tag:blogger.com,1999:blog-2098432983500045934.post1693961318275610149..comments2024-03-12T22:19:32.339-04:00Comments on The New Arthurian Economics: FRED: Federal spending as a % of GDP (blue) and Federal deficits as a % of Federal spending (red)The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-2098432983500045934.post-60450385741408583982013-05-29T05:48:54.536-04:002013-05-29T05:48:54.536-04:00Oh! Geerussell, you made me look at graphs for an ...Oh! Geerussell, you made me look at graphs for an hour... Thanks!<br /><br />"Does decreasing leverage support the notion that expanding government spending 'worked' in the sense of reducing instability by reducing leverage?"<br /><br />Defining "leverage" as the ratio of Private to Public debt... I like that.<br /><br />Yes, I suppose so... I hesitate to pin it down to "reducing instability". But I am reminded of the Wray quote and the graphs in an old Asymptosis post -- <a href="http://www.asymptosis.com/does-reducing-the-federal-debt-cause-financial-collapse.html" rel="nofollow">Does Reducing the Federal Debt Cause Financial Collapse?</a>. Reduce the Federal debt sufficiently and you can create a depression. <br /><br />I usually think of this leverage ratio as having an effect on growth. When it is low, the private sector can expand. But private sector expansion pushes the ratio up. And when the ratio is high, the private sector has trouble expanding. <br /><br />But what if it's not really the ratio that matters? What if it is the <b>level</b> of debt in the private sector that is key? In that case, increasing public sector debt does little or nothing to solve the problem.<br /><br />Financing contributes to both the production and consumption of output. But financial costs interfere with both. As debt increases, financial costs increase.<br /><br />When the Private/Public debt ratio is high because private debt is high, financial costs are not reduced by increasing Public debt. Reducing the ratio by increasing the Public component only increases total financial cost.<br /><br />That's why I wrote "it didn't work because we didn't have a Depression in those years."<br />The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-75986260450690631322013-05-29T01:03:56.072-04:002013-05-29T01:03:56.072-04:00Private debt did increase, instead of falling. How...Private debt did increase, instead of falling. However the ratio of private debt to government money fell during that 15 year period. Here's <a href="http://research.stlouisfed.org/fred2/graph/?g=iWQ" rel="nofollow">one of your old charts</a> with a line (heavy black) added for leverage.<br /><br />Does decreasing leverage support the notion that expanding government spending "worked" in the sense of reducing instability by reducing leverage?geerussellhttps://www.blogger.com/profile/10631984593634015839noreply@blogger.com