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closing faster anyway posted by the arthurian at 4 00 am 1 comments wednesday march 19 2014 ƛ yesterday i took the growth rate of employment scaled it to the same amplitude as the growth rate of household debt and centered the one line on the other this process stripped away differences between the two lines other than differences of pattern that permitted me to compare the patterns of the two datasets so then i subtracted the one from the other to see the difference the blue line on the graph below shows the difference value the red line is a hodrick prescott trend line graph 1 fitted employment growth date less debt growth rate blue and a hodrick prescott trend red you might have expected to see something like this graph 2 the same data but the hp calc uses a different value for lambda almost the same the blue line is the same the red line is a little bit more wiggly the big difference is in the legend where the lambda value has changed from ten thousand to sixteen hundred the lambda is a constant used in the hp calculation i don t know why they call it lambda but it seems to be pretty important it seems to be always reported in the notes that accompany graphs that show hp trend lines as i noted almost a year ago now there is apparently a rule of thumb for picking a lambda value it depends on the frequency of the data for yearly values a low number 100 for quarterly data higher 1600 for monthly data higher yet 14400 i already know from looking at the two graphs above that the lambda value determines how much smoothing you get in the graph a higher number gives more smoothing so i thought i d look at a variety of lambda values all applied to the same data the source data here is quarterly which means the rule of thumb lambda constant would be 1600 here s what happened when i changed the constant graph 3 lambda 100 graph 4 lambda 1000 graph 5 lambda 10 000 graph 6 lambda 100 000 i used to think i should stick to the rule of thumb values as a rule now i think those values are just a starting point if i really want to see the trend i can increase the lambda until the little wiggles go away and yeah if you re going to be using non standard lambda values then that s a good reason to always report it in the notes that accompany the graph preview or download the excel file from google drive note that the file contains my visual basic macros for formatting my graphs and kurt annen s visual basic for the hodrick prescott calculation also above the graph it says 1600 lambda change that number from 1600 to some other value and you change the graph update 30 march 2014 for my intro to the hodrick prescott calculation a link to an excel add in a how to use link and a link to some tips see de trending posted by the arthurian at 4 00 am 0 comments tuesday march 18 2014 i can picture what i want to do now i have to find the words here s the second graph from 4am yesterday troy s graph tweaked graph 1 percent change from year ago employment blue and consumer debt red i said it shows two lines that run pretty close together except in the 1960s and the 1990s so i started thinking about subtracting the one line from the other to look at where the differences arise you never know if something like that will turn out to be interesting that s what makes it so interesting yeah two lines close together except they re on two different axles two different axes the lines are pretty close together but the numbers themselves are not where the blue line is zero the red line is seven where the blue line is 10 the red line would be 23 the numbers are not usefully close but the patterns are teasingly similar and yet intriguingly different during the 1960s and 1990s the two decades of above average economic performance intriguing then i remembered a technique i learned from lars christensen it goes something like this subtract from series a the average value of series a and then divide by the standard deviation for series a and then multiply by the standard deviation for series b and then add the average value of series b at that point no further adjustment should be needed for comparing a and b that set of calculations i call christensen fitting the data i don t know if it s a standard technique and if so what the name of that technique is or if lars christensen invented it but i like it so i downloaded the data from fred and set to work i went right back to fred then changed the monthly payems series to quarterly so it matched the debt series and downloaded the data again the cmdebt data was intermittent before 1952q4 so i deleted the data for both series before that date then all i had to do was find a spreadsheet with the calcs christensen used and duplicate the calcs he used the stdevpa and average functions so i did the same here are the numbers i came up with next i went back to fred and plugged in the numbers for the christensen fit here is the result graph 2 the christensen fitted version of graph 1 this graph looks very much like graph 1 above the difference is that now both datasets use the left axis the payems numbers have been scaled and shifted to