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urned out stronger than i expected i m still by no means convinced that the red line shows a trend that exists but now it doesn t seem such a crazy thought suppose that trend does exist i m looking at the right end of the graph the debt ratio is just below the red line just below and going down but going down slowly now ready to start rising soon suppose it does start rising soon i want to look at the future in terms of that red line yeah the one that i doubt but what if it does exist okay let s imagine a future i re created graph 2 in excel then i took debt to gdp and put a curved trendline on it a second order polynomial to extend the blue line out to 2020 but in black as you can see by 2018 debt to gdp goes above the red line just as it did a few years before the crisis in other words if present trends continue we are already on our way to another financial crisis graph 3 household debt as a percent of gdp blue the 1987 1999 trend red and the 2011 2015 household debt to gdp trend extended to 2020 black is there an alternative of course there is we must choose the red trend not the black choose the one alan greenspan called the new economy the one robert j gordon called a macroeconomic miracle the one maynard keynes called a quasi boom choose policies that give us the red trend not the black you remember the 1990s the economy was pretty good choose the red trend not the black the excel file with graph 3 not sure if google drive handles the graph properly posted by the arthurian at 4 00 am 0 comments saturday march 19 2016 a pictorial history private and public debt the graph shows the size of private debt as a multiple of public debt for the years 1917 to 2014 this graph shows the level of private debt relative to the level of public debt or you could call it non federal debt relative to federal debt the older blue data are from the bicentennial edition of the historical statistics the newer red data are from fred all these images use the same graph with different highlighting the ratio of private to public debt fell during world war one after the war the roaring twenties the great depression and world war two after world war two a golden age beginning around 1974 two decades of sluggishness ensued beginning around 1994 a goldilocks economy good years since 2000 slowing growth crisis and aftermath a new goldilocks economy posted by the arthurian at 4 00 am 6 comments friday march 18 2016 something interesting this way comes suppose we take this graph of the short term interest rate and the calculation that makes a pretty good simulation of it for eighty years or more graph 1 the interest rate blue and the result of calculation red suppose we take that graph and get rid of the interesting part we re left with a picture of the quantity of base money relative to ngdp it reaches a low point in 1981 graph 2 base money relative to ngdp there is an interesting increase in the recent years i want to get rid of that oh but you know the line reaches a local maximum in 2003 and then goes down till 2007 that downsloping dingus may or may not have caused the crisis and led to the big increase of the recent years that s interesting huh let s get rid of the dingus too that leaves us with a line that ends in 2003 that s 22 years after the 1981 low now i want to go back 22 years before the low back to 1959 and i want to cut off all the interesting stuff that happened before then this gives me a graph of base to ngdp for the period from 1959 to 2003 with a low point right in the middle graph 3 base money relative to ngdp 1959 2003 nothing interesting here i changed the line color to blue to liven things up i m wondering what the activity was that caused the change in the blue line first running downhill then up thought i d take a look at the growth rates of ngdp and base money graph 4 m py blue base money growth red and ngdp growth green for the blue line we have the label m py that s left over from the hussman funds interest rate calculation i got from oilfield trash the other day the m stands for money here base money the py stands for price times output you can think of price as the gdp deflator and output as rgdp and rgdp as gdp with the price changes stripped away gdp being the same as ngdp or you can think about more interesting things on the graph in the years before 1981 when the blue line is going down the green line is consistently higher than the red before 1981 ngdp growth is consistently higher than base money growth that s why the blue line goes down after 1981 the red line is generally higher than the green base money growth is generally higher than ngdp growth that s why the blue line goes up okay so the blue line tells us that ngdp grew faster than base for the period before 1981 and base grew faster than ngdp for the period after 1981 that s a fact taking it as a fact now i have a question or two how come we had inflation before 1981 but not so much after 1981 how come it was said they were printing too much money and this was causing the inflation before 1981 when base money growth was relatively slow and how come we didn t get inflation after 1981 when base money growth was relatively fast there must be something wrong with the inflation story they tell now that is interesting posted by the arthurian at 4 00 am 2 comments thursday march 17 2016 at root it s always unintended consequences of policy overlooked by policy makers at reddit jimrosenz links to our four decade antitrust experiment has failed by kevin drum my response if i set aside my sympathies for kevin drum s view i am left with a problem drum writes the federal government should do its best to ensure that markets have plenty of competition and then it can afford to get out of the way and regulate fairly lightly but ensuring that markets have plenty of competition is regulation heavy regulation drum wants to use a crude old rule ensuring that there are plenty of competitors in every market and refusing to allow any single company to become too dominant if that s not an explicit call for heavy regulation it could easily become one drum admits that even a crude market share rule would have problems you ll have arguments over just how big a single company should be allowed to get 30 percent share or 50 percent share when i read of calls for that sort of regulation my mind goes to the road to serfdom we can t solve problems that way we mustn t solve problems that way take a step back and consider the possibility that our problems are self created we have too little competition too much dominance by single companies maybe such common problems are the result of existing policy an unintended consequence so to speak the business tax structure favors bigness the more you can spend the more you can avoid tax that s the driving force behind merger and acquisition kevin drum brings up the returns to scale i read a kiplinger letter decades back where they wondered why agribusiness grows beyond its economies of scale it s not only agribusiness that grows beyond economies of scale it s business in general and it s the business tax system favoring bigness that drives it posted by the arthurian at 4 00 am 0 comments wednesday march 16 2016 presidential politics in 1932 by william e leuchtenburg at the democratic national convention late in june the anti roosevelt coalition came within an ace of success roosevelt took a decided lead on the first ballot with 666¼ votes to smith s 201¾ garner s 90¼ and scattered