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ment of already excessive debt does more harm than good yet this is what happens in a modern credit money economy because central banks almost always target interest rates the price of holding cash rather than the quantity of money they tend to simply accommodate demands from banks when private banks communicate that they need more reserves for loans and offer government debt to the fed the fed buys it it s the private sector that is in the driver s seat in this respect not the central bank because central banks almost always target interest rates rather than the quantity of money they tend to simply accommodate demands from banks and what happens if central banks stop targeting interest rates and start targeting the quantity of money again what happens then the central banks no longer provide reserves on demand so the private banks cannot make loans first and get the reserves to cover them later so then banks need deposits before they can lend so then it is no longer true that loans create deposits does the mmt argument fall apart in that moment posted by the arthurian at 4 00 am 9 comments thursday may 26 2011 first robin of spring driving home from work i saw a new car carrier half full of little economy cars does it mean the recession is over or is somebody hiring truckers to drive around the countryside to make people think the recession is over posted by the arthurian at 5 16 pm 1 comments the limbo how low can you go this is graph 9 from mine of 22 may it shows gross federal debt it shows how much federal debt there is compared to how much other debt there is in the u s economy debt other than the gross federal debt federal debt used to be the big portion back when the economy was good after world war two for 20 years or more but all the while the federal debt portion was shrinking and the other portion was growing then in the 1970s the federal portion stopped shrinking and started growing about as fast as the rest of debt oddly then or as i think by no coincidence at all the economic growth boom ended we have been in the doldrums ever since except for the late 90s boom when the federal portion again was falling one solution that comes to mind one way to get another growth boom would be to reduce the federal debt as many people wish to do the trouble is the federal debt is already so low on this graph that it barely has room to drop further before the federal debt can fall it has to go up again there are two ways to do that we can have massive increases in the federal debt and deficits as we have had recently but that makes total debt bigger and that in itself is a problem and it won t work anyway unless other debt is falling the other way is to reduce the level of other debt reduce non federal debt we can do this by waiting 20 or 30 years or more while people gradually reduce their debt by hook or by crook or we can do it by an act of policy debt forgiveness or something equally quick and painless we might even benefit from a strategy that increases the federal debt and uses the money not to expand government but just to pay off private sector debt posted by the arthurian at 4 00 am 4 comments wednesday may 25 2011 infinite diversity in infinite combinations krugman writes the eurozone looks like the united states there is no good reason to raise rates to be fair on the labor side things look a bit different there are actual labor shortages in some parts of europe reflecting both low labor mobility and the extreme asymmetry of the european shock but raising rates for all of europe because parts of germany are doing well is as i ve written before worse than the one size fits all policy euroskeptics warned about it s one size fits one mmmm the one size fits one link brings up a graph that shows germany doing far better than spain with respect to employment krugman s point seems to be that we need different policies for different conditions even if those conditions occur at the same time well they could break up the european union as an american i rather like that approach why should anybody else in the world be as big as the u s a but i have a better way to solve the problem below is an excerpt from mine of 23 july 09 what it says is we should stop jacking up interest rates to fight inflation it says we should remember that the money that causes inflation is created by borrowing it says we should fight inflation by un doing the thing that creates inflation by paying off the debt that results from the borrowing that creates the money that causes prices to increase it says the biggest borrowers should pay the highest rate of taxes it says the tax rate should come down if the borrower accelerates repayment of the loan it is a plan to reduce debt by fighting inflation and to fight inflation by reducing debt it is the sort of solution that krugman is looking for but has not found from my old post i m not big on making proposals my interest is to understand the past or rather to understand the process if we understand how the economy works solutions will present themselves however 1 the use of credit adds to the quantity of money in circulation therefore the repayment of debt is a way to fight inflation i would set up tax incentives to encourage people and businesses to pay off their debt a little faster than we have done since the 1970s say accelerated repayment of debt would fight inflation and reduce debt at the same time sweet 2 taking that a step further i would change the income tax i m not talking about the level of taxation but the effect of it when a person or business borrows his her debt to income ratio increases i would make the tax rate vary with the debt to income ratio your tax rate would become variable like the rate of interest and at a comparable percentage as well i imagine you could reduce your taxes by reducing your debt 3 the variable rate of taxation would replace the variable rate of interest in our economy and the federal reserve would therefore be able to keep interest rates permanently low this would be beneficial for economic growth 4 in the long view i foresee that the credit cycle would become a thing of the past indeed everyone would have his own credit cycle but the economy as a whole would see no cyclic pattern thus the major force that drives the business cycle would be eliminated economic growth would be driven by low interest rates and other factors but there would never be an accumulation of debt that leads to recession or depression long view of course posted by the arthurian at 4 00 am 7 comments labels accelerated repayment of debt tuesday may 24 2011 too giamatti to fail too big to fail was on tv last night and it brought this to mind a long while back the wife and i went to see the negotiator in the theater good movie with samuel l jackson and kevin spacey it was the first time i saw paul giamatti in anything there was one big family in the theater that must have been giamatti s relatives every time he was on screen they were all hootin and hollerin laughing and celebrating they had to be relatives anyway since then i could always identify paul giamatti about too big to fail just remember everything they re talking about in the movie has to do with the crisis stage which came some 40 years after our economy started failing it s not like they stepped up and took the bull by the horns or anything they still think of those 40 years as pretty good times put finance people in charge of policy and they cannot see debt as a