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the blue line is inflation adjusted gdp the so called real gdp percent change from year ago semiannual and in case you missed it blue the scatterplot caught my eye graph 2 the scatterplot version of the previous graph with the debt ratio on the x axis and the rgdp growth rate on the y axis what caught my eye is this on the left the dots fit themselves pretty well to an up and down pattern on the right the dots fit themselves mostly to a left and right pattern and in the middle there s just a jumble of dots that jumble is mostly between 3¼ and 5¼ on the x axis but if you look most of the activity of the red line on graph 1 is between 3 25 and 5 25 on the vertical axis graph 3 showing the activity zone of the red line in other words there is a big cluster of dots there on the one graph because that s mostly where the red line is on the other for the record the activity zone is too high if the red line ran mostly below the 3 25 level instead of mostly above it our economy would be in a lot better shape but that s neither here nor there i guess you can see that the red line is mostly between the two dotted red lines in other words between 3 25 and 5 25 on the x axis of graph 2 below the lower dotted line are the dots that fit themselves to an up and down pattern on the left on graph 2 above the upper dotted line are the dots that fit themselves to the mostly left and right pattern on the right on that graph i want to take graph 2 the scatterplot and separate the dots into those three regions left right and middle then i want to look at the dots in those three regions and look at the y axis values the rgdp growth rate values i want to get the average of the rgdp growth rates for each of those three regions it looks to me like the left will show a high average rate of growth the right will show a low average rate and the middle will show in the middle but we don t have to guess out with the dogs i was thinking about the scatterplot dot behavior on the left when the p2p debt ratio is low we see rgdp growth following the expected business cycle like behavior up and down up and down up and down and so forth on the right where the p2p ratio is high we see rgdp growth behaving unexpectedly and large changes in the debt ratio have relatively little effect on rgdp growth moreover the highs and the lows of rgdp growth are lower on the right when p2p is high than on the left when p2p is low i m thinking these differing behaviors of rgdp growth may show up in the phillips curve when p2p is low the curve behaves as bill phillips described when p2p is high it does not hey it s just a thought i can t prove it yet i haven t even looked into it yet i m just sayin there is more to this p2p story than anyone realizes i downloaded the data from the scatterplot graph and eliminated rows before the second half of 1951 where some values were missing i ended up with data from 1951 h2 h for half as opposed to q for quarter that s fred notation to 2015 h1 i got 128 rows of data of the 128 items 30 show p2p ratios less than 3 25 these have an average growth rate of 4 06 percent of the 128 items 19 show p2p ratios above 5 25 these have an average growth rate of 2 01 percent the balance the 79 items with a p2p from 3 25 to 5 25 inclusive have an average growth rate of 3 05 percent so yes as we might have expected a low private to public debt ratio is associated with a high rate of rgdp growth and a high p2p debt ratio is associated with a low rate of rgdp growth what else is new the excel file posted by the arthurian at 4 00 am 0 comments monday march 21 2016 further thoughts on the pictorial history of debt the other day i looked at a graph comparing private and public debt as a ratio i showed the graph several times highlighted to identify the various up and down trends it shows here again is that graph graph 1 private debt relative to public debt i m going back to that graph now to get the dates of turning points these dates are in particular low points and high points of the ratio not necessarily the commonly observed dates for the start or end of named periods such as the roaring twenties or the great depression graph 1 shows an alternating pattern of up and down trends graph 2 considers each of those trends separately and compares for each the growth of federal debt blue to the growth of the non federal debt red graph 2 comparing public and private debt growth by period the first thing to notice is that the vertical bars are in pairs one blue and one red in each pair the blue is the government debt and the red is non government debt the second thing to notice is that the tall bar alternates blue in the first pair red in the second blue again in the third and so forth when the blue bar is taller than the red the line on graph 1 is going down when the red bar is taller than the blue the line on graph 1 is going up the most important thing to notice is the fifth pair for the 1974 to 1993 period both bars are tall oh the blue is taller definitely but the red isn t short as it is in the first pair and the third pair and the last pair in those other three periods 1916 to 1919 and 1929 to 1945 and 2007 to 2014 the red bar is extremely short and in those three periods what we see on graph 1 is emphatic downtrend for the 1974 to 1993 period graph 1 shows only a leisurely downtrend 1974 to 1993 is a longer period than 1929 to 1945 three years longer but the decrease visible on graph 1 is far less in the 1974 1993 period than the other the reason is that private debt growth remained quite vigorous in the 1974 1993 period on graph 2 the blue bars are very similar for the 1929 1945 and the 1974 1993 periods both show close to an 800 increase but the red bar in the earlier period is near zero while the red bar in the latter period shows substantial increase the lesson i take from these thoughts is as follows if our plan is to let private debt increase until economic problems abound and then solve the problem by increasing the public debt a foolish plan to be sure if that is our plan then our solution will be inefficient while rapid private debt growth continues the 1974 1993 decline on graph 1 occupied more years than the great depression and world war two combined and produced only about one third the decline in the private to public debt ratio during world war one government debt growth far exceeded private debt growth and during the great depression and world war two government debt growth far exceeded private debt growth and during the recent post crisis period government debt growth far exceeded private debt growth these were efficient and effective implementations of our miserable plan but during the 1974 1993 period government debt growth only slightly exceeded private debt growth therefore it was many years before uptrend and recovery could begin and when it finally did begin the uptrend and recovery could not last long because the ratio graph 1 was already at a high level we need a better plan the excel file posted by the arthurian at 4 59 am 0 comments sunday march 20 2016 designing the future i happened to notice the straight line trend in household debt to gdp graph 1 household debt as a percent of gdp red highlight 1987q1 to 1999q4 the red line i got wondering if that trend was sustainable i mean like this graph 2 with the 1987 1999 trend extended fore and aft you can see how the debt to gdp ratio went above the red line in the 1950s and 60s but it peaked in 1965 and came down again