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t deficits or the economic slowdown came first and increased deficits were the response the latter is what happened of course but it is worth noting that public cfpy changes continue to be large meaning that the 1974 slowdown has not yet abated below zero the next thing i see on the public cfpy graph is that before the 1974 recession all of the changes take place below the zero line most of the changes before 1974 are between zero and 5 below what this means is that all of the public cfpy changes between 1957 and 1973 were decreases in plain language the public share of total debt was decreasing until the 1974 recession the private eye the public cfpy graph shows small changes until the 1974 recession and large changes after on the same graph the entire trend line is below zero until the 1974 recession after that recession the trend line is more or less centered on the zero and crosses the zero easily it is as though there are two different graphs here or at least two different sets of circumstances shown on the graph before 1974 and since graph 1 cfpy private portion of total debt repeated having noticed this 1974 shift on the public cfpy graph the eye expects to see something similar on the private cfpy here there is no clear shift in the size of the changes but it is easy to see that the red trend line of this graph is entirely above zero until the 1974 recession those are the same years that public cfpy was entirely below zero and it is easy to see that since 1974 the red trend line like the black one looks to be centered on the zero summary the big jumps in public cfpy only start in 1975 everything on the public graph is below zero until the 1974 recession and everything on the private graph is above zero until the 1974 recession changes in public debt were small until the 1974 recession but larger since that time until the 74 recession the tendency of public debt was to decrease until that same recession the tendency of private debt was to increase since the economic slowdown of 1974 the end of our so called golden age the tendency of government debt to decrease has dissipated these changes suggest it was the economic slowdown the change noted by perot and others that caused the trends of debt to change these changes also suggest that government debt grows more when the economy is slow than when it is healthy but that since 1974 the growth of public debt has not restored economic vigor increased public debt has not restored economic vigor since 1974 but neither was it an increasing public debt before 1974 that undermined economic vigor in the years before 1974 it was private sector debt that was increasing these observations suggest that the solution to the federal debt problem is to make the economy vigorous again by reducing debt in the private sector posted by the arthurian at 4 27 am 0 comments tuesday november 16 2010 simplified from this page at perotcharts what i think i think the debt issues discussion of the past 30 years was already simplistic and over simplified posted by the arthurian at 4 22 am 14 comments monday november 15 2010 a look at the debt problem pretty much everybody is focused on spending cuts and balancing the federal budget everyone sees the federal debt as a problem but for thirty years or more we have been unable to solve the debt problem to me this suggests that something is wrong with our solution so i thought it time to take another look at the debt the size of it people say the massive government debt is a problem i agree and yet private debt is four times the size of government debt graph 1 shows public and private debt as shares of total u s debt against a background showing recession years graph 1 the portions of total debt the red line that starts high drops in a sharp v during world war ii then rises again and ends high is private debt as a percent of total u s debt private debt is very high government debt is low by comparison the black line that starts low rises to a peak during world war ii then drops off and ends low is government debt as a percent of total u s debt that s federal state and local government debt combined if the debt is too big and there can be no doubt it is too big private debt is by far the biggest part of it if we reduce government debt to zero 80 percent of our debt problem remains numbers for the graph come from different sources older and newer this is why the red and black trend lines both have mis match areas from the mid 50s to 1970 the cost of it if the federal debt was by some magic totally wiped out we might see a 5 3 reduction in our taxes that s all it takes to cover the interest on the federal debt by contrast if corporate interest costs were reduced by half that would free up enough corporate revenue to give every employee a 30 raise debt drives up cost and reduces profit in the private sector and competes with labor for income the numbers graph 2 total debt in billions graph 2 shows the increase in public and private debt since 1974 i say the level of debt has been too high to permit our economy to grow with vigor but look how much the debt increased since 1974 the red line on this graph is private debt the black line is public debt these trend lines show great increase of debt and remember the area under these trend lines represents thousands of billions of dollars of debt and for each of those dollars somebody paid 2 cents or 3 cents or 5 cents or maybe 9 cents interest for the use of that money each and every year it is the cost of debt that kills us the numbers in context graph 3 total debt as a percent of gdp a couple years back there was a flurry of excitement over a graph showing that total u s debt had reached 350 of gdp graph 3 breaks that 350 into its public and private components the previous graph showed great increase in the dollar amount of our debt this one shows that same debt relative to gdp the trend in government debt relative to gdp the black line is essentially flat from 1960 until the paulson crisis and all that time private debt the red line was climbing so if the increase in debt relative to gdp is a problem the fault lies entirely with the private sector the timing of it graph 1 reduced as you can see on graph 1 repeated here government debt rose to a peak during world war ii at the end of the war government debt was at its highest level after the war government debt declined continuously until 1974 by no coincidence between 1947 and 1973 the u s economy experienced a golden age but it was not the decline of government debt that drove economic performance the private sector drove it the economy grew because the private sector grew and the private sector grew because private debt was growing and private debt was able to grow because it was low to begin with after the war graph 4 shows private debt relative to public debt a relative increase in public debt will drive the red line down as it does here during the depression and world war ii a relative increase in private debt will drive the red line up as it does here from 1947 to the 1974 recession roughly equal growth of public and private debt will leave the red line roughly flat as we see for 20 years after the 1974 recession graph 4 private debt as a multiple of public debt during our 1947 1973 golden age private sector debt increased 1974 was when the trouble started by 1974 interest costs took so much out of wages and profits that our golden age came to an end since 1974 by no coincidence the best