Tuesday, February 16, 2016

2020 vision

Consumer debt:

Graph #1: Household Debt thru Third Quarter 2015
Caught my eye: debt is on the increase again. Looks like a good two years of consistent increase, after getting around that bottom.

Then I started wondering about the slope of that increase and how it compares to the slope of debt increase before the crisis. And when in the pre-crisis period did we have debt showing a similar slope?

I thought that was worth pursuing.

FRED's annual data goes back to 1945 -- that's new -- but quarterly data starts with 1951Q4. That's fine. I want quarterly.

Not sure how to figure "slope" for debt, because the x-axis units are time. What the heck. I'll look at two-year changes in consumer debt and divide by 8 to get a per-quarter change. Close enough.

The last data point for the series is $633.45 billion larger than the point two years earlier. That works out to $79.18 billion increase per quarter for those two years. That gives me a base line.

I figured all the years by the same calculation and put that on a graph along with the base line. The base line (red) shows how fast consumer debt increased in the last two years. The blue line shows the rate of debt increase average quarterly debt increase for two-year periods going back to the 1950s:

Graph #2: The rate of increase in Consumer Debt
The blue line almost touches the red in 1986Q4, and actually crosses it in 1995Q2. After 1986 debt dawdled downward till 1992, then started rising again. After 1995 debt growth leveled off for a bit, then started rising again in late 1998.

It might not be bad if debt growth leveled off again now. 1995, 96, 97, and 98 were pretty good years for us. Debt was already high then, of course, but...

Graph #3
... but debt is much higher now.

Still, one wonders... What if we were to pick up now with debt growth following the same path we saw for debt growth since 1995Q2? What would our future look like, then? Like this, perhaps?
Graph #4
That's probably best case, putting off the next crisis till the late 2020s.

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