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Text of the page (random words):
e high debt has been driving the trend up it s madness but it turns out there is method in their madness they say a concern with using measures based on credit to gdp is the upward trend in the ratio as an empirical matter this is dealt with by focusing on the gap with respect to an estimate of the trend designed to be slow moving they worry that critics might question the validity of their work because of the upward trend of the ratio in order to circumvent that criticism they measure how high the debt to gdp ratio is by comparing it to its trend if the ratio is above the trend they call it high this way when they say debt is high no one can contradict them okay for me their methodology weakens their argument but if it strengthens their argument in the eyes of someone who doesn t see debt as a problem it s worth it good job guys but don t forget after you convince the critics that you re onto something you ll have to open their minds further and get them to move away from comparing debt to trend to determine whether debt is high just tell em their logic is circular posted by the arthurian at 4 00 am 3 comments labels 400k smoothing sunday january 28 2018 seeing past the aberrations in debt to gdp total debt relative to gdp graph 1 total debt relative to gdp i ve seen a lot of people point out the low flat area between 1965 and 1984 debt was low then they say and the economy was good maybe but the low flat part is low and flat because of the inflation of that era people seem to think debt stopped growing for a while in fact we were adding to debt more rapidly during the flat years than before from 1952 thru 1964 the average annual debt growth was 6 6 from 1965 thru 1980 it was 9 9 debt growth was 50 more during the flat it looks flat because inflation made ngdp increase as fast as debt it wasn t magic that kept debt low in those years it was the raging inflation inflation changed the path of the debt to gdp ratio and created the low spot inflation was an aberration the low debt ratio was a result of it if you look at it the way i do you can almost see the path that debt to gdp would have taken if we never had that crazy inflation you could draw a straight line connecting 1960 to the late 1980s bypass the low spot and see what the path of debt might have looked like without that inflation something like this graph 2 as above but annual data with a trend line added the years from 1987 thru 1997 occur shortly after the great inflation they look on trend to me i show them in red i had excel create a straight line trend based on that period in the early years before the great inflation the trend line black is a perfect fit for the years from 1956 to 1960 and it s a very good fit from 1952 to 1963 those early years show the same trend as the years shown in red after the great inflation the blue line low and flat during the inflation is an aberration i didn t have to try a dozen times to make the graph show what it shows i looked at the years between the great inflation and the great recession and picked dates where the blue line appeared to be on trend rather than returning to or departing from it then i put a linear trend line on those years and it came out just as you see above i did fiddle with it some after that i changed the trend line to exponential then i added a few years to the end of the red zone and watched the trend line change as i added them i was exploring this is what i found graph 3 as above annual data with an exponential trend the trend line fits the red zone just about as well as it did before it fits the years 1952 1963 even better than it did before and at the end of the graph in 2016 the blue line meets the trend line the two lines appear to show that debt to gdp has returned to trend after a decade long recovery from the tech and housing bubbles perhaps you can imagine the graph ten years out with the exponential curve continuing and the debt to gdp data clinging to it it could make you think debt finally got back to normal in 2016 and that could make the next ten years very good indeed come to think of it this is my vigor story again from a different perspective posted by the arthurian at 4 00 am 0 comments saturday january 27 2018 where we stand the fred blog has a post dated 11 january which shows this graph the green line quarterly data ends at q3 2017 the others appear to show q4 preliminary it s a mess the lines are all over the place however since the start of 2017 the lines converge toward a 3 growth rate then move upward together it s a little early to draw conclusions of vigor from this graph sure but remember in march it will be two years that i have been predicting vigor to begin in 2018 we are at the bottom now ready to go up i said in march of 2016 the first quarter of 2016 where we are right now is the bottom the next month i said i predict a boom of golden age vigor beginning in 2016 and lasting eight to ten years it has already begun in two years everyone will be predicting it and in august of that year i wrote what i m looking at amounts to vigor starting about a year into the first term of the next u s president why because debt per dollar private debt per dollar of m1 money was at bottom in 2016 q1 and ready to rise debt per dollar is an indicator of financial cost for the economy as a whole and because with debt service reaching a low financial cost was low creating favorable conditions for wages and profit in the non financial sector i don t bring this up to brag that my prediction is right i don t even know yet if my prediction is right i bring it up because if we do soon experience the economic vigor that i expect it means the data i m looking at may be more important than most people realize or maybe it was just dumb luck on my part and donald trump deserves all the credit for improving the economy see also where we stand dated 26 august 2017 and my vigor page edward harrison 15 jan 2018 for the first time in several years we are seeing economic growth everywhere in the global economy no one is talking about recession it s just the opposite people are raising economic forecasts and worried about overheating in two years i said two years ago everyone will be predicting it posted by the arthurian at 4 00 am 0 comments friday january 26 2018 shiller what drives these decade long swings in confidence consumer confidence is lifting the economy but for how much longer by robert j shiller jan 26 2018 amid the constant turmoil in domestic and global politics these days the economy s steady expansion has been a source of comfort but look more closely and you will find that economic growth rests on a surprisingly amorphous base consumer confidence we know that consumer confidence is a critically important advance indicator of economic booms and busts at the moment it is forecasting a continuing expansion yet the troubling fact is that we don t fully understand how and why consumer confidence acts as it does the simplest explanation is the necessarily slow but consistent recovery from the crushing financial crisis of 2008 and 2009 there is some truth to that explanation but it is insufficient it omits a critical yet elusive factor animal spirits that kind of exuberance now seems to be fueling the stock market where prices have outstripped fundamental valuations such surges have happened before the four major confidence indexes took a long ride up between 1990 and 2000 the critical question then what drives these