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s if increased public spending and debt works if it restores the health of our economy then private debt will grow faster again in a growing economy we use lots of credit private debt will grow faster than federal debt monetary imbalance will grow worse again and the problem will not have been solved to solve the problem we have to prevent the future expansion of private debt we can do that easily by setting up incentives that accelerate the repayment of private debt and by using those incentives as a way to fight inflation instead of always and everywhere relying on the mind numbingly stupid policy of raising interest rates but that is a problem for the future that is a problem for a time after our economy has been restored to health meanwhile the quickest way to restore our economy is to set up those incentives today to reduce private debt today to reduce financial cost today to encourage the growth of the non financial economy today think of it as a deliberate government policy yes certainly policy must provide more money so the economy can function that s where federal spending comes in but maybe and this is something to think about maybe there is enough federal debt already if we reduce the growth of private debt we must reduce private debt because it creates a financial cost that undermines profit income and aggregate demand we must provide an alternative money one that does not carry such cost let the federal government spend if need be and see to it that the federal reserve buys up enough federal debt to push up the amount of low cost money in our economy to bring down the ratio of costly money or credit in use or debt relative to money that does not cost interest and need not be repaid this is the key ratio high cost money relative to low cost money it determines whether times are good or hard it determines the state of economic health and vigor it determines whether we survive as a nation and as a civilization posted by the arthurian at 4 00 am 5 comments thursday january 15 2015 a prediction the first of the great powers to reduce private debt will be the world s next hegemon posted by the arthurian at 4 00 am 24 comments wednesday january 14 2015 yes and you find the same problem in private debt oilfield trash alerts us to steve keen s outlook 2015 pdf 20 pages lots of graphs from the pdf figure 1 private debt bubbles everywhere want evidence that debt is the problem note that private debt in japan peaks 20 years before private debt in europe china australia and the united states look a lot of people say no debt s not the problem the problem is inequality here s the thing we have to stop saying no i want you to stop saying no debt s not the problem i want you to start saying yes and you find the same problem in inequality it s the same problem inequality is how it shows up among people debt is how it shows up in economic data it s not two different problems we don t need to fight about that if you want to think of inequality as the problem and think of debt as evidence of the inequality problem that s fine with me but we have to stop saying no we have to start agreeing with each other otherwise the people who disagree with both of us will win the day posted by the arthurian at 4 00 am 3 comments tuesday january 13 2015 nutting could be finer rex nutting the income of the top 0 01 of earners the top 1 in 10 000 has increased at a 6 annual rate since 1979 compared with a 1 increase for the bottom 90 the top 0 01 of earners are overwhelmingly corporate managers top executives in finance corporate lawyers and investors this group makes an average of about 16 million a year or about 300 000 per week this imbalance between the ultra rich and everyone else would be fine if it were fair if winners were really rewarded for excellence and losers really lost but that s not the way business works ceo pay isn t based on excellence but on rent seeking behavior that increases their pay far above what is economically justified no more specifically this imbalance between the ultra rich and everyone else would be fine if it were fair if winners were really rewarded for excellence and losers really lost no the economy is a game of wealth accumulation one of the forms of wealth that we accumulate is money money is a unique form of wealth because it is the one used in exchange for other forms of wealth when you receive your paycheck for example and when you spend it money is the one form of wealth that facilitates the accumulation of all forms of wealth so when money s been all accumulated the economy can no longer function even if wealth accumulation was fair the economy couldn t function even if things were perfectly equal if we all had accumulated equal amounts of everything and had equal wants remaining ridiculous as the notion is the economy could not function money needs to circulate to facilitate transaction when too much of the transaction medium has been accumulated saved and withdrawn from circulation the economy cannot function in that ridiculously equal world we would all be sitting on our wealth at zero percent bemoaning the economic decline the kind of wealth and income imbalance rex nutting is talking about is not fine it puts the economy in failure mode it makes things go bad it makes capitalism evolve to some other more authoritarian form it s not fine at all posted by the arthurian at 4 00 am 2 comments monday january 12 2015 a word from john kenneth galbraith from a short history of financial euphoria the world of finance hails the invention of the wheel over and over again often in a slightly more unstable version all financial innovation involves in one form or another the creation of debt secured in greater or lesser adequacy by real assets this was true in one of the earliest seeming marvels when banks discovered that they could print bank notes and issue them to borrowers in a volume in excess of the hard money deposits in the banks strong rooms the depositors could be counted upon it was believed or hoped not to come all at once for their money there was no seeming limit to the debt that could thus be leveraged on a given volume of hard cash a wonderful thing the limit became apparent however when some alarming news perhaps of the extent of the leverage itself caused too many of the original depositors to want their money at the same time all subsequent financial innovation has involved similar debt creation leveraged against more limited assets with only modifications in the earlier design all crises have involved debt that in one fashion or another has become dangerously out of scale in relation to the underlying means of payment posted by the arthurian at 4 00 am 0 comments sunday january 11 2015 financial business debt the graph shows financial business credit market instruments liability level billions of dollars annual not seasonally adjusted or tcmdodfs at fred the trend line is exponential by excel based on the years 1950 1975 just like the past two days graphs the graph shows financial business debt hugging the early trend not for 25 years but for a full 50 only around 2002 does the debt fall away from trend slowly at first massively after the crisis posted by the arthurian at 4 00 am 7 comments saturday january 10 2015 business debt graph 1 the graph shows nonfinancial business debt and an exponential curve based on the early years the blue line is the sum of two fred series nonfinancial corporate business ncbtcmdodns and