tag:blogger.com,1999:blog-2098432983500045934.post9206255662616042932..comments2024-03-12T22:19:32.339-04:00Comments on The New Arthurian Economics: The Repayment of Household DebtThe Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-2098432983500045934.post-90007743067423701812014-05-21T21:04:07.169-04:002014-05-21T21:04:07.169-04:00Art wrote:
"It means we are taking out new l...Art wrote:<br /><br />"It means we are taking out new loans at about the same rate we are paying off old ones."<br /><br />That means the total amount going for debt service is equal to the total amount of interest. If the interest were lower then more of the principal could be paid if debt service and borrowing remained the same.<br /><br /><br /><br />"This sounds like a Steve Keen idea. Keen adds new borrowing to GDP or something (I forget exactly)."<br /><br />Yes, same idea but applied to just household income.<br /><br />What the graph shows is that debt service cost was about equal to credit expansion for a long<br />while before the crash. That meant debt service was not taking away from total disposable income for years and then all of a sudden it was. <br /><br /><br /><br />" I need to see your graph in comparison to disposable income without new borrowings"<br /><br />Disposable income without new borrowings is on the graph.jimnoreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-5132441431721482622014-05-21T06:41:12.904-04:002014-05-21T06:41:12.904-04:00Jim: "Right now, new borrowing is about equal...Jim: "Right now, new borrowing is about equal to debt repayment. That means debt service cost is just the interest cost."<br /><br />No. It means we are taking out new loans at about the same rate we are paying off old ones. "In aggregate" notwithstanding, this matters because<br />1. taking out new loans boosts the economy, but<br />2. paying off old debt too slowly inevitably leads to credit crisis.<br /><br />It is certainly not true that everyone is only paying interest and no one is paying down principal. And it is certainly true that there is some new borrowing. I'm not trying to draw any brave new conclusions from that. I'm just exploring. You are telling me not to explore. I don't understand that. It's not like the math is wrong...<br /><br />//<br /><br />"It might be more useful to subtract debt service cost from new borrowings and add that flow to disposable income to get the actual household disposable income."<br /><br />This sounds like a Steve Keen idea. Keen adds new borrowing to GDP or something (I forget exactly).<br /><br />I like it. I need to see your graph in comparison to disposable income without new borrowings... and perhaps to disposable income less debt service. I didn't have a chance to look at it yet. <br />The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-89947928606213684942014-05-20T08:16:47.804-04:002014-05-20T08:16:47.804-04:00The Arthurian said:
" The graph shows the ...The Arthurian said:<br /> " The graph shows the maximum possible that we could be paying on our debts, by assuming an interest rate of zero."<br /><br />That is true, but interest isn't zero. Right now, new borrowing is about equal to debt repayment. That means debt service cost is just the interest cost.<br /><br />It might be more useful to subtract debt service cost from new borrowings and add that flow to disposable income to get the actual household disposable income. See this graph:<br /><br />http://research.stlouisfed.org/fred2/graph/?g=Bah<br /><br />That shows how "actual disposable income" is what drives GDP.jimnoreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-52124878990378380492014-05-20T05:08:19.305-04:002014-05-20T05:08:19.305-04:00The graph shows the maximum possible that we could...The graph shows the maximum possible that we could be paying on our debts, by assuming an interest rate of zero.<br />The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-26923830983979863602014-05-19T20:19:22.408-04:002014-05-19T20:19:22.408-04:00Hi, Jim.
"Only some of debt service payment ...Hi, Jim.<br /><br />"Only some of debt service payment is going to pay down the principal on debt."<br /><br />That's true. In my original notes for the post I wrote:<br /><i>Set aside the cost of interest...</i><br />But I set that note aside and never thought of it again, till now.<br /><br />Nonetheless, the amount we pay in debt service has been falling quite consistently, as a portion of the debt we owe.<br /><br />"... in aggregate, most of the time, none of the debt service cost goes to paying down debt."<br /><br />I see it from the other side. New borrowing is generally more than the "change from year ago" of debt, because some debt, certainly, was paid down.<br />The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-82870769554146877192014-05-19T06:53:08.993-04:002014-05-19T06:53:08.993-04:00Art wrote:
" it seems we're paying down d...Art wrote:<br />" it seems we're paying down debt even slower now than before the crisis"<br /><br />That is not what the graph shows. Only some of debt service payment is going to pay down the principal on debt. <br /><br />For the last 65 years most of the time, household debt has been increasing, which means that in aggregate, most of the time, none of the debt service cost goes to paying down debt.jimnoreply@blogger.com