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graph graph 1 natural log of the inflation adjusted change in total credit market debt owed then i showed the same graph in excel with a hodrick prescott trendline added in graph 2 same as graph 1 with hodrick prescott trend thru 4th quarter 2007 i stopped the trend line at the high point of the blue line and wrote i stopped the hp calc at that point so that the later decline did not drag down the earlier years numbers so that the later decline did not drag down the earlier years numbers the hp calc is entered in excel as an array formula it takes as input a whole series of fred data for graph 2 i fed it data from 4th quarter 1952 to 4th quarter 2007 for graph 3 i fed it data from 4th quarter 1952 to 4th quarter 2012 that s the only difference graph 3 the blue line is the same as on graph 2 but the red line continues to 4th quarter 2012 notice that the red line no longer reaches up to the high blue peak the red line bends down early now around 2004 and begins the plunge while the blue line is still trending up to its high peak the trend line anticipates the future adding data for the years after 2007 to the hodrick prescott calculation changed the results we got for a few years before 2007 if that s not a sorry kind of foresight i don t know what is another example this from a second look at the heteconomist post graph 4 percent change in the non federal portion of tcmdo blue and the h p trend red the red line on graph 4 is a hodrick prescott trend of the debt data through 2007 graph 5 shows the same debt data and the h p trend again but this time the trend is based on all the data through 2012 graph 5 same as graph 4 except the h p trend is figured through 2012 on graph 4 the red line trends upward for the last few years before the 2007 end on graph 5 the red line runs flat until about 2004 when it starts to fall the decline since 2004 on this graph is the result of figuring in data for 2008 2012 look at it from the start of 2008 and it appears that the future changes the past the excel files on google drive nonfederal debt growth xls for the change in non federal debt graph dtcmdo rel gdpdef xls for the log of change in tcmdo graph both files contain kurt annen s vba code for the hodrick prescott calculation posted by the arthurian at 4 00 am 3 comments labels hodrick prescott sunday november 24 2013 bogmbase and ambsl they re not identical but the growth rates are similar both show lower growth before the early 1980s higher growth after seems to be a downtrend between the 1970 and 74 recessions and a low spot after 1974 during the great inflation oddly rumor was the growth of money caused the inflation posted by the arthurian at 4 00 am 0 comments saturday november 23 2013 looking at graphs it s what i do i m going to double down here on the idea that it s a simple monopoly and the fed as monopolist controls price and lets quantity float geerussell the quantity of money base money i m going to say it is controlled by the fed they target interest rates but to reach their target they control the q of m open market operations they call it graph 1 fedfunds blue and the growth rate of base money relative to gdp the red line on this graph considers base money in the context of gdp i think it s reasonable to say a bigger economy needs more money a smaller economy needs less and that s true not in real terms but at actual prices nominal terms the red line shows the percent change from a year before of base money relative to ngdp i m using bogmbase not ambsl they two seem to give quite different results i don t know why except the a in ambsl stands for adjusted a future post perhaps with interest rates generally trending up for the first half of the graph the trend of the red line is rather flat and definitely negative base money grew more slowly than gdp and little or no effort was made to boost basemoney growth with interest rates generally trending down for the second half of the graph the trend of the red line is again flat but about three percentage points higher than before by eye the trend runs a bit above zero now meaning that basemoney is growing faster than gdp look at it a different way graph 2 gdp blue and bogmbase red indexed to mid 1984 money grew slower than gdp before the index date and faster after posted by the arthurian at 4 00 am 4 comments friday november 22 2013 a simple six letter substitution marx i am not a marxist keynes i was the only non keynesian there exactly sometimes an idea gets simplified and popularized and changed so much that when it is attributed back to its source the source refuses to accept the credit the so called keynesians of the 1960s had already moved away from what keynes said they were inventing their own crap and calling it keynesian later then after they got crushed by inflation they came back with a new name the new keynesian economics i didn t know what that was i didn t know any of that history then but when i heard that name that s when i came