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ominal series for our base note whichever series we chose we should chose the nominal rather than the real the reasoning here is simple our market indexes are not inflation adjusted so our base gdp gnp shouldn t be either gnp is a little more comprehensive than gdp that s interesting given that it s coming from people who work at fred i wonder what it means but i m not focused today on which data to use or how to get it today i m focused on what they think at fred about dividing nominal values by inflation adjusted values as a rule they don t like it let me repeat that they don t like it i don t like it either i don t like it when it is used to fake evidence that printing money causes inflation i don t like it when it is used to fake evidence that rising labor costs cause inflation posted by the arthurian at 4 00 am 0 comments monday june 24 2013 millions of millions fred s default for federal debt total public debt gfdebtn so i m looking at the graph this morning noticing that the federal debt is up around 17 not down around 14 like an older graph i was looking at 17 million huh how come the federal debt is so low the highest value on the vertical axis is 18 million all the values are millions yes the axis label says millions of dollars no dummy the highest value is 18 million million dollars 18 trillion didn t have my coffee yet posted by the arthurian at 4 00 am 0 comments sunday june 23 2013 a simple question at interfluidity mark a sadowski summarizes mason and jayadev 2012 they find that whereas the household sector borrowed heavily in the 1946 64 period and more often borrowed than not in the 1965 80 period the household sector ran a primary surplus throughout the 1981 99 period with the sole exception of 1985 only more recently during 2000 2006 did the household sector borrow heavily again nevertheless household sector debt as a percent of disposable personal income rose substantially during 1981 99 due to high real effective interest rates and low rates of growth in nominal income the household sector ran a primary surplus throughout the 1981 99 period household sector debt as a percent of disposable personal income rose substantially during 1981 99 don t these facts suggest that household sector debt was already too high by 1981 posted by the arthurian at 4 00 am 0 comments saturday june 22 2013 krugman i believe in the debt overhang story enough to be worried paul krugman canadian household debt has kept rising even as the us level has declined so if the new non bank centered view is right canada ought to be quite vulnerable to a big deleveraging shock despite its boring banks of course people have been saying this for several years and it hasn t happened yet but remember the us housing bubble took a long time to pop too i m not exactly making a prediction here but i guess i believe in the debt overhang story enough to be worried and canada is certainly an important test case okay and then from the conference board of canada there s this and this think of the world in terms of cost the growth of debt is a cost if that cost goes high enough it breaks the economy income inequality is a cost that drains spending power from the 99 if income inequality is a little higher in the us than canada the cost is higher too combine the higher cost of debt in the us with the higher cost of inequality in the us and you can see why the us economy broke and the canadian economy didn t can we put it all into a formula and predict the day canada s economy breaks i wouldn t even try but i ll tell you this the object is not to get just as close as we possibly can to the breaking point our economy was good in the 1960s that s the target we ought to shoot for a level of debt like we had in the 1960s and a level of inequality like we had in the 1960s that s the target it s a start posted by the arthurian at 4 00 am 0 comments friday june 21 2013 being fair and balanced following up on yesterday s post where the uptrend to crisis pattern of debt dominated all three graphs graph 1 year to year change in tcmdo debt in billions graph 2 revision to the first graph to allow for rising prices graph 3 revision to the second graph to allow for real growth the two considerations price increases and real growth had almost no effect on the pattern of increase in debt debt was the dominant factor but you know it was only three graphs so today i want to look at variations on the relations we looked at yesterday maybe it was just a fluke that made debt seem to dominate the other factors yeah right all these graphs from yesterday and today are based on three fred data sets tcmdo debt gdpdef the gdp deflator as a measure of prices gdpc1 as a measure of real inflation adjusted gdp yesterday we looked first at the year to year difference in debt for the second graph i divided the year to year number by the price series and i divided that result by real gdp for the third graph not much science in that sequence of events it s just where my mind thoughts took us today i want to start with the year to year difference for prices and for real gdp as we did yesterday for debt graph 1 the gdp deflator as a measure of prices usually a graph of prices shows the percent change this graph only shows the difference in the deflator value from one year to the next at about 4 5 the high point on graph 1 is lower than what we usually see and the later values are higher than usual near half the peak but that high point is part of the great inflation to be sure graph 2 change from prior year value of inflation adjusted gdp in billions of 2005 dollars there is a general uptrend throughout the period but as with the previous graph this graph shows a simple difference not percent increase okay next i want to take the other data series and divide by it that s what i did yesterday when i started with debt today i save debt for last graph 3 shows the graph 1 values divided by real gdp you can still see the great inflation that high spot that should go from the mid 1960s to the early 1980s a little hard to read the dates graph 4 divides the graph 2 series by the price level where graph 2 went up graph 4 goes down i want to say graph 4 goes down because prices went up writing this in the wee hours here i don t have much to say about these graphs other than here they are but i think it is important to look at different relations of the same data we looked at yesterday maybe something will turn up that suggests yesterday s impression of things was simply coincidence or was not okay now we ve looked at the change in prices relative to real output and the change in real output relative to prices all that s left is to divide graph 3 and graph 4 by debt graph 5 shows what happens when you take the numbers from graph 3 and divide by tcmdo debt you can still see the great inflation there but much reduced and the numbers are very low and drop off to zero because debt is so big and so dominant graph 6 shows what happens when you take the numbers from graph 4 and divide by tcmdo debt the line still goes downhill quickly now the numbers are very low and drop off to zero because debt is so big and so dominant compared to everything else debt is the dominant factor preview or download the excel file contains macros posted by the arthurian at 4 00 am 0 comments thursday june 20 2013 the same nightmare over and over preview download the excel file contains macros for formatting graphs compound annual growth rate calc and kurt annen s