performing part of our economy has been the financial sector since 1974 the level of debt has been too high and the cost of debt too great to permit the productive sector to grow with vigor graph 4 also highlights a difference between arthurian economics and modern monetary theory mmt wants to increase the denominator i want to decrease the numerator the mmt way increasing the federal deficit is exactly what we have been doing since reagan that is why the federal debt is so large it s why people are up in arms about the federal debt moreover even in a weak economy the method fails because no matter how fast government debt increases private debt increases as fast or faster the thing we need is some measure of balance between public and private debt we don t need public debt to increase in dollars but we do need it to increase relative to private debt not forever but only until balance is achieved and since it is private debt that shows inordinate increase since the 1970s see graph 3 the appropriate solution is to reduce private debt recently our economy took that task upon itself economists call it deleveraging a better solution to the problem would be to apply forethought to the task late as it may now be the solution is to use policy to reduce private sector debt in the least painful and most productive way we can the best solution is to achieve balance painlessly and how will we know when the task is done we will know balance has been achieved because economic performance will be at its peak summary in the years after world war ii there was no significant interruption of increase in private debt relative to gdp until our recent financial crisis by contrast since world war ii government debt relative to gdp fell and then stabilized at a comparatively low level private debt is now four times the size and the cost of it much greater than the size and cost of our public debt economic growth depends on the growth of private debt but the accumulation of private debt ultimately hinders growth as it has for us since 1974 once that limit is reached the further increase in private debt cannot significantly improve growth meanwhile the increase in public debt leads only to popular discontent the solution the arthurian solution is to have the federal reserve take all that bad debt it bought up and use newly printed money to pay that debt off the fed gets this money back immediately so it cannot cause inflation but private debt is reduced by a significant margin and no new taxes and no government spending are involved posted by the arthurian at 4 09 am 2 comments labels mmt jealousy bars as someone who loves graphs i ve long been jealous of the recession bars that show up on the fred graphs and some others so finally it occurred to me to google it i type recession b and google offers recession bars excel which is perfect first thing that comes up is a 4 page pdf from the st louis fed almost all pictures very few words that shows the whole thing in four steps i didn t count em and it worked i was using excel 2003 fyi only trouble i had was in the last step see how they ve emphasized the overlap item here on the form but if you look again you can see they left the cursor in the gap width item below overlap gap width is the one you have to set to zero or you ll get 5 skinny recession bars for 1929 1933 rather than one fat one as someone who is inexplicably fussy about petty little things i have to point this out recessions start and end dates are given as month and year so if your data is monthly you re good if your data is weekly or daily for that matter you re okay but if your data is annual you have to be subjective for example for the recession that starts in july of 1981 you have to choose whether to show it for all of 1981 or none of 1981 your recession bars in this case will show the year of recession which is useful but your bars won t show whether the recession starts early or late in the year so it s not perfect i m calling these imperfect recession bars jealousy bars because perfect or no i just have to hav em oh the second thing that comes up in that google search answers the question what dates are used for the us recession bars in fred graphs that s where you can get the recession dates for step one of the pdf i had in mind to subtitle this post your tax dollars at work because that very nice pdf comes from the federal reserve st louis but that s not right the right subtitle might be your interest payments at work that s okay i really like the st louis fed posted by the arthurian at 4 06 am 0 comments sunday november 14 2010 budget deficit charts at the perot site at the first of the budget deficit charts the opening sentence reads the federal budget challenges faced by the citizens of the united states of america start and end with spending dunno about that but the budget deficit section definitely starts with a conclusion we ve been trying to cut spending and balance the budget for 30 years and more with no significant success the more we fail the angrier we get the angrier we get the more adamant we get the more adamant we get the less we are able to think things through nobody ever stops to say well maybe we are approaching the problem the wrong way posted by the arthurian at 7 44 am 3 comments let us begin the sunday morning talk show drivel wants to put everything on the table that s the plan maybe they don t know what spending to cut or maybe they just don t want to say what they think but they all want everything on the table no nothing goes on the table nothing but elbows and coffee cups they all come on tv and the first thing out of their mouth is a conclusion we have to balance the budget but we have been trying for 40 years and in 40 years we balanced the budget four times we cannot balance the budget we cannot solve the problem with spending cuts since lbj and nixon our presidents have been trying to contain costs and balance budgets not even reagan could do it the solution does not begin with conclusions it begins with analysis of the problem posted by the arthurian at 4 19 am 0 comments eliminate the mortgage interest deduction wait wait don t do it in the 1960s when the reliance on credit is still relatively low save it up now now is the time to do it now when we have so much debt that the economy can no longer function now is the perfect time to eliminate the interest deduction yeah right politicians give new meaning to the word fool posted by the arthurian at 12 57 am 1 comments saturday november 13 2010 debt and patriotism the u s dollar is not backed by gold it is backed by federal debt and this is okay because you are a patriot and you love your country it is okay also because the quantity of money needs to grow along with output and population and along with prices too for that matter and there is not much chance of gold production fitting that requirement very well but when you think about it it s kinda funny given that our money is backed by government debt if we reduce the federal debt to zero we can have no money at all posted by the arthurian at 4 43 am 0 comments friday november 12 2010 the men of good will the balance sheet of the federal reserve greatly expanded as a result of its response to the recent financial crisis i don t know why anyone would care either way about it but some people have expressed concern about that balance sheet being reduced back to something close to what it was at some point maybe it can be done this w...
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