up with the name that became the name of this blog posted by the arthurian at 4 00 am 1 comments thursday november 21 2013 free association michael leddy after a bad storm the weather is not destructive or unforgiving or violent it doesn t care about us it just is me summing inflation adjusted deficits the economy works the way it works without regard to our preferences the economy doesn t give a damn what we want to be true america s adam smith in the roaring 80s in the great depression economists wrote about unemployment as if it were a bad hailstorm then the keynesian revolution gave some hope that nations could do something about the economic blizzards that had previously been considered as random as the weather posted by the arthurian at 4 00 am 1 comments wednesday november 20 2013 a new style for fred posted by the arthurian at 8 46 pm 0 comments do i detect a change in thinking joshua wojnilower 5 december 2012 in normal times pre ior the fed could either control the interest rate or the monetary base but not both typically the fed elected to target the interest rate adjusting the monetary base in response to the actions of treasury and private banks now that the fed is paying ior and ioer it actually can control both the monetary base and the interest rate separately joshua wojnilower 18 november 2013 a quick comment on the effective federal funds rate during the period you highlight under the permanent floor system currently employed by the fed explained brilliantly by scott fullwiler the rate of interest on reserves currently 0 25 is expected to serve as a lower bound floor for the effective fed funds rate this expectation is based on the notion that no firm would sell loan a reserve at a price below that attainable by simply depositing the reserve at the central bank as your chart shows the effective federal funds rate has consistently been below the rate of interest on reserves over the period in view and a new graph graph 1 four discontinued series the purple line and three hidden by it and one current series green showing the floor created by interest on reserves at 0 25 and the effective fedfunds rate in the basement since january 2009 posted by the arthurian at 4 00 am 2 comments tuesday november 19 2013 the incomes flowing to the financial sector come at the expense of the rest of the economy in a post that s much too long and far too political john quiggin writes society as a whole would be better off if the financial sector were smaller and received much smaller returns yes indeed posted by the arthurian at 4 00 am 0 comments monday november 18 2013 real accumulated federal deficits relative to rgdp back on 10 november i showed federal deficits corrected for inflation graph 1 federal deficits corrected for inflation from the inflation adjusted deficits spreadsheet i said i want to add up the numbers and see what the accumulating total looks like if i add up federal deficits i get the federal debt so if i add up inflation adjusted federal deficits i get the inflation adjusted federal debt i want to see what that looks like by the end of the post i had done just that graph 5 from that post renumbered graph 2 the sum of inflation adjusted deficits as a measure of inflation adjusted debt from the inflation adjusted deficits spreadsheet what this gives me is a picture of the federal debt accumulated since 1947 adjusted for inflation but it looks nothing like what you usually see when people show the federal debt adjusted for inflation here s wikipedia s picture of the federal debt with the numbers deflated so every year is in 2010 dollars graph 3 from wikipedia my graph 2 does not include world war two debt or any debt before 1947 so mine starts at zero where the wikipedia graph in 1947 is already over two trillion bucks but that s not the big difference the big difference is that the lines are not the same shape graph 2 shows continuous increase all through the 1960s 1970s 1980s and into the 1990s the wikipedia graph runs flat or even downhill from world war two to the early 1980s then suddenly takes off upward the wikipedia graph shows no increase until the end of the great inflation in the early 1980s that is not because there was a sudden massive increase in federal deficits at that time it is because the great inflation came to an end and because of the way they figure the inflation adjustment the wikipedia graph adjusts the whole federal debt as though all of that debt was newly created each year all the debt existing at the end of the great inflation for example is adjusted for inflation since the end of the great inflation but some of that debt was created before the great inflation when the value of the dollar was more the wikipedia graph understates the purchasing power of older deficits the sudden change around 1982 on the wikipedia graph is due in large part to the sudden slowdown of inflation for graph 1 above the inflation adjusted deficits i took the 1947 deficit and converted it from 1947 dollars to 2009 dollars