visual basic code for calculating hodrick prescott values posted by the arthurian at 4 00 am 1 comments wednesday june 19 2013 what s up at 3 42 this 17 june morning i wrote myself a note when you type cmdebt in the search box at fred what comes up on the screen is a series called tcmilbshno yeah that ll be easy to remember by 6 47am that distressing situation had passed and searching for cmdebt turned up a series named cmdebt and what a relief that was anyway i want to show you a graph of cmdebt two lines on the graph don t compare the lines to each other they re on two different scales just compare each line to itself and visualize its trend what s up cmdebt thru 1975 red right scale and thru 2012 blue left scale the red line goes up till the end the blue line goes up till the end the red line is the same as the blue line but the red one stops at 1975 to show it i put a second copy of the blue line on the graph fred made it red stopped the display of it at 1975 and put its values on the right side scale fred did the rest the two lines show the same data but the red one shows a close up of the early years of the blue line because on the blue line the early years are squished down near zero hard to see what s going on there see that highest peak of the red line if you look straight down from that peak to the blue line you can see the same peak there in blue barely visible the red line shows an upward trend that s hard to see in the blue line but it s there conclusion cmdebt was always going up even in the early years when the blue line looks flat what s that you say you were expecting a more substantial conclusion pfff that s not how it works we look at little facts about the economy because they re fascinating and because we know deep in our heart just how important they are we spend time with them because we love to do that substantial conclusions arise in their own time you can t squeeze them out like never mind posted by the arthurian at 4 00 am 0 comments tuesday june 18 2013 what does it matter anyway when i started out writing yesterday s post i was thinking i had a petty objection to a detail in an interfluidity post i thought my objection was not relevant to steve randy waldman s analysis and i was prepared to present it as an objection in principle an objection that might apply in other situations but not to his analysis writing the post made me work through a few things and in the end i concluded that waldman s analysis is incorrect waldman took a casual look at a graph of consumer debt and thought he saw a significant jump in the pace of borrowing he failed to realize that the spike in the debt gdp ratio resulted from the large drop in nominal gdp growth caused by a sharp fall of inflation waldman s mistake is a common one and obvious once you notice it the jump in the debt gdp ratio was the result of a big undershoot of gdp not a sudden increase in borrowing there was no sudden increase in borrowing that we can point to and say it was this increase in borrowing that compensated for growing income inequality there is a hole in waldman s argument interestingly in remarks on yesterday s post steve waldman said it would be perfectly possible for example for the broad story to be true poorer households must increasingly borrow to maintain aggregate consumption and yet for aggregate borrowings to decline over the period yes it would and i make points like that occasionally myself but here waldman is saying is that his evidence his graph showing that beginning in the early 1980s household borrowing began a secular rise is irrelevant because it doesn t treat distributional questions maybe but now the discussion is getting over my head what i know for sure is his graph does not show any secular rise of borrowing that begins in the early 1980s and if it seems to show that it s an illusion i ve treated this issue before in the red herring post in that case it was scott sumner misreading a debt gdp graph as it happens the same misreading of the same debt gdp ratio that we see in waldman s post sumner identified three big debt surges and analyzed the economy on the basis of those surges as i reported in the herring post the inflation is the reason for what appears to be a flat spot on the graph the inflation eroded debt the growth of debt continued apace my steprate function applied to annual cmdebt numbers from fred shows that the compound annual debt growth rates during sumner s three periods were 1952 1964 10 7 1984 1991 10 25 2000 2008 9 33 during the famous flat spot of 1965 1983 the comparable rate of debt growth was 9 36 that s near 90 of the growth rate for the 1952 1964 debt surge and it is higher than the growth rate for the third debt surge sumner identifies there was no remission debt did not stop growing it barely slowed what does it matter if you misread the graphs you misread the economy that s all links the sumner post the interfluidity post my measuring the erosion of debt pdf my debt and inflation posts posted by the arthurian at 4 00 am 11 comments monday june 17 2013 inequality and something else at interfluidity an older post from january of this year inequality and demand steve randy waldman quotes from paul krugman s inequality and recovery and opens the haranguing with these thoughts let s start with the obvious the claim that income inequality unconditionally leads to underconsumption is untrue in the us we ve seen inequality accelerate since the 1980s and until 2007 we had robust demand decent growth and as krugman points out no evidence of oversaving in aggregate au contraire even waldman contradicts krugman provides links showing evidence of oversaving in aggregate and asks how do we reconcile the high savings rates of the rich with the us experience of both rising inequality and strong demand over the great moderation debt is how we reconcile those things he says those at the less fortunate end of the inequality scale made up for their shortfall of income by borrowing more waldman presents a graph in evidence of this then his post takes an interesting turn he writes rather than arguing over the clearly false claim that income inequality is always inconsistent with adequate demand let s consider the conditions under which inequality is compatible with adequate demand are those conditions sustainable are they desirable long story short he points out the conflict between the economy s need for more lending and the microeconomic evaluations of solvency that might limit the lending limit the demand and limit the growth his conclusion includes this thought if we had any sense at all we d relieve our harried bankers the poor dears of contradictory imperatives to both support overall demand and extend credit wisely all well and good i liked the post i liked the graphs i liked the perspective i liked all of it i have just one problem it s a small problem i don t think it affects waldman s argument it s just a detail so why do i bring it up what does it matter anyway i ll get to that waldman writes i would pair krugman s chart with the following graph which shows household borrowing as a fraction of gdp includes both consumer and mortgage debt see credit market instruments in table l 100 of the fed s flow of funds release household borrowing represents in a very direct sense a redistribution of purchasing power from savers to borrowers so if we worry that oversaving by the rich may lead to an insufficiency of purchases household borrowin...
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