Tuesday, March 29, 2011


Debt-per-Dollar rises all through World War I. It rises through the post-war transition, rises through the Roaring Twenties, rises through the onset of Depression, and rises until the Depression hits bottom in 1933.

Debt-per-Dollar falls during the FDR years, 1933-1946.

Immediately after World War II, debt-per-dollar begins rising again. It rises all through the quarter-century of our post-war golden age. Excessive already by the 1970s, DPD kills off the golden age.

There are some hints of DPD decline in the Reagan years, the 1980s. Today we look back on those years as pretty good years.

There is a definite drop in DPD from 1990 to 1993. Immediately after that drop, we see a decade of growth comparable to the golden age.

Debt-per-dollar rises all through that golden decade. It rises high enough to quash the growth, and continues rising. And debt-per-dollar continues rising until the financial crisis of 2008.

The only way to fix our economy is to reduce debt-per-dollar.


Jazzbumpa said...

Hi Art -

I comments at David Beckworth's place, he pointed out to me that M1 is not such a good measure, and MZM is more relevant. (Sorry, don't have a direct link.)

I've never seen anyone talk about debt as a function of money supply before. Interesting idea.

I followed a link to Macromania, and found that post to be quite thought provoking.


Jazzbumpa said...

When I first looked at the post, I assumed you meant government debt.

Now I having second thoughts. What debt are you talking about?


The Arthurian said...

I look at total debt. I should always be specific. Thanks for the reminder.

Everybody talks of government debt but ignores the bigger accumulation.

I also look at the balance between public and private debt. By the time the financial crisis got us to start reducing our (private-sector) debt, total private-sector debt was six times total government (federal+state+local) debt in the U.S. I think people are focused on the wrong debt.

Jazzbumpa said...

Thanks for the clarification.

Wasn't aware of the 6/1 ratio.

I think you're right.

The relevant question with debt (or at least one of them) is: can it be serviced.

Another thing to think about is the uses of that debt. I believe the debt accumulation facilitated a grotesque misallocation of resources.


P.S. I've quite had it with the Masked Economist.

Greg said...


I think I remember seeing you at Angry Bear back when I used to visit there regularly. Nice to see you over here at Arts place.

I've gotten to where I discuss the difference between public and private debt this way;

Would you rather have a $100,000 mortgage or have a $100,000 Treasury Bond. If youd rather have the mortgage, Ill give you mine and Ill take your Treasury Bond. Deal?

The Arthurian said...

Greg, I finally figured that out. A mortgage and a treasury bond are both debt, but a mortgage is debt in our sector, and a treasury bond is debt in the public sector.

It is the "sectoral balances" thing again. I get it now :)

The Arthurian said...

The trend resulting in that six-to-one is shown at It's not what you thought.

I analyze the relation of public to private debt at Everything You Need to Know About Economic Performance.

Basically, the two graphs there show that austerity will not solve the economic problem.

Your blog is mathematical in a comfortable way. Perhaps you would consider checking my work? Links to my sources on debt may be found at Public v Private, or in the last few lines of "It's not what you thought."