Monday, April 10, 2017

Since 1834


I don't accept their explanation, but I do like their graph:

Source: BAWERK.NET
The path of GDP growth is a pretty good mirror-opposite of the path of total debt, for 180 years. To me, that's an impressive picture. You, I know, you will say the data is suspect. Or you will argue that the trend lines don't fit the circumstances -- that they don't properly show the Great Depression maybe. To me it's an impressive picture, not so easily dismissed.


One of the things you can do with total debt is break it into its public and private components. Guess what we're doing today.

I went back to Steve Keen's estimate for US debt that extends back to 1834, converted his monthly data to annual, and compared the public to private:

Graph #2: Public (blue) and Private (red) Debt relative to GDP, 1834-2011
Here again we see opposing tendencies. Private debt falls and public rises until they meet. Then private rises and public falls. Then for a while they both rise. And then private debt falls and public rises until they meet, and the whole sequence repeats.

This time around, though, the trend line doesn't yet show private debt falling. Maybe if I added in the years after 2011 we would see it. But even if that's true there's a long way to go, if the plan is for private to fall and public to rise until they meet.

In the meanwhile, consider what these two graphs tell us. At the end of the scale where we are not reading much into the graphs, we can say

1. There is an inverse relation between "total debt to GDP" and GDP growth, and
2. There is a repeating pattern in the relation between the public and private components of total debt,

I'm gonna go now and think about that for a while.

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The Excel file

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EDIT 18 May 2017

Keen and Bawerk both hint at the source of data for the early years' debt. Another hint may be found below Figure 7 in Thomas Philippon's Has the U.S. Finance Industry Become Less Efficient? Philippon writes:

Fitted Series uses assets on balance sheets of financial firms to predict total debt. Sources are Historical Statistics of the United States and Flow of Funds.

"Fitted series" is a reference to the data which extends his debt-to-GDP numbers before 1929, back to the 1870s.

For Figure 7 see my Finding Philippon's FinEff.pdf or the PDF.

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