Yesterday's "interest paid" graphs are shown in billions of dollars. An earlier post shows the same cost as a percent of GDP. That's why yesterday's lines show increase, but in the older post the cost of interest runs pretty flat at about 5% of GDP.
The older graph, comparing the cost of oil and the cost of interest, goes back only to 1980 because that's where the oil numbers start. Me, I go back to 1949 and I like my graphs to go back at least that far. The household interest data at FRED goes back farther than I do:
|Graph #1: Household Interest Paid as a Percent of GDP|
What caught my eye is that the line goes up rapidly till 1965, then has a sudden intermission, then picks up steam after the 1974 recession. (Isn't that more interesting than Flat, the line runs flat?)
I know what it is, that sudden intermission. It's a reaction of the graph to the Great Inflation. It is not that interest rates fell and remained low for ten years after 1965:
|Graph #2: Interest Rates on the Rise|
|Graph #3: Household Debt in Billions (red) and as a Percent of GDP (blue)|
It is not that household debt and household interest cost suddenly slow after 1965. It is GDP that brings the intermission to the data. The reason, of course, is that inflation changes the dollar amount of GDP (and new credit use) but doesn't change the dollar amount of previously existing debt.
Anyway: What caught my eye on Graph #1 is that 'household interest paid' goes up rapidly relative to GDP, until 1965, then has an intermission because of the Great Inflation. I started wondering where the Interest-to-GDP line would have gone if not for the inflation. So I brought the data into Excel and put a trend line on it:
|Graph #4: Household Interest Paid as % of GDP and 1947-1965 Trend|
I was pleased with the result. The data from 1995 to the crash pretty well fits the same trend as the data before 1965. In the 30 years between, we see the blue line run low (because of the inflation) and then high (because of the