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akes sense to show the net increase certainly but it s also important to know that we actually borrowed more than that second take the 1990s as an example the blue line is jiggy in the 1990s but if you imagine it smooth it is pretty much parallel to the red line during the period so the net increase in household debt blue increased during the period but so did debt service red it looks like we were staying ahead of our debt in those years but we were not staying ahead around the time of the 1991 recession the net increase in debt was about half as much as debt service but by the time of the 2001 recession the net increase in debt was about two thirds as much as debt service the net increase in household debt gained on debt service during the decade next look at the years just before the crisis where the blue line jumps up and runs neck and neck with the red and then suddenly falls creating the crisis during those neck and neck years the net increase in household debt was equal to our debt service payments i m not going to try to put into words how troubling this seems to me i m just going to say that this graph shows the problem that created the crisis look at 2006 there where the blue line rises above the red then turns and starts to fall in round numbers we paid about 1300 billion in debt service and the net increase in household debt was about 1350 billion the net increase in debt was more than we paid in debt service we were definitely not staying ahead that year and the next thing you know there was a crisis posted by the arthurian at 10 33 am 3 comments saturday august 27 2016 debt service projection thru 2020 one more time i grabbed all three debt service series from fred the three that i know about anyway looking only at the years since the crisis since 2008 on the graph blue is the total of red and green graph 1 measures of debt service where will debt service go next there s a little v just at the end of 2012 in all three lines on graph 1 after the v from q1 2013 to q4 2015 the lines show little disturbance to the trend i took those years after the v 12 data points on each line and used them as a basis for trend lines in excel i went looking for the highest r squared values for different kinds of trend lines and the sixth order polynomials were highest every time so i went with that but when i extended the trends out into the future the numbers got crazy i guess the sixth order line had too many turns in it and the data after the last turn determined the path of the trend line projecting tdsp for nine quarters the trend line went to more than 100 of disposable income that s crazy things are bad but not that bad look how flat the blue line is on graph 1 after the v there s no way this line will climb to 100 percent in two years so i did it again using the second order polynomial trend which i ve used before this time each trend line predicts a smooth continuation of actual recent data graph 2 debt service 2013 thru 2015 with trends thru 2020 there is no guarantee that recent trends will continue of course but if recent trends do continue the actual data will look like what this graph shows by this measure mdsp debt service payments on mortgages bottoms out in fourth quarter 2016 so if you ve recently heard that new home sales surged 12 4 percent and existing home sales had four consecutive months of impressive increases well i guess mortgage debt service payments should start going up soon graph 2 seems to offer a reasonable forecast but it is hard to see much on graph 2 because it only starts in 2013 so i backed up the start date to 1980 now we can see the debt service forecast in the context of actual experience graph 3 debt service 1980 thru 2015 with trends thru 2020 consider just the blue debt service line and its future projection we see a large bowl shape that runs from about 2008 to 2020 let me put this in terms you ll understand most of the downtrend of that large bowl was president obama s first term the bottom of the bowl was most of obama s second term the black uptrend part of the bowl is the first term of our next president what does this mean hold that thought again consider the blue line there is a smaller bowl shape from 1991 to 1995 in the blue line in 1991 and 1992 we have the downtrend of the small bowl in 1993 and early 1994 we have the bottom in latter 1994 and 1995 we have the uptrend of the small bowl the 1991 92 downtrend is related to the recession that helped george h w bush lose the presidency to bill clinton the bottom of the bowl was a period of debt relief the 1994 95 uptrend is evidence of the increased credit use that brought vigor to the u s economy for the rest of the 1990s there is no guarantee of course that the uptrend in debt service which is starting now will stick to a trend that brings vigor to the economy the way the 1994 95 uptrend did but hey our bowl had its downtrend in obama s first term our bowl had its bottom in the endless listless economy of obama s second term and now our bowl has the start of its uptrend i can see the uptrend excel can see the uptrend and i think you can see it too oh and the uptrend means vigor that s what it means the excel file posted by the arthurian at 4 00 am 0 comments thursday august 25 2016 bezemer and hudson quotable relevant from finance is not the economy by dirk bezemer and michael hudson mathias drehman and mikael juselius 2015 report that debt service ratios are an accurate early warning signal of impending systemic banking crises and strongly related to the size of the subsequent output losses posted by the arthurian at 11 08 am 1 comments labels b h finte wednesday august 24 2016 insanity bbc news federal reserve close to meeting targets for us economy the federal reserve is close to hitting its targets for us employment and 2 inflation according to the central bank s vice chairman stanley fischer in a speech in colorado the fed s number two policymaker was upbeat about the economy s recovery and prospects we are close to our targets he said on sunday adding that jobs growth had been remarkably resilient he did not mention interest rates but the remarks are likely to fuel debate about when they may rise he did not mention interest rates but i will they needed interest rates low to get economic growth so they can raise interest rates and undermine the growth this is their plan for the economy we have to stop thinking always in terms of interest rates we have to find a better way to prevent inflation on second thought no we don t have to find a better way we already have a better way to prevent inflation paying down debt destroys money paying down debt takes money out of circulation paying down debt is a way to prevent inflation paying down debt takes money that is in the economy and takes it out of the economy it s money that s in the economy that causes prices to go up new borrowing is generally for growth for a new car or a bigger home or for business expansion stuff that gets counted in gdp growth but new borrowing also puts money into the economy and after that first use the money s in the economy and it circulates it is extra money in the economy it may be used to purchase more output or it may be used to bid up prices the latter is demand pull inflation most of the extra money eventually works its way out of circulation and into savings then it has no demand pull effect but the debt that was created when the money was created the debt remains in the economy