In search of: Older Debt Data

Graph #1

I got this graph from bctich at Reddit.

I have to go looking for the numbers. I've used the Historical Statistics, one of the sources noted on the graph, but that one runs from 1916 to 1970. I need the older numbers.

ps, the exchange at Reddit is from a year ago. But I forgot about that graph until I rediscovered it by accidebt.

Wow, I'm not fixing that typo!


From George Washington at Zero Hedge:
138 Years of Economic History Show that It's Excessive PRIVATE Debt Which Causes Depressions

The National Bureau of Economic Research has published a new paper analyzing 138 years of economic history in 14 advanced economies, which proves that high levels of private debt cause severe recessions. As summarized by Business Insider: Through a series of tests run on a sample of 14 advanced economies between 1870 and 2008, Mr Taylor establishes a link between the growth of private sector credit and the likelihood of financial crisis. The link between crisis and credit [i.e. private debt] is stronger than between crises and growth in the broad money supply, the current account deficit, or an increase in public debt.

That's good, that's good.

The "new paper" is The Great Leveraging (PDF) by Alan M. Taylor. The link in the excerpt lets you to buy the PDF for $5, but you can get the PDF from BIS for free.

No data in the paper. A few graphs, including this, with source info:

Source: The sample period is 1870–2008. Bank loans are loans by banks in aggregate to the nonfinancial sector, excluding interbank lending and foreign currency lending based on Schularick and Taylor (2012). Public debt is total sovereign debt outstanding based on Reinhart and Rogoff (2009). See Jordà, Schularick, and Taylor (forthcoming)

A search for Jordà, Schularick, and Taylor turned up a page listing Alan M. Taylor's economic papers. First item on the list:

 NEW    American Economic Review

Schularick & Taylor “Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870–2008”   NBER WP 15512    Dataset

Dataset. That sounds good.

The link wants to download a 1.3 mdg zip file. The zip is full of little files I cannot identify by type. But there's a "readme" that says you need STATA to access the files. STATA is a purchasable product, so I'm out.

(Not sure what happened next. I guess, when I couldn't use the dataset I left the page without looking at the PDF. Later I found another link to a PDF with the same title.)

Schularick, Moritz, and Alan M. Taylor. 2012. Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870–2008. American Economic Review 102 (2):1029–61.

link page: http://www.nber.org/papers/w15512

PDF: http://www.nber.org/papers/w15512.pdf?new_window=1

From the conclusion of that PDF:

Our ancestors lived in an Age of Money, where credit was closely tied to money, and formal analysis could use the latter as a proxy for the former. Today, we live in a different world, an Age of Credit, where financial innovation and regulatory ease broke that link, setting in train an unprecedented expansion in the role of credit in the macroeconomy.

© 2009 by Moritz Schularick and Alan M. Taylor. All rights reserved.

Exactly right: These days, we use credit for money. But Schularick and Taylor seem to think that the credit monster we've evolved into is a beast that can survive.

It cannot survive. We can go back to an Age of Money, or our civilization can die. It is that simple. It is that cut and dry.

What was it Toynbee said? Civilizations die by suicide.

Well I'd love to stay and chat, but the lawnmower is calling.