nonfinancial noncorporate business nnbtcmdodns both annual both in billions etc etc etc the exponential curve is an excel trendline based on the years 1950 1975 just like the household debt graph from yesterday graph 1 shows business debt growing faster than trend in the latter 1970s and 80s then slowing until about 2000 then slowing further you could say the 1978 2000 path is an s curve where business debt still followed trend and business debt has been falling below trend since 2000 or you could say business debt growth has been declining since 1990 you d be right either way if you are patient and attentive you will have noticed that this is the third in a series of posts comparing debt to trend sector by sector me my mind wanders i look for entertainment that takes us this time a little off topic think of it as background graph 2 the blue line on graph 2 is the same as on graph 1 the sum of two fred series red is corporate green is noncorporate both are nonfinancial tomorrow we look at financial debt nonfinancial corporate red is higher than nonfinancial noncorporate green but both lines vary and both trend upward so it is hard to see how they compare so we turn to graph 3 graph 3 graph 3 shows how much nonfinancial corporate business debt there was for each dollar of nonfinancial noncorporate business debt since 1950 it falls from three dollars to a dollar and a half then rises to two and a half then falls to a dollar and a half again and appears now to be on the rise again it s easy to want to think of graph 3 as showing the relative size of corporate and noncorporate business probably not a good idea there are better measures of business size this just compares debt size posted by the arthurian at 4 00 am 3 comments friday january 9 2015 household debt the graph shows debt of households and nonprofit organizations hstcmdodns at fred annual data 1950 2013 in blue the graph also shows the exponential trend of this debt for the early years 1950 1975 the graph shows that the growth of household debt remained close to its 1950 1975 trend until the crisis in other words household debt grew at pretty much the same rate before 1975 and after by way of contrast the gross federal debt grew much faster after 1975 than before based on the graph we saw in the previous post government debt grew slowly until the mid 1970s when the rapid growth of private debt caused a slowdown of economic growth and something had to be done it s fun to say the growth of government debt is the problem fun but it s not right civilizations die from suicide posted by the arthurian at 4 00 am 0 comments thursday january 8 2015 gross federal debt graph 1 gross federal debt blue and the golden age trend red the red line is an exponential curve based on the federal debt of the golden age think of it as showing what the federal debt would have been if we didn t grow the federal debt since the 1970s in an effort to restore economic vigor people today say the growing federal debt is a problem it is important to remember that in the 1970s and 80s the growing federal debt was a solution federal debt growth failed as a solution because it didn t grow faster than private debt that didn t happen because of all the safety net stuff that postponed the crisis since the 1970s because we prevented economic collapse back then we didn t get a private debt collapse back then and private debt just kept getting bigger so private debt kept getting bigger and since the 1970s when it became a problem the federal debt has been getting bigger in an effort to solve the problem so now both the private and the federal debts are massively big and apparently there are two kinds of people in the world those who complain about the size of the federal debt and those who do not complain about the size of private debt there cannot be a good ending when all debt is massively big but the only remaining option and the only one we have not tried is to reduce private debt policymakers refused to do that and debtors could not because policy undermined their efforts so at last the economy took up the challenge and gave us an economic crisis and for a few years private debt fell but this is not a thing we can leave to chance we must learn that keeping private debt to a low level is a good thing and policymakers must learn it also and policymakers must act posted by the arthurian at 4 00 am 0 comments wednesday january 7 2015 failures and tcmdo growth failures and tcmdo growth are not unrelated i took failures from earlier today put it in context i e divided by inflation adjusted gdp showed it in blue and put the annual percent change in tcmdo debt on the same graph the debt number is scaled down to make the two high points roughly equal there is definitely a relation between failures and the decline of debt so there is definitely a relation between debt growth and economic growth i just think we need to be careful and cautious when we attempt to describe that relation looking again at the above graph it is interesting that the high peak in the blue line seems to occur at the same moment as a secondary drop in the debt trend after 1970 the red line shows three substantial peaks and three bottoms that seem to sustain the general upward trend of debt growth the last of those three bottoms comes just before 1990 and just after the red and blue lines cross the red line briefly jogs upward again but that is the moment that the blue line peaks and concurrent with the fall from that great blue height the red line drops making a substantial departure from its general upward trend i think that s interesting i wonder what policy was doing just then and i wonder in particular whether monetary tweaks had anything to do with it i wonder in particular whether monetary tweaks had anything to do with it before you object to that thought please recall that debt is a monetary phenomenon and that a fiscal policy of deficit spending is very much a monetary tweak posted by the arthurian at 4 00 pm 0 comments failures posted by the arthurian at 4 00 am 0 comments tuesday january 6 2015 u k prices since 1209 measuringworth posted by the arthurian at 4 00 am 1 comments monday january 5 2015 reductions in the growth of private debt have been associated with every recession for the last 50 years it is one thing to say as auburn parks says that every recession for the last 50 years has been associated with reduction in the growth of private debt but that is not the same as saying every reduction in the growth of private debt creates a recession which is what auburn seems to want to say i can accept implicitly that when there is a recession the use of credit will fall but i do not accept the assumption that whenever the use of credit falls recession is certain and even if it is true that there was a recession every time credit use fell in the last 50 years it does not mean the economy has to work that way all it means is that policy has set things up to work that way and if it is true that policy set things up to work that way then the real problem is the thinking that underlies policy the real problem is the flawed assumptions that underlie policy to summarize the thought reduction in the growth of private debt need not be associated with recession you want to keep that in mind when you think about the design of policy posted by the arthurian at 4 00 am 3 comments sunday january 4 2015 it also explains why the fiscal multiplier is low in comments here on the 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