problem posted by the arthurian at 8 00 am 0 comments the other big debt i don t mean to be neurotic about this but i want to compare my new look at debt to my earlier look the gold line here is the new look based on the fred numbers total nonfederal debt as a multiple of total federal debt like graph 8 from mine of the 22nd tcmdo fygfd fygfd the blue and red lines show what i took to be total private debt as a multiple of total public debt where i messed up was that i counted financial debt entirely as private debt in the gold line i fix that just to add to the confusion some of the difference between the lines here is because for the gold line the government share includes only federal debt not state and local the red and blue include all government federal state and local whatever the lines show the same general trend no longer can i say the economy ran into trouble when the multiple reached 3 and ran into crisis when the multiple reached 5 but that s okay there s still a lot more debt to consider than just the federal debt and it is still true that times were good when the nonfederal debt was relatively low in the 1950s and 60s and that times have been hard since nonfederal was high posted by the arthurian at 4 00 am 0 comments monday may 23 2011 i can t get no satisfaction from yesterday s post that s the number one most popular debt graph at fred today federal government debt total public debt gfdebtn the units are mar jun sep dec end of month which i will call mjsd going forward from mankiw never make up your own acronyms you re kidding right i have mjsd i have dpd debt per dollar i have mrto money relative to output i have eroc excessive reliance on credit i have tot totally off topic i even have caput capacity utilization though i cannot be the first guy to think of that one if you are satisfied with economics as it is today then you have no need for new acronyms but if you have an original thought and you keep coming back to it and every time you do it grows in significance and if you have already reduced the thought to a single phrase that you use often then maybe it is time to adopt an acronym if the world adopts your acronym then your original thought was a good one dunno maybe mankiw is satisfied with economics as it is today posted by the arthurian at 4 00 am 1 comments sunday may 22 2011 a new look at debt it is 1 30 in the morning and i have no post written for 4 00 am but i woke up with a thought graph 1 that s the number one most popular debt graph at fred today federal government debt total public debt gfdebtn 1966 3 31 2010 12 31 the units are mar jun sep dec end of month which i will call mjsd going forward these units are incompatible with quarterly units that affects the combinations of data i can look at the graph goes back to 1966 the year i graduated high school note that the number tops out at 14 trillion graph 2 my graph 2 is number six on fred s list of debt graphs total credit market debt owed tcmdo 1949 q4 to 2010 q4 quarterly data the graph goes back to 1949 the year i was born graph 3 graph 3 shows the first two together tcmdo is given in billions total public debt is given in millions so i divided by 1000 to convert it to billions using the data above i cannot divide the one debt number by the other because the frequency differs the one data set is quarterly and the other is mjsd fred simply reports an error graph 4 this is number four from the fred list of debt graphs gross federal debt fygfd 1939 to 2010 annual the value of the latest observation here is 13528 8 billion as compared to 14025 215 billion for the gfdebtn graph above close but not a match graph 5 that s the two graphs of federal debt combined indistinguishable in my book the red line starts earlier and the blue line finishes later that s about the only difference oh and fygfd is annual numbers q why does the one graph show 14 trillion federal debt and the other show 13 5 trillion a apparently because the 13 5 number is from an earlier date that s what the graph suggests to me you with me so far hayward it s 2 27 am how m i doing graph 6 graph 6 is total debt as a multiple of total federal debt graph 7 graph 7 is like graph 6 but inverted 2 35 am the clock is running graph 8 graph 8 shows non federal debt as a multiple of the federal debt it has been pretty high for a long time this graph is my carefully done version of a comparison between public and private debt the old graphs are not trustworthy so i m doing some new ones graph 9 graph 9 is like graph 8 but inverted federal debt relative to non federal debt starts high but drops quickly then slows but the decline comes to an end with the 1974 recession the federal number is not quite as low as it looks because this graph does not start at zero but the federal debt has been stuck in the neighborhood of 30 of non federal debt since the late 1960s a long time 2 53 am graph 10 this is the graph i woke up wanting to see year to year change in total debt compared to year to year change in the federal debt the big red spike on the left is federal spending during world war ii in the 1950s and 60s the growth of federal debt was substantially lower graph 11 graph 11 is the same as graph 10 but it eliminates the big red spike by starting in 1949 so we get a close up view of what remains in the 1950s and 60s the growth of federal debt was substantially lower than that of non federal debt there is a red spike in 1968 associated with the near recession of 1967 there are red spikes associated with the 1970 recession and the 1974 recession and the 1980 and 1981 recessions that is what pushed federal debt growth upward recessions the federal government was trying to promote economic growth they were trying to do right by us i think things just got away from them i ve been meaning to re do my debt graphs for quite some time gene hayward found an error in my ways back in april i was like a deer in the headlights didn t know what to do first and i ended up doing nothing dumbass but it was getting harder and harder for me to write and i went to bed last night with nothing scheduled to post this morning but i woke up early and i m on the case now gene thanks for keeping an eye on me everybody really thank you art 3 25 am gonna take a nap now posted by the arthurian at 4 00 am 10 comments saturday may 21 2011 if it cost nothing debt would be no problem below is a list of significant moments based on simple dollar tallies everyone else on the planet it seems wants to attribute economic conditions to world events to some war some technological innovation some policy decision some business mentality some foreigners or some defect in character sure most of those event issues are related many of them create disturbances in the force some of them may even be causal but all those things together comprise a scatter brained patchwork tale my story ties everything together with one common theme an economic theme dollar tallies graph 1 1 by 1929 the level of debt was so high that it caused a depression 2 by 1947 the level of debt was low enough to permit vigorous expansion during the expansion debt grew with gusto and as long as accumulated debt remained yet small economic growth was superb that era is today considered a golden age 3 by 1973 the level of debt again reached the high point that had previously led to depression debt was again high enough to hinder growth and the golden age ended but from the 1947 73 experience policymakers un...
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