People are always pointing out that the debt-to-GDP ratio ran flat until around 1980, and then began its relentless upward climb.
I always point out that inflation pushed GDP upward a lot more than debt in the 1960s and '70s. Inflation aside, debt was growing faster. But inflation pushed GDP up and kept the ratio flat until the end of the Great Inflation in the early 1980s. Then, when the inflation rate fell, the debt-to-GDP ratio became a more honest measure. Suddenly the rapid growth of debt was easy to see.
Nobody seems interested in this story, maybe because it interferes with the political stories they like to tell.
This graph compares "total financial assets" (TFA) of financial business to TFA of households. No flat spot in the 1960s and '70s here.
|FRED Graph 1dna|
Household assets increased a lot, of course. But assets of financial business increased a lot more, and a lot faster.
Now you're gonna tell me finance is a good thing; we need finance. Sure. But we don't need so much of it. Look to the time in our economic history when the economy was good -- the 1950s and '60s. And look at where the ratio was, then.