Components and Context

Yesterday's graph: components of debt, as a percent of total debt:

Graph #1: Components of Debt, relative to Total Debt
Nonfinancial other than Federal (blue) ... Federal Debt (green)
Financial Debt (red) ... Foreign Borrowings (orange)
Click the Graph for the FRED Source Page

Today, the same components of debt, as a percent of GDP:

Graph #2: Components of Debt, relative to GDP
Nonfinancial other than Federal (blue) ... Federal Debt (green)
Financial Debt (red) ... Foreign Borrowings (orange)
Click the Graph for the FRED Source Page

The only difference between the two graphs is the denominator. For Graph #1 the denominator is TCMDO debt. For Graph #2, the denominator is GDP. GDP grew more slowly than debt, so the lines go up more on the second graph.

The difference between the two graphs is substantial.


In a recent post, as an afterthought, I wrote: why they always show debt relative to GDP is beyond me.

Geerussell picked up on that, and responded:

I assume it's because looking at anything relative to GDP is convenient shorthand to get a sense of scale...

Jazzbumpa picked up on it, too, noting:

geerussell is right. It provides context. National [or any other kind of] debt right now is some big scary number, while the same debt in, say, 1921, would look like an insignificant number - without context.

Agreed. Agreed. But look at the two graphs above. Each graph has a "context". Each has a denominator to provide context. The denominators are different, that's all.

For comparing the components of debt, total debt is the better context.


// Related post: Federal Debt Held By Federal Reserve Banks