decade long swings in confidence including the upsurge that is still underway take the current confidence cycle while donald j trump s presidency may have exerted some impact on animal spirits in the last year it doesn t explain the preceding eight years of slowly improving confidence and i am skeptical that the upward swing can be entirely explained by standard factors like government and central bank stabilization policy or technological innovation when consumer confidence is falling people cut back their spending try to save more and pay down debt debt service costs soon start to fall and fall for some time after a time the reduced debt burden allows consumer confidence to begin rising again with increased consumer confidence spending increases and borrowing increases perhaps tentatively at first the increased borrowing then translates into rising debt service and rising confidence is able to support it for a while but eventually the rising burden of debt causes consumer confidence again to fall this pattern of behavior fits pretty well with what shiller says above it is also clearly visible on the graph below including the decade of the 1990s and the eight years before president trump graph 1 consumer confidence blue and household debt service red shiller says we don t fully understand how and why consumer confidence acts as it does it s the bills i say when the bills start to pile up consumers lose confidence posted by the arthurian at 8 00 pm 0 comments an interesting footnote on the federal debt from page 15 of the economic expansion of the 1990s at google books the ratio of the interest bearing national debt to gdp is frequently used by economists as a measure of the burden of a national debt to a nation s economy that sentence is footnoted here is the interesting part of the note the non interest bearing debt of the united states consists of currency and coin in circulation i never think of coin and currency as a form of government debt i m not sure it s right posted by the arthurian at 4 00 am 4 comments thursday january 25 2018 on raising interest rates one of the arguments for raising interest rates is that we need rates high enough that they can be cut when the next recession comes it seems to me anyone who makes that argument ought to admit in the same breath that it s raising interest rates that brings on recession i don t know what to do about that other than dismiss both the argument and the admission but i do know that the argument has been made so suppose we take it at face value and say okay how high do we want the interest rate to be talking about the policy rate here the federal funds rate how high do we want the federal funds rate to be i don t know the answer but here s another question how high can rates go before they create another recession i don t know the answer to that one either but i know how high rates have been in the past and i know that the trend of rates has been downhill since 1981 and i m pretty sure that the policy rate going up during 2004 05 and 06 is what created the crisis of 07 and the recession of 08 almost like the good old days the 1970s when the federal reserve created recession after recession on purpose to bring inflation down and i m pretty sure also that the policy rate going up not in 1994 and 1995 but in 1999 and 2000 is what created the recession of 2001 so when i make my interest rate trend line i will omit data points for the peaks before the 2001 recession and the 2008 recession because i don t want to show what we have to do to create another recession i want to show what we have to do to not create another recession here s the graph graph 1 the federal funds rate and its high side trend since the peak looks like the fed can safely raise interest rates to about 2 update 7 oct 2020 the federal funds rate thru september 2020 the rate went up to 2 4 paused briefly and started coming down 2 4 was evidently a bit too high then the pandemic hit and the rate dropped to the floor posted by the arthurian at 4 00 am 17 comments wednesday january 24 2018 the forgotten crash 1966 syll shows this graph and asks time for another crash philip george replies probably not yet which makes me feel better why because the q of m philip says that makes me feel even better as i m also a q of m guy on my second glance at the graph i noticed right in the middle forgotten crash 1966 in a little red book called stabilizing america s economy edited by george a nikolaieff there is an article taken from the atlantic monthly of july 1971 nixonomics how the game plan went wrong by rowland evans jr and robert d novak i ll quote a sentence from it you ll notice the confidence with which evans and novak assert friedmanesque monetarism don t focus on that having choked off the money supply as an anti inflation device in 1966 so tightly that it produced a serious slump in housing and construction called by some a mini recession the central bank started pouring out money too quickly and too generously in 1967 and thereby spoon fed a new inflation i first read that sentence probably in the late 1970s that was the first and only time i heard of a mini recession or near recession in 1966 67 the only time until i came upon an appraisal of federal fiscal policies 1961 1967 first published in 1968 by raymond j saulnier who mentioned in passing a near recession in 1966 1967 syll s graph is only the third time i ve seen that near recession documented and the graph doesn t actually even mention recession if you go looking you can find leonard silk in 1974 saying the johnson administration got away with only a minirecession not formally classified as a recession in 1966 67 so the information is available if you know what to look for you can find it the forgotten slump appears on graphs all the time it is significant it was the fed s attempt to crush the great inflation in its opening moments still if you don t know about it chances are you ll look at an awful lot of graphs before you notice that the low is always in 1966 67 and never explained if you know about it you can find out more now you know posted by the arthurian at 4 00 am 3 comments tuesday january 23 2018 you wanna count what somebody once explained to me that the growth of debt back then was probably due to the increase of women in the workforce when women were not working they couldn t even get credit when they went to work they could and did borrow could and did accumulate debt thus the increase in debt so more people in the economy working and more people in the family working and still people had to take on more debt i did not find women in the workforce to be a satisfactory explanation of debt growth it should be obvious that if there is debt somebody must have borrowed it you can take the somebody and give it a penis or not if that s your thing but if there is debt i know that somebody must have borrowed it for me the important thing is how much debt is out there and how much it costs the economy not whether the borrower has a penis when keynes wrote his general theory the first of three perplexities which most impeded his progress in writing was the choice of the units of quantity appropriate to the problems of the economic system as a whole let me repeat that the choice of units appropriate to the problem of the economic system as a whole after some preliminary thoughts he said in dealing with the theory of employment i propose therefore to make use of only two fundamental units of quanti...
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