Federal Debt (red) and Other Debt (blue)

Graph #1: The Golden Age

Debt other than Federal debt, up around 10: growing about 10 percent each year in the 1950s and '60s. The Federal debt, down around zero in those years.

Notice the recession bars. Federal debt tends to increase, and other debt to fall, around the time of recessions. Slow growth in the private sector is associated with reduced growth of debt; the Federal government responds to slow growth with deficit spending.

The high rate of non-Federal debt growth in those years created increasing financial costs in the private sector.

Graph #2: The Great Inflation

Prices and wages began going up in response to increasing costs. The Federal Reserve responded, fighting inflation by creating a series of recessions. These recessions drove Federal debt and deficits to higher levels, in the attempt to restore sustained economic growth. (Yes, the policies work to opposite ends.)

Notice that Graph #2 begins with Federal debt growth near zero and other debt growth near 10%, but ends with both Federal and other growing near 15% per year.

Graph #3: The Great Moderation

Finally, there was a slowdown in debt growth. After 1985, the growth of debt other than Federal fell below 5% for the first time on these graphs. Federal debt growth after 1985 fell below 10%, then briefly rose above that level -- again, around the time of a recession.

The unusually slow growth of non-Federal debt gradually relieved the burden of financial cost, paving the way for vigorous economic growth. Vigorous growth arrived in the 1990s. Debt other than Federal increased; this drove the growth. The vigorous economic growth allowed Federal debt growth to fall.

But by the mid-2000s the vigor was gone, and debt growth was back to 10% per year.

Graph #4: Aftermath

When the crisis came, the story was no different: Debt growth other than Federal slowed, and Federal debt growth increased. But the economic troubles were by now substantial, and the changes were large.

At present, we see the Federal debt growing at 10% and other debt near zero.

Isn't it ironic? All those years of high non-Federal debt growth created the crisis, but we hold the last few years of Federal debt growth responsible for the problem.