Economic Potential and the Growth of Debt

Private Non-Financial debt, PNF for short. Total in billions. It goes up:

Graph #1: Private Non-Financial Debt, Total

Change from previous quarter, in billions. It goes up:

Graph #2: Quarterly Change in Billions, Private Non-Financial (PNF) Debt

The change as a percent of the accumulation. It doesn't go up:

Graph #3: Private Non-Financial Debt, Percent Change (Quarterly Data)

That should tell you something.


With inflation stripped away, it goes down. The boost to growth goes down:

Graph #4: Real PNF Debt Growth (Quarterly Growth at Annual Rate)

The trend line shows how it goes:

Graph #5: Real PNF Debt Growth plus Trend Line

It goes down. Note, however, what happens in the '90s: It goes up. It is up at the same time that productivity is up and the economy is good. But then the debt increase of the early 2000s, which looks exactly like that of the latter 1990s, ends in disaster.

Of course, as Graph #1 shows, the increase of the early 2000s was not exactly like the increase of the latter 1990s.

Still, this last graph does show what it takes to make the economy good. It takes an adequate growth of credit, without an excessive accumulation of debt. And it shows what it takes to achieve that goal: It takes a sufficient decline in the growth of credit, as we had after 1985.

Was the decline of 2008 sufficient? Time will tell. To me it looks promising. But I'm not looking at the accumulation.

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Economic Potential and the Growth of Debt.xls for the inflation adjusted graphs.