support for favorite sons yet he was still more than a hundred votes short of the needed two thirds when the convention recessed after the third ballot the roosevelt leaders had a margin of only a few hours in which to try to save the day late that afternoon when the fourth roll call reached california the rangy straight backed william mcadoo strode to the platform california he announced had come to chicago not to deadlock a convention but to nominate a president quickly the meaning of his words became clear california had abandoned garner and was casting its forty four votes for roosevelt with the switch of california it was all over the other states all save the diehard smith forces climbed on the band wagon and within minutes franklin roosevelt had been named as the democratic nominee upsetting all precedents roosevelt flew to chicago in a tri motored plane that was buffeted by squalls and twice had to land to refuel to deliver the first acceptance speech ever made to a nominating convention the democratic convention displayed little more interest than the republican in the crucial problems of the depression roosevelt s platform drafted at the governor s request by a mitchell palmer was a conservative document senator key pittman protested the platform has the merit of being short and the demerit of being cold there is not a word in it with regard to the forgotten man at both conventions the delegates showed far more concern over prohibition than over unemployment here we are wrote john dewey in the midst of the greatest crisis since the civil war and the only thing the two national parties seem to want to debate is booze while the platform aroused little enthusiasm the nominee kindled little more roosevelt s campaign did little to reassure critics who thought him a vacillating politician his speeches sounded painfully discordant themes yet all this was as nothing compared to his oscillations on fiscal policy he would increase aid to the unemployed but he would slash federal spending on this one point he was specific he would cut government spending 25 per cent at sioux city iowa in september governor roosevelt stated i accuse the present administration of being the greatest spending administration in peace times in all our history it is an administration that has piled bureau on bureau commission on commission and has failed to anticipate the dire needs and the reduced earning power of the people in pittsburgh the next month he declared i regard reduction in federal spending as one of the most important issues of this campaign in my opinion it is the most direct and effective contribution that government can make to business one of his new deal administrators reflected subsequently given later developments the campaign speeches often read like a giant misprint in which roosevelt and hoover speak each other s lines leuchtenburg william e franklin d roosevelt and the new deal 1932 1940 new york harper row 1963 from chapter 1 for the record this is what franklin roosevelt actually did total public and private debt relative to the money available to pay down debt posted by the arthurian at 4 00 am 1 comments tuesday march 15 2016 velocity and interest rates move together okay i slept on it oilfield trash commented on my previous post the 3 month treasury bill yield as a function of liquidity preference i exp 4 27 45 5 m py where m monetary base and py is nominal gpd you get a pretty good fit he says i drew it up graph 1 the interest rate blue and the result of calculation red you get a pretty good fit the blue line is the 3 month treasury bill secondary market rate the red line is calculated using some carefully chosen constants along with the st louis adjusted monetary base and a measure of gdp i used annual data from fred i showed the economic data the m py from the calculation in light gray using the right side vertical scale it moves in the opposite direction from the calculated red line has to do with m py being subtracted in the calculation if we were adding it i expect the red line would move in the same direction as the gray rather than opposite looking at the red and blue lines the first thing i noticed was that on the uphill from 1934 to 1981 the red line tends to run low on the blue on the downhill after 1981 the red tends to run high on the blue at first i thought that might be a fluke result of the calculation but i don t see how that can be because the red line comes from base money and gdp and a couple constants and nothing else there are no flukes in the calculation looking at the graph again now it occurs to me that on the way up the fed was fighting inflation all the while on and off but all the while so then the red runs relatively low on the uphill because the fed kept pushing interest rates up to fight inflation on the downhill side then it looks like the fed kept trying to boost growth by repeatedly reducing interest rates and the red runs relatively high as a result or maybe it wasn t even the fed doing it maybe it was the result of the mass of economic decisions made by you know people participating in economic activity some people say the fed follows the market the red line is a lot less wiggly than the blue the wiggles show the pattern of business cycles draped over the longer term path established by the m py ratio as of course you know the m of m py is money p is the price level and y is real output together those three variables constitute three quarters of the equation of exchange mv py what s missing is v velocity if you take the equation of exchange and divide both sides by m you get v py m invert both sides and you get 1 v m py wait a minute now m py is part of the calculation the calculation from oilfield trash says that the interest rate is equal to the exponent of one number minus another number times m py but m py is equal to 1 v so the calculation says that the interest rate is equal to one number minus another number divided by the velocity of money so there is a relation between the interest rate and the velocity of money why would that be it s pretty easy to say things that are more common are cheaper things that are less common are more expensive when money is moving fast when velocity is high does money seem more common or less common what does the graph say the gray line m py is the same as 1 v in recent years for example the line goes up like crazy because of all the qe money became more common relative to gdp and the interest rate went down but that s 1 v what about v itself when 1 v goes up like in the recent years v goes down v goes down and interest rates go down so velocity and interest rates move together velocity and interest rates move together perhaps because things that are more common are cheaper and things that are less common are more expensive it seems to work but you know what i shouldn t have asked i shouldn t have asked why the fact is velocity and interest rates move together that s the fact it will probably help me to remember that fact thinking things that are more common are cheaper but i don t know if that s the reason it s only a theory the fact is velocity and interest rates move together base velocity anyway see also http www hussmanfunds com wmc wmc110124 htm posted by the arthurian at 6 17 am 4 comments monday march 14 2016 insights from an interest rate simulation interest rate and simulation george lucas might not agree but if you want to design economic policy you need to create a s...
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