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bers i came up with next i went back to fred and plugged in the numbers for the christensen fit here is the result graph 2 the christensen fitted version of graph 1 this graph looks very much like graph 1 above the difference is that now both datasets use the left axis the payems numbers have been scaled and shifted to match the cmdebt numbers hm fred must use a calculation very much like this to scale and shift the right axis numbers when two axes are used on a graph okay now that i have the employment numbers fitted to the debt numbers i can subtract the one set from the other and see the difference graph 3 fitted employment growth date less debt growth rate now it s getting interesting uptrend to about 1966 downtrend to about 1980 uptrend next but not as rapid as before or maybe it s a low plateau in the 1980s and a higher plateau in the 1990s and then a big drop but the big drop occurs about a decade before the crisis now that s interesting i subtracted the debt growth rate from the employment growth rate so where the line is below zero debt growth is the bigger number again where the line is below zero the debt growth rate was faster than the employment growth rate well i have to be careful here the debt growth rate is always faster than the employment growth rate if i go back to the first graph and put everything on the left axis it looks like this graph 4 not fitted and on the same axis debt growth red is way faster the debt growth rate is always a lot faster than the employment growth rate except there at the end after the crisis well yeah that s why i fitted the one series to the other so we could compare them but i have to be careful how i talk about it so let me try again on graph 3 i subtracted the debt growth rate from the fitted employment growth rate so where the line is below zero debt growth is the bigger number that is where the line is below zero the debt growth rate was faster than the fitted employment growth rate where graph 3 is below zero the debt growth rate is relatively faster than the employment growth rate where graph 3 is above zero the employment growth rate is relatively faster than the debt growth rate where graph 3 shows a trend of increase before 1967 the trend favors employment where it shows a trend of decrease 1967 1980 the trend favors debt growth i downloaded the fitted data from fred put it into excel and added a hodrick prescott trend line to it graph 5 same as graph 3 blue with a hodrick prescott trend red i m repeating this graph in tomorrow s post if you have any comments on my lambda value save them up for that post the trend favors employment till about 1967 then debt till 1980 employment till the mid 1990s then debt again since maybe 2003 the trend favors employment till about 1967 that s interesting i think i have it in my notes that scott sumner identifies the years 1952 1964 as a big debt surge but despite surging debt employment grew more can that be right graph 6 no of course not debt always increases faster than the number of jobs but look at it this way from 1952 to the mid 1960s employment was winning in a race of go karts at the same time debt was losing in a race among dragsters then from the mid 1960s to 1980 employment was losing among go karts and debt was winning among dragsters that s what graph 3 and graph 5 show the sumner debt surge of 1952 1964 notwithstanding now look at it this way the employment growth of 1952 1966 was faster compared to employment growth of the whole 1952 2013 period than the debt growth of 1952 1966 compared to debt growth of the whole period debt growth in the early years was only moderate as debt growth goes while employment growth in those same years was very good for employment growth yeah that s it posted by the arthurian at 4 00 am 4 comments monday march 17 2014 i steve keen from closing the door on the gfc by steve keen at business spectator central banks hope they can fine tune the economy using the interest rate alone and with us unemployment levels now within cooee of the level at which ben bernanke said monetary policy could return to normal the federal reserve may start to increase rates in late 2014 this belief that getting the interest rate right is all that it takes to keep the economy out of recession is the product of economic models not of economic experience when you look at the data there isn t much of a relationship between the interest rate and recessions but in fact there is a much clearer relationship when you include one factor that these models ignore the level of private debt look not at interest rates alone but interest payments as a percentage of gdp you may have heard similar things from me oh yeah one more thing i thought it was a typo posted by the arthurian at 8 14 pm 1 comments the new fred the pink error message appears to be something left over from the old fred only it s missing a number it should read like this each data series can only combine up to 10 individual series my data series 1 has two individual series only one of which appears on the graph contrary to the a b calculation i entered in a field you can t see in the image i got the error when i created data series 2 with only one individual series i miss the old fred already posted by the arthurian at 12 00 pm 0 comments i tweaked troy s graph troy linked to this graph in a comment on jazzbumpa s equity extraction and personal consumption expenditures graph 1 blue is yoy job gains troy says and red is yoy consumer credit growth troy wants us to see the part where the two lines are similar since about 2002 when employment was pushed up and dragged down by changes in credit use i see it but what catches my eye is the time before 2002 when job growth was high and debt growth was low the macroeconomic miracle years i tweaked troy s graph to look at more years and to look at percent change i got two lines that run pretty close together except in the 1960s and the 1990s graph 2 percent change from year ago employment blue and consumer debt red in the 1990s the blue runs well above the red for near a decade in the 1960s the same thing happens two particularly good decades the sixties and the nineties and troy s graph shows it good graph troy posted by the arthurian at 4 00 am 2 comments sunday march 16 2014 we owe it to ourselves again steve keen i couldn t con vince sev eral of the aca d e mics in the audi ence of the impor tance of pri vate debt they kept com ing back to one person s debt is another person s asset there fore the level of debt doesn t mat ter yeah and i just ran across this again from paul krugman of all people so a few more thoughts on debt and what it does and doesn t signify start with the numbers that stockman loves to cite showing the ratio of total debt public and private to gdp stockman and to be fair quite a few people would have us see this as evidence that we have been on a vast spending spree ok the sheer size of that number should tell you immediately that this can t be right yes we have run trade deficits and moved from being a net creditor to being a net debtor but it s not that big a deal and we still earn more on our foreign assets than we pay on our foreign liabilities so the surge in debt reflects a surge in money americans owe to other americans krugman the surge in debt reflects a surge in money americans owe to other americans there it is again what steve keen said one person s debt is another person s asset we owe it to ourselves okay i went