and the cost of servicing it continues to be imposed on the economy this creates cost push inflation financial cost push anna schwartz describes demand pull inflation an increase in the supply of money works both through lowering interest rates which spurs investment and through putting more money in the hands of consumers making them feel wealthier and thus stimulating spending business firms respond to increased sales by ordering more raw materials and increasing production the spread of business activity increases the demand for labor and raises the demand for capital goods in a buoyant economy stock market prices rise and firms issue equity and debt if the money supply continues to expand prices begin to rise especially if output growth reaches capacity limits do consumers feel wealthier since the start of quantitative easing has our spending been stimulated are businesses increasing production is the economy buoyant no is our inflation what little inflation we have is it demand pull inflation no does printing money make prices go up if nobody s spending the money no if new borrowing leads to a buoyant economy and demand pull inflation is raising interest rates an appropriate policy response yes perhaps not the best of policy responses but it does address the problem of new borrowing but if the economy is not buoyant and inflation is financial cost push then raising interest rates is bad policy graph 1 paying down debt is a way to fight inflation posted by the arthurian at 4 00 am 0 comments tuesday august 23 2016 bis on the connection between debt and labor productivity at bis from when the financial becomes real financial booms typically go hand in hand with significant resource misallocations in particular labour is diverted to booming sectors with relatively low future productivity growth the impact of these misallocations became even larger in subsequent years once the boom turned to bust thus the fallout from credit booms may well have exacerbated the trend decline in productivity growth in advanced economies by the same token lower productivity growth in recent years need not be permanent need not be permanent in other words it ain t secular stagnation it s crisis related and maybe the bank is saying maybe we shouldn t be surprised if we see an improvement in productivity in the next couple three years where have you heard that before also this remarkable from a bank credit expansions may still boost output growth through higher demand and investment but not productivity growth to gain a sense of the economic significance consider the us experience between 2004 and 2007 labour productivity grew by 1 2 per year but labour reallocations made a negative 0 3 percentage point contribution over the same period private credit to gdp grew by 4 5 per year taking the estimates at face value if credit to gdp had grown by only 1 5 the drag on productivity growth would have been eliminated they re saying we used too much credit bis one bank to rule them all bis says private credit use was excessive bis says private debt was excessive bis this is big posted by the arthurian at 4 00 am 0 comments monday august 22 2016 debt service and labor productivity projections here s the graph i couldn t get right for yesterday s post x axis was messed up the blue line shows household debt service 1980 thru 2015 the black line is a debt service trend line showing the future debt service that i anticipate same as yesterday the brown line shows labor productivity 1980 thru q2 2016 the bright red line shows my general expectation for future productivity q2 2016 thru q4 2020 also bright red the productivity data for q4 1993 thru q2 1998 the data i copied and showed again as future productivity graph 1 debt service and labor productivity projections by the time we get to 2020 the economy will be great the person we elect president in 2016 will be easily re elected in 2020 and we ll all be happy again for a while until debt goes too high once again and we have another financial disaster anything else the excel file posted by the arthurian at 4 00 am 0 comments sunday august 21 2016 potential productivity since 2007 the rate of productivity growth has been disappointing john cassidy writes in the new yorker since 2010 it has been extremely disappointing here s a close up of productivity growth since the start of 2011 graph 1 productivity growth 2011 q1 thru 2016 q2 the linear trend line is very flat at 0 5 percent productivity is low and not improving what s more the last few readings show a downward trend extremely disappointing as john cassidy says but we do not know where the red line will go next it was lower in mid 2013 than it is now and it went low more quickly then it turned around and went up even faster so you never know here s a close up of productivity growth in the quiet time before the goldilocks years of the 1990s graph 2 productivity growth 1993 q1 thru 1995 q1 the linear trend line is very flat at 0 5 percent productivity low and not improving the last few readings show a downward trend productivity growth was disappointing just like the first graph here s a close up that picks up where graph 2 leaves off graph 3 productivity growth 1995 q1 thru 1997 q1 the linear trend rises from 0 5 percent to nearly 3 in two years you never know to my way of thinking graph 1 our time is very much the same as graph 2 the early 1990s but i think we are at the end of graph 2 and ready to start graph 3 that makes all the difference oh come on you are saying graph 2 shows only a couple years graph 1 shows almost six years there s no comparison the slump is endless this time it s not endless that s the point the quiet time before the vigor is longer this time about 2½ times as long my guess i m telling you we are at the end of the quiet period soon we will see productivity start to climb just as on graph 3 on friday i showed productivity growth with bright red circles around the two quiet times the recent years and the early 1990s our low productivity has lasted much longer than that of the 1990s graph 4 productivity and debt service yes and it shows that the bottom in the dull red debt service curve has also lasted much longer this time but you can see from the shape of that curve that it wants to go up and you can see from the early 1990s that when the debt service curve goes up it goes up quickly and productivity goes up with it and the economy becomes vigorous i expect that debt service will soon rise sharply productivity will improve just as happened in the mid 1990s and the economy will again be vigorous graph 5 the recent years if we want to understand the productivity problem we have to look at it in context what context i suggest we use household debt service for context the recent years of debt service show a remarkable drop from the late 2007 peak debt service fell rapidly to a sharp down spike at the end of 2012 after the bounce back from that down spike the path of debt service was different the rapid decline had ended it had reached a bottom it was running flat if you look you can see that debt service since the beginning of 2013 shows a fairly smooth curve the curve bottoms out just at the end of 2014 then starts to rise to my eye debt service drifted downward less quickly in 2014 than 2013 then turned and started drifting upward in 2015 started drifting upward last year curse the luck the debt service data ends with 2015 we don t have first and second quarter 2016 num...
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