federal debt.

Don't look at the accumulation, but instead at the additions to debt: comparable to the annual Federal deficits.

Now... Take the inflation out of the numbers. The result, you could call the Real Non-Federal deficit.

Graph #1: The Real Non-Federal Deficit (RNFd)
Like everything, it goes up. (I'm looking at the part BEFORE the crisis. I'm looking for the cause of the crisis.)

What if we compare it to the size of the economy?

Graph #2: RNFd Relative to RGDP
It still goes up. It triples, more than triples between the 1950s and the 2007 peak. What are the units for the vertical scale? I can't say. But the graph shows how much borrowing there was later, as compared to how much borrowing there was before. And until the crisis it was an up-hill trend.

If your grandparents were borrowing on average $1000 each year on top of their existing debt, then you and I were borrowing $3000 or more at the peak. And then, multiply that by five for the five-fold increase in real GDP between the mid-1950s and the mid-2000s.

For every $1000 our grandparents borrowed, at the peak we borrowed $15,000.

Now multiply by 6 to account for inflation...

And this is our debt. It doesn't include the Federal debt.

If your brain didn't explode yet, consider this: It was the spending of all that borrowed money that was the cause of inflation. Not only is debt a problem because debt is a problem. It also caused the inflation.

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