tag:blogger.com,1999:blog-2098432983500045934.post6731613095153400299..comments2024-03-12T22:19:32.339-04:00Comments on The New Arthurian Economics: How to prevent inflation without preventing growthThe Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-2098432983500045934.post-3393673500574583182017-03-10T17:18:02.620-05:002017-03-10T17:18:02.620-05:00I didn't say anything about GDP. During the re...I didn't say anything about GDP. During the recessions in the 1980s credit expansion was still 10% per year. In what universe is that considered to be slow credit growth?<br /><br />I disputed the claim that one can "see that raising interest rates reduces credit growth". Where can one see that?<br /><br />If that statement had any merit at all the period from 1970-1985 would be a period of low credit growth and the period from 2008-present would be a period of high credit growth, but the data shows the exact opposite. <br /><br /><br />jimnoreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-64813127498118662332017-03-10T14:02:23.046-05:002017-03-10T14:02:23.046-05:00Yeah, Jim, you brought that up the other day when ...Yeah, Jim, you brought that up the other day when you linked to Richard Werner. He's pretty interesting. <br /><br />He says if you look at a scatterplot of interest rates versus NPGD the line slopes up to the right: the two series are positively correlated. You are saying the same thing.<br /><br />I went and started doing graphs right away after I listened to your link. Didn't get anything useful yet. But here's the thing: They raise rates a little at a time until the economy starts to slow down like they want. So... there is a positive correlation until they get the slowdown. And then for a moment, the two series are negatively correlated. <br /><br />As soon as the economy starts to slow down, they start to bring interest rates down (trying to get that "soft landing"). And while both series are trending down, there is a positive correlation again.<br /><br />At the bottom, when GDP turns up, there is a brief negative correlation. Then the central bank starts raising rates again. And the correlation goes positive.<br /><br />Most of the time we see a positive correlation between the two series. But that does not mean that raising interest rates doesn't eventually cause credit growth to slow down.<br /><br />Also: if the path of interest rates is endogenous, and the Fed simply follows the endogenous path instead of forging the path, it makes no difference. The interest rate paths are the same, and the correlation story is the same.<br /><br />The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-34055847093277674992017-03-10T09:19:03.386-05:002017-03-10T09:19:03.386-05:00"you will see that raising interest rates red..."you will see that raising interest rates reduces credit growth."<br /><br />If you actually look at the data you will see just the opposite.<br /><br />Looking at post-WW2 US economy the period with highest credit growth was 1970-1885 and the period of lowest credit growth was 2008-present. <br />From 1972-1980 total debt expanded 250% or about 12% per year. In the last eight years total debt has expanded about 11%. That's a little more than 1% per year. <br />How can anyone possibly look at the facts and conclude that high interest rates results in low credit growth and low interest rates produces high credit growth? It seems obvious to me that high credit growth is what raises interest rates and low credit growth is what drives interest rates down.jimnoreply@blogger.com