i took the 1948 deficit and converted it from 1948 dollars to 2009 dollars when i got to it i took the 1970 deficit and converted it from 1970 dollars to 2009 dollars i converted each year s deficit from that year s dollars to 2009 dollars that s what i did then for graph 2 i added them up but that s not how you get a graph like the wikipedia graph to figure the year 1970 for the wikipedia graph you take all the deficits from 1947 to 1970 add them up and convert them from 1970 dollars to 2009 dollars when you re plotting the point 1971 on the graph you add up all the deficits from 1947 to 1971 and convert the sum from 1971 dollars to 2009 dollars to get a graph like the wikipedia graph you take all the debt accumulated up to some date and you convert from that date s dollars to base year dollars 2009 dollars or whatever to get a graph like the wikipedia graph you ignore the actual value of the money at the time it was borrowed you just convert from the year you are plotting to the base year that s bad arithmetic i think today i want to look at debt relative to gdp i want to look at the inflation adjusted federal debt relative to inflation adjusted gdp to do that i ll use a google drive graph but let me start with the fred graph i used to gather numbers graph 4 three measures of the federal debt relative to gdp the red line shows the gross federal debt as a percent of gdp there are two other lines on graph 4 green and blue running close together the blue line which starts at 1970 shows the federal debt held by the public as a percent of gdp the green line shows federal debt held by the public inflation adjusted like the red line on the wikipedia graph divided by inflation adjusted gdp the green line is for all practical purposes identical to the blue line which is not adjusted for inflation the green line shows a measure of accumulated debt which is a stock relative to gdp which is a flow with both measures adjusted as if they were flow variables now i am ready this post reviews two ways of inflation adjusting debt my way as shown in graph 2 and everybody else s way as shown in the wikipedia graph now i take these two measures of debt and show each one relative to inflation adjusted gdp graph 5 two measures of real federal debt relative to real output from the inflation adjusted deficit accum and rgdp spreadsheet the blue line on graph 5 is the blue line from graph 2 accumulated real deficits divided by real gdp the green line on graph 5 is the same as the green line on graph 4 the two lines are similar after about 1982 one rides a little higher than the other but the two share the same general shape before 1982 it s a different story before 1982 the green line trends down while the blue line trends upward these two lines cannot both be correct the green line trends down because the calculation ignores the purchasing power of the borrowed money at the time of borrowing the calculation is visible on graph 4 posted by the arthurian at 4 00 am 3 comments sunday november 17 2013 an explicit qualifier glad to see josh wojnilower is active again i m going to assume he is now fully capable of writing things that are fully beyond my comprehension i m not going to try to participate in any discussion of his new paper on the endogeneity of money but i do want to look at one small piece of the abstract that he shares i think it makes particularly explicit something that needs to be particularly explicit the theory behind endogenous money is that banks issue new loans credit on demand and look for reserves later the federal reserve must ultimately accommodate increases in demand for reserves from the banking sector to maintain an interest rate target in other words if the fed fails to accommodate the demand for reserves interest rates are affected that is absolutely clear and absolutely true and to my mind it is a simple case of supply and demand if demand increases and supply does not prices must rise if the demand for reserves increases and the supply of reserves does not the interest rate on reserves must rise it bears repeating because it is so often left unsaid it is the way the system works too often the afterthought to maintain an interest rate target is left out of the original text leave it out and you re left with a statement that s not really true but people say it all the time people say the fed must accommodate the demand for reserves no it doesn t must accommodate the demand for reserves no it doesn t it depends what the fed wants to do as a rule though the fed has been known to let interest rates change quite often ha i just looked at fred s fedfunds page and guess what i saw averages of daily figures the fedfunds rate changes every day graph 1 fedfunds in the zlb era what brings this to a head why do i write of it because i came across something called explainer how does the fed stimulate the economy where we read yellen emphasized that one of the federal reserve s primary duties is ...
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