Friday, April 22, 2016

The ratio of what to what?



7 comments:

Auburn Parks said...

pretty simple actually, debt (service) to income is the most important creditor metric

geerussell said...

pretty simple actually, debt (service) to income is the most important creditor metric

Speaking of which, I came across this and thought it was kind of interesting. Because numbers, who doesn't like numbers.

Household Debt Service and Financial Obligations Ratios

Oddly enough, while that data is from the fed website, I failed to find it when I went looking in FRED.

The Arthurian said...

Pictures are better than numbers
https://drive.google.com/open?id=0B-pyd4Usl6QkZzZJMzJlWF9nNzQ

At FRED, top three on this list
https://research.stlouisfed.org/fred2/search?st=debt+service+payments+as+a+Percent

Auburn, yes, but a "creditor metric" is a micro metric, not useful for macro policy design. It only leads to financial crises and such.

Auburn Parks said...

Art-

not at all, the higher the debt service at a macro level (nominal debt x rates) the higher the % of income going to the financial sector and is not used to buy output. The less money is spent on real output, the higher the level of unemployment. So debt to income is an extremely important macro metric.

The Arthurian said...

Auburn, bankers and such who use the debt-to-income metric keep pushing the "acceptable" debt/income ratio higher, saying in essence, "No problem so far!"

There is no limit that stops them from creating a problem.

Policy makers, as opposed to bankers, need to establish a limit in order to prevent financial crises.

My recent posts have been looking for the best place to set that limit: the optimum ratio of private debt [something].

Auburn Parks said...

Art-

You ignored everything that I wrote. Too much debt (service) to income means the economy stalls (ceterus paribus) because more and more income goes to debt service iinstead of consumption of real output which is what drives the macro economy.

You said that debt to GDP aka debt to income is not an important macro metric, this is factually incorrect because math.

You also seemed to question why debt to GDP is important in the title of this article, maybe thats not what you meant and if so then this part of my comment is irrelevant, its important because debt to GDP is debt is an indicator of debt service to income.

The Arthurian said...

Auburn, it's just easier not to talk to you at all.