Saturday, April 6, 2013

via Random Eyes

Leaving out financial debt this time, instead of Federal debt:

Graph #1: Non-Financial Debt relative to GDP
Click Graph for the Random Eyes page

(Yeah, it's a stock relative to a flow, but people like to look at debt relative to GDP.)

Reminds me of Scott Sumner's analysis of debt, with surges and remissions. Sumner wrote: "I see three big debt surges: 1952-64, 1984-91, and 2000-08."

The first flat spot is flat because of the Great Inflation. The third is flat because of the Great Recession.

What caused the second?

Elimination of the interest deduction slowed the trend. And then I have to say the vigorous economic growth that arose in the 1990s (a result of slower debt growth) boosted GDP and kept the trend flat while the vigor endured.

This is related to Fisher Dynamics I think. The graph shows three ways to slow the increase of the debt/GDP ratio: nominal growth, real growth, and no growth.

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