then stayed below the red line until that 1987 1999 stretch after that it went quickly high gave us a crisis and some problems then came back down again and now it s just below the red i was going to say i don t think there is any such trend as that red line and if there is i would certainly expect it not to be linear however my description of it turned out stronger than i expected i m still by no means convinced that the red line shows a trend that exists but now it doesn t seem such a crazy thought suppose that trend does exist i m looking at the right end of the graph the debt ratio is just below the red line just below and going down but going down slowly now ready to start rising soon suppose it does start rising soon i want to look at the future in terms of that red line yeah the one that i doubt but what if it does exist okay let s imagine a future i re created graph 2 in excel then i took debt to gdp and put a curved trendline on it a second order polynomial to extend the blue line out to 2020 but in black as you can see by 2018 debt to gdp goes above the red line just as it did a few years before the crisis in other words if present trends continue we are already on our way to another financial crisis graph 3 household debt as a percent of gdp blue the 1987 1999 trend red and the 2011 2015 household debt to gdp trend extended to 2020 black is there an alternative of course there is we must choose the red trend not the black choose the one alan greenspan called the new economy the one robert j gordon called a macroeconomic miracle the one maynard keynes called a quasi boom choose policies that give us the red trend not the black you remember the 1990s the economy was pretty good choose the red trend not the black the excel file with graph 3 not sure if google drive handles the graph properly posted by the arthurian at 4 00 am 0 comments saturday march 19 2016 a pictorial history private and public debt the graph shows the size of private debt as a multiple of public debt for the years 1917 to 2014 this graph shows the level of private debt relative to the level of public debt or you could call it non federal debt relative to federal debt the older blue data are from the bicentennial edition of the historical statistics the newer red data are from fred all these images use the same graph with different highlighting the ratio of private to public debt fell during world war one after the war the roaring twenties the great depression and world war two after world war two a golden age beginning around 1974 two decades of sluggishness ensued beginning around 1994 a goldilocks economy good years since 2000 slowing growth crisis and aftermath a new goldilocks economy posted by the arthurian at 4 00 am 6 comments friday march 18 2016 something interesting this way comes suppose we take this graph of the short term interest rate and the calculation that makes a pretty good simulation of it for eighty years or more graph 1 the interest rate blue and the result of calculation red suppose we take that graph and get rid of the interesting part we re left with a picture of the quantity of base money relative to ngdp it reaches a low point in 1981 graph 2 base money relative to ngdp there is an interesting increase in the recent years i want to get rid of that oh but you know the line reaches a local maximum in 2003 and then goes down till 2007 that downsloping dingus may or may not have caused the crisis and led to the big increase of the recent years that s interesting huh let s get rid of the dingus too that leaves us with a line that ends in 2003 that s 22 years after the 1981 low now i want to go back 22 years before the low back to 1959 and i want to cut off all the interesting stuff that happened before then this gives me a graph of base to ngdp for the period from 1959 to 2003 with a low point right in the middle graph 3 base money relative to ngdp 1959 2003 nothing interesting here i changed the line color to blue to liven things up i m wondering what the activity was that caused the change in the blue line first running downhill then up thought i d take a look at the growth rates of ngdp and base money graph 4 m py blue base money growth red and ngdp growth green for the blue line we have the label m py that s left over from the hussman funds interest rate calculation i got from oilfield trash the other day the m stands for money here base money the py stands for price times output you can think of price as the gdp deflator and output as rgdp and rgdp as gdp with the price changes stripped away gdp being the same as ngdp or you can think about more interesting things on the graph in the years before 1981 when the blue line is going down the green line is consistently higher than the red before 1981 ngdp growth is consistently higher than base money growth that s why the blue line goes down after 1981 the red line is generally higher than the green base money growth is generally higher than ngdp growth that s why the blue line goes up okay so the blue line tells us that ngdp grew faster than base for the period before 1981 and base grew faster than ngdp for the period after 1981 that s a fact taking it as a fact now i have a question or two how come we had inflation before 1981 but not so much after 1981 how come it was said they were printing too much money and this was causing the inflation before 1981 when base money growth was relatively slow and how come we didn t get inflation after 1981 when base money growth was relatively fast there must be something wrong with the inflation story they tell now that is interesting posted by the arthurian at 4 00 am 2 comments thursday march 17 2016 at root it s always unintended consequences of policy overlooked by policy makers at reddit jimrosenz links to our four decade antitrust experiment has failed by kevin drum my response if i set aside my sympathies for kevin drum s view i am left with a problem drum writes the federal government should do its best to ensure that markets have plenty of competition and then it can afford to get out of the way and regulate fairly lightly but ensuring that markets have plenty of competition is regulation heavy regulation drum wants to use a crude old rule ensuring that there are plenty of competitors in every market and refusing to allow any single company to become too dominant if that s not an explicit call for heavy regulation it could easily become one drum admits that even a crude market share rule would have problems you ll have arguments over just how big a single company should be allowed to get 30 percent share or 50 percent share when i read of calls for that sort of regulation my mind goes to the road to serfdom we can t solve problems that way we mustn t solve problems that way take a step back and consider the possibility that our problems are self created we have too little competition too much dominance by single companies maybe such common problems are the result of existing policy an unintended consequence so to speak the business tax structure favors bigness the more you can spend the more you can avoid tax that s the driving force behind merger and acquisition kevin drum brings up the returns to scale i read a kiplinger letter decades back where they wondered why agribusiness grows beyond its economies of scale it s not only agribusiness that grows beyond economies of scale it s business in general and it s the business tax system favoring bigness that 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