 |
| Graph #1 |
The graph shows Nonfinancial business debt, and an exponential curve based on the early years. The blue line is the sum of two FRED series:
• Nonfinancial Corporate Business (NCBTCMDODNS), and
• Nonfinancial Noncorporate Business (NNBTCMDODNS),
both annual, both in billions, etc., etc., etc. The exponential curve is an Excel trendline based on the years 1950-1975, just like the Household Debt graph from yesterday.
Graph #1 shows business debt growing faster than trend in the latter 1970s and '80s, then slowing until about 2000, then slowing further. You could say the 1978-2000 path is an S-curve where business debt still followed trend, and business debt has been falling below trend since 2000. Or you could say business debt growth has been declining since 1990. You'd be right either way.
If you are patient and attentive, you will have noticed that this is the third in a series of posts comparing debt to trend, sector by sector. Me... my mind wanders. I look for entertainment. That takes us this time a little off-topic. Think of it as background.
 |
| Graph #2 |
Nonfinancial corporate (red) is higher than nonfinancial noncorporate (green). But both lines vary, and both trend upward, so it is hard to see how they compare. So we turn to graph #3:
 | |
| Graph #3 |
It's easy to want to think of Graph #3 as showing the relative size of corporate and noncorporate business. Probably not a good idea. There are better measures of business size. This just compares debt size.
3 comments:
Happy New Year Art
Im assuming that non financial debt is the same as debt incurred TO banks, like lines of credit or borrowing from a bank for expansion.
Financial debt for a business would be, as I understand it, when a corporation issues a bond to raise money.
This would mean that the non financial debt is really the only debt that matters for your discussion because any bond a corporation floats will be purchased with money that has already been created. It just goes from my account to their account.
I wish that our economics/ money discussions could be revised so that a corporation owing money to a private citizen in the form of a bond and same corporation owing money to a bank aren't both simply called "debt". I don't the think the financial vs non financial is helpful either.
Hey Greg. Happy New Year.
From mine of 26 July 2011:
Under Domestic Financial one finds
> Agency- and GSE-backed Mortgage Pools
> Government-Sponsored Enterprises
> REITs
> ABS Issuers
> Commercial Banking
> Funding Corporations
> Brokers and Dealers
> Saving Institutions
> Finance Companies
> Life Insurance Companies
> Credit Unions
Not sure, but this seems rather more than just corporate bond issuance.
"This would mean that the non financial debt is really the only debt that matters for your discussion because any bond a corporation floats will be purchased with money that has already been created. It just goes from my account to their account."
You forgot to mention the interest cost created when the money just goes from your account to their account as debt.
Debt only "doesn't matter" if it doesn't impose a cost on the economy.
And don't forget, the crisis was a financial crisis. That wasn't by chance.
Oh I get it now, I was making an assumption that they were distinguishing between types of debt when in fact they were distinguishing between types of corporations. That makes more sense.
So now my question is; does this graph distinguish between debt owed to banks and debt owed to corporate bondholders?
I think it is worthwhile to distinguish between these because debt owed to bondholders was not created "out of thin air". People allocated their savings to the corporation for their bond. Its a zero sum game.
Debt created by banks when a corporation borrows is not zero sum. No one gives up something so the corporation can have the loan just like when I take out a mortgage.
Post a Comment