back and finished reading krugman s post he says this is how you want to think about debt it s not a burden on the nation s resources because it s mainly money we owe to ourselves and it s a problem not because we have to tighten our belt but because debt is currently leading to spending that s less than we need to maintain full employment the last part of that is good so good that i can almost overlook the we owe it to ourselves part but if it is true that debt is currently leading to spending that s less than we need to maintain full employment the growth of debt is the reason krugman acknowledges that debt has grown but seems to miss the point that it was the growth of debt that gradually undermined the spending we need to maintain full employment he gets the ending there was a moment all of a sudden when unemployment shot up and an output gap opened and he can see that the high level of debt was the cause of it but debt didn t suddenly jump to a high level and cause the sudden opening of an output gap debt was creeping up for a long time having a harmful effect on growth for a long time until a final straw broke the camel s back and created the output gap debt was excessive meaning debt was hurting the economy for a long time a long time graph 2 stages of the slowdown in real growth krugman doesn t seem to see it he says debt is currently causing problems but there is so much more to the story oh and the other thing debt it s not a burden on the nation s resources because it s mainly money we owe to ourselves i don t know what the hell that means a burden on the nation s resources resources debt is a burden on the people who owe it even though we owe it to ourselves or to each other or the many of us owe it to the few of us whatever no matter who we owe it to the money we pay for our debts is money that goes to finance rather than to labor or to productive nonfinancial business the money we pay for our debts adds to cost without adding to output oh yeah we may use that money to produce stuff or to buy stuff but we could as easily have used our income for those purposes instead of borrowed money as easily or more easily if policy encouraged it but policy does not policy encourages saving why i do not know maybe so banks have money to lend but hasn t that logic been shot down so policy encourages saving for no reason no economic reason policy encourages saving because people like the idea maybe it s not a policy that actually helps people save but nobody seems to get that eh regardless policy encourages saving when money goes into saving money goes out of circulation funny thing is it s money in circulation that we receive in our paychecks the money in circulation is money that becomes income savings can t be income because savings is not in the spending stream only circulating money flows a policy that encourages saving is a policy that makes less money available for use as income such a policy has multiple effects it helps to limit increases of income so you could say it is a way to fight inflation or you could say it prevents incomes from keeping up with the cost of living probably both those things are true the encouragement of saving also helps credit use grow do banks lend out savings regardless encouragement of saving shifts money out of circulation creating a shortage of money in circulation that is a problem people solve by borrowing more so the encouragement of saving encourages borrowing and encourages the growth of accumulated debt so here ya go policy encourages saving which creates a shortage of circulating money so we increase our borrowing and our debt again less circulating money and more debt graph 3 less circulating money and more debt push the debt per dollar ratio up from five dollars of debt for every circulating dollar to more than 15 by 1990 to more than 35 by the time of the crisis the cost of a loan depends on the interest rate you can get but for the economy as a whole the cost of finance depends on two things interest rates and the level of debt accumulation the level of debt matters because it affects the macroeconomic cost of debt posted by the arthurian at 4 00 am 7 comments saturday march 15 2014 type stuff in the yellow cells i want to look at accumulated debt as a percent of gdp in 1955 and in 1980 and in 2005 i want to use ceteris paribus and assume the rate of interest is constant we know interest rates are not constant in the real world but we need to focus on something else at the moment we need to focus on the accumulation of debt and the effect of varying interest rates is something we can look at later given a load of debt at say a 5 rate of interest the cost of that debt varies with the level of debt relative to gdp according to one reliable source debt was 132 percent of gdp in 1955 159 percent of gdp in 1980 and 311 percent of gdp in 2005 plug those numbers into cell d2 of the spreadsheet and note the changes in the cost of debt as a percent of gdp assuming a constant 5 interest rate total interest cost in 1955 amounts to 6 6 of gdp in 1980 to 7 95 of gdp and in 2005 to 15 55 of gdp we assume no change in the interest rate so the increasing cost of debt shown here is due entirely to the increasing accumulation of debt posted by the arthurian at 4 00 am 3 comments friday march 14 2014 blowin in the wind in a recent look at trends of total factor productivity at twenty cent paradigms bill c linked to two nber papers by robert gordon one paper and an update nber provides access to abstracts of those papers for free so that s what i m looking at the first paper is is u s economic growth over faltering innovation confronts the six headwinds the phrase six headwinds catches my eye it promises a summary view of problems that in robert j gordon s view at least interfere with economic growth even if innovation were to continue into the future at the rate of the two decades before 2007 the u s faces six headwinds that are in the process of dragging long term growth to half or less of the 1 9 percent annual rate experienced between 1860 and 2007 these include demography education inequality globalization energy environment and the overhang of consumer and government debt and the overhang of consumer and government debt last but not least but you know what robert gordon expresses concern only with consumer debt and government debt he doesn t express concern with the debt of farm business or nonfarm noncorporate business or nonfinancial corporate business nor does he express concern over the many components of domestic financial debt yes concern with any debt other than the tiresome focus on only government debt is something to be thrilled about but still graph 1 consumer and government debt as a percent of total debt the debt that concerns robert gordon is less than half of credit market debt and until the crisis was a decreasing portion of it yeah so what does mr gordon say in the update the primary cause of this growth slowdown is a set of four headwinds all of them widely recognized and uncontroversial demographic shifts will reduce hours worked per capita due not just to the retirement of the baby boom generation but also as a result of an exit from the labor force both of youth and prime age adults educational attainment a central driver of growth over the past century stagnates at a plateau as the u s sinks lower in the world league tables of high school and college completion rates inequality continues to increase res...
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