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on by the way you know i don t like those stories not when it comes to politics and the economy these things affect people s lives we need something better than just good stories we need the stories to be right you got this from me i got it from tom hickey tom got it from mark buchanan a picture makes it clear buchanan says the recession is over he presents a graph showing that the level of private debt an indicator of how much businesses and individuals are borrowing is now going up again after a long decrease during the recent crisis it s a little funny buchanan thinks the level of private debt is an indicator of how much businesses and individuals are borrowing i think the level of private debt is a measure of how much we have borrowed in total and not repaid it s the changes in that level that show whether people are borrowing it s like present tense versus past tense anyway buchanan got it from steve keen figure 1 deleveraging is over for the time being referring to that graph keen writes the period of private sector deleveraging that caused the crisis appears to be over debt is now not merely growing but growing faster than gdp looks right to me keen s post is dated 10 march 2014 in a post dated 9 july 2013 nick rowe wrote if you look at business cycles this way as a trade cycle in which the volume of trade rises in booms and falls in recessions it is totally unsurprising that the volume of borrowing and lending should also rise in booms and fall in recessions what would be surprising and in need of explanation would be if trade in ious did not follow the same cyclical pattern as trade in other goods neil irwin tells me that trade in ious is increasing in the us ht mark thoma he s right that it s good news nick rowe got it from marc thoma marc thoma got it from neil irwin okay let s put a date on the taper from the financial times lexicon taper talk started in june 2013 when speculation increased that the fed would start on a tapered end to qe in 2014 the increase in bond yields had already inflicted heavy losses on bond investors so june a month before rowe and thoma and irwin i think i know where irwin got it irwin got it from the fed but where d the fed get it hmmm posted by the arthurian at 4 00 am 0 comments thursday march 20 2014 they updated potential gdp last month real potential gross domestic product gdppot is now given in 2009 dollars before the february 4 2014 revision it was given in 2005 dollars a lot of other series including real gross domestic product gdpc1 changed to 2009 dollars back in july of last year potential gdp has finally caught up so now real gdp and potential gdp are directly comparable at fred again graph 1 real blue and potential red gdp in 2009 dollars here s how the two series looked using the older data expressed in 2005 dollars graph 2 real blue and potential red gdp in 2005 dollars not a lot of difference the output gap there after 2008 closes a little more with the newer data but not as much as i expected in a previous post why the comprehensive revision that changed real gdp after the 2013 06 26 release didn t only change the base year from 2005 to 2009 it also increased the output numbers it made real gdp bigger than it was before nice trick huh so then potential gdp also had to be revised upward to match the change in real gdp i didn t account for this change in potential gdp so the output gap doesn t close as much as i said it would in that earlier post in order to compare the two versions of the output gap i subtracted real gdp from potential gdp using the 2005 dollar data and again using the 2009 dollar data and put the results together on a new graph over the full period the two difference lines run quite close together as you might expect so i zoomed in on a detail just the years since 2007 graph 3 the output gap using old blue and new red data the main thing you can see on this graph is that since 2009 the output gap gets smaller faster for the new red data than for the older blue numbers that is what you have to expect given cbo policy that reduces any output gap to zero in ten years cbo a summary of alternative methods for estimating potential gdp pdf the surprising thing you can see on the graph is that since 2007 or before the new numbers show a bigger output gap than the old numbers not a lot bigger but bigger that s surprising because jim bullard s argument was that potential output was over estimated in the 2000s bullard s argument was that potential output was lower than people thought that gdp was above potential and that the shocking fall in real gdp was really just a correction now it seems they get to have it both ways the output gap was bigger than people thought but it s closing faster anyway posted by the arthurian at 4 00 am 1 comments wednesday march 19 2014 ƛ yesterday i took the growth rate of employment scaled it to the same amplitude as the growth rate of household debt and centered the one line on the other this process stripped away differences between the two lines other than differences of pattern that permitted me to compare the patterns of the two datasets so then i subtracted the one from the other to see the difference the blue line on the graph below shows the difference value the red line is a hodrick prescott trend line graph 1 fitted employment growth date less debt growth rate blue and a hodrick prescott trend red you might have expected to see something like this graph 2 the same data but the hp calc uses a different value for lambda almost the same the blue line is the same the red line is a little bit more wiggly the big difference is in the legend where the lambda value has changed from ten thousand to sixteen hundred the lambda is a constant used in the hp calculation i don t know why they call it lambda but it seems to be pretty important it seems to be always reported in the notes that accompany graphs that show hp trend lines as i noted almost a year ago now there is apparently a rule of thumb for picking a lambda value it depends on the frequency of the data for yearly values a low number 100 for quarterly data higher 1600 for monthly data higher yet 14400 i already know from looking at the two graphs above that the lambda value determines how much smoothing you get in the graph a higher number gives more smoothing so i thought i d look at a variety of lambda values all applied to the same data the source data here is quarterly which means the rule of thumb lambda constant would be 1600 here s what happened when i changed the constant graph 3 lambda 100 graph 4 lambda 1000 graph 5 lambda 10 000 graph 6 lambda 100 000 i used to think i should stick to the rule of thumb values as a rule now i think those values are just a starting point if i really want to see the trend i can increase the lambda until the little wiggles go away and yeah if you re going to be using non standard lambda values then that s a good reason to always report it in the notes that accompany the graph preview or download the excel file from google drive note that the file contains my visual basic macros for formatting my graphs and kurt annen s visual basic for the hodrick prescott calculation also above the graph it says 1600 lambda change that number from 1600 to some other value and you change the graph update 30 march 2014 for my intro to the hodrick prescott calculation a link to an excel add in a how to use link and a link to some tips see de trending posted by the arthurian at 4 00 am 0 comments tuesday march 18 2014 i can picture what i want to do now i have to find the words here s the second graph from 4am yesterday troy s graph tweaked graph 1 percent change from year ago employment blue and consumer debt red i said it shows two lines that run pretty close together except in the 1960s and the 1990s so i started thinking about subtracting the one line from the other to look at where the differences arise you never know if something like that will turn out to be interesting that s what makes it so interesting yeah two lines close together except they re on two different axles two different axes the lines are pretty close together but the numbers themselves are not where the blue line is zero the red line is seven where the blue line is 10 the red line would be 23 the numbers are not usefully close but the patterns are teasingly similar and yet intriguingly different during the 1960s and 1990s the two decades of above average economic performance intriguing then i remembered a technique i learned from lars christensen it goes something like this subtract from series a the average value of series a and then divide by the standard deviation for series a and then multiply by the standard deviation for series b and then add the average value of series b at that point no further adjustment should be needed for comparing a and b that set of calculations i call christensen fitting the data i don t know if it s a standard technique and if so what the name of that technique is or if lars christensen invented it but i like it so i downloaded the data from fred and set to work i went right back to fred then changed the monthly payems series to quarterly so it matched the debt series and downloaded the data again the cmdebt data was intermittent before 1952q4 so i deleted the data for both series before that date then all i had to do was find a spreadsheet with the calcs christensen used and duplicate the calcs he used the stdevpa and average functions so i did the same here are the numbers 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 ...
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