From yesterday's 4AM post:
What's that you said? They wouldn't do that? You mean, they would never say we always want debt to grow a little faster than the quantity of money? Is that what you think?
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| Graph #1: Dollars of Debt per Dollar of Base Money |
In 1950 there was $12.90 of debt for every dollar of base money. In 1970, $24.3. A peak came in 1990 at $47 debt per dollar of money. This was exponential increase.
The ratio fell from the peak, reaching a low of $39.8 in 1994. Then increase resumed. The ratio reached $60.9 in 2008: More than $60 of debt per dollar of base money.
If the interest rate was 2%, we were paying $1.20 interest for every $1 of base.
After 2008, crisis brought the number down. But it was the crisis that brought the number down. It wasn't policy that did it. This is how you know policy was in error.
We always want debt to grow a little faster than the quantity of money. That's the problem. Other than the last few years, the only place on the graph that we see the ratio fall is from 1990 to 1994.
And after that fall in the ratio, the economy was actually good for a few years.
2 comments:
"the idea that we always want debt to grow a little faster than the quantity of money, because we always want that."
I'm not at all sure that's the case - but first, who is the "we" of whom you speak? Policy makers? Economists? Peons in debt? Bankers?
Maybe debt grows faster despite being what we don't want.
Maybe it happened because policy makers are absolutely indifferent or oblivious to it.
Who do you think always wants that, and why do you think so?
Cheers!
JzB
"We" being policymakers, those whose job it is to manage such quantities. Either they caused it to happen, or they failed to prevent it.
They are certainly not oblivious: they track the data.
Indifferent? Indifferent = "they failed to prevent it".
But it looks to me like "debt growth faster than money growth" was (and is) by design of policy. It's in the percentages.
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