match the cmdebt numbers hm fred must use a calculation very much like this to scale and shift the right axis numbers when two axes are used on a graph okay now that i have the employment numbers fitted to the debt numbers i can subtract the one set from the other and see the difference graph 3 fitted employment growth date less debt growth rate now it s getting interesting uptrend to about 1966 downtrend to about 1980 uptrend next but not as rapid as before or maybe it s a low plateau in the 1980s and a higher plateau in the 1990s and then a big drop but the big drop occurs about a decade before the crisis now that s interesting i subtracted the debt growth rate from the employment growth rate so where the line is below zero debt growth is the bigger number again where the line is below zero the debt growth rate was faster than the employment growth rate well i have to be careful here the debt growth rate is always faster than the employment growth rate if i go back to the first graph and put everything on the left axis it looks like this graph 4 not fitted and on the same axis debt growth red is way faster the debt growth rate is always a lot faster than the employment growth rate except there at the end after the crisis well yeah that s why i fitted the one series to the other so we could compare them but i have to be careful how i talk about it so let me try again on graph 3 i subtracted the debt growth rate from the fitted employment growth rate so where the line is below zero debt growth is the bigger number that is where the line is below zero the debt growth rate was faster than the fitted employment growth rate where graph 3 is below zero the debt growth rate is relatively faster than the employment growth rate where graph 3 is above zero the employment growth rate is relatively faster than the debt growth rate where graph 3 shows a trend of increase before 1967 the trend favors employment where it shows a trend of decrease 1967 1980 the trend favors debt growth i downloaded the fitted data from fred put it into excel and added a hodrick prescott trend line to it graph 5 same as graph 3 blue with a hodrick prescott trend red i m repeating this graph in tomorrow s post if you have any comments on my lambda value save them up for that post the trend favors employment till about 1967 then debt till 1980 employment till the mid 1990s then debt again since maybe 2003 the trend favors employment till about 1967 that s interesting i think i have it in my notes that scott sumner identifies the years 1952 1964 as a big debt surge but despite surging debt employment grew more can that be right graph 6 no of course not debt always increases faster than the number of jobs but look at it this way from 1952 to the mid 1960s employment was winning in a race of go karts at the same time debt was losing in a race among dragsters then from the mid 1960s to 1980 employment was losing among go karts and debt was winning among dragsters that s what graph 3 and graph 5 show the sumner debt surge of 1952 1964 notwithstanding now look at it this way the employment growth of 1952 1966 was faster compared to employment growth of the whole 1952 2013 period than the debt growth of 1952 1966 compared to debt growth of the whole period debt growth in the early years was only moderate as debt growth goes while employment growth in those same years was very good for employment growth yeah that s it posted by the arthurian at 4 00 am 4 comments monday march 17 2014 i steve keen from closing the door on the gfc by steve keen at business spectator central banks hope they can fine tune the economy using the interest rate alone and with us unemployment levels now within cooee of the level at which ben bernanke said monetary policy could return to normal the federal reserve may start to increase rates in late 2014 this belief that getting the interest rate right is all that it takes to keep the economy out of recession is the product of economic models not of economic experience when you look at the data there isn t much of a relationship between the interest rate and recessions but in fact there is a much clearer relationship when you include one factor that these models ignore the level of private debt look not at interest rates alone but interest payments as a percentage of gdp you may have heard similar things from me oh yeah one more thing i thought it was a typo posted by the arthurian at 8 14 pm 1 comments the new fred the pink error message appears to be something left over from the old fred only it s missing a number it should read like this each data series can only combine up to 10 individual series my data series 1 has two individual series only one of which appears on the graph contrary to the a b calculation i entered in a field you can t see in the image i got the error when i created data series 2 with only one individual series i miss the old fred already posted by the arthurian at 12 00 pm 0 comments i tweaked troy s graph troy linked to this graph in a comment on jazzbumpa s equity extraction and personal consumption expenditures graph 1 blue is yoy job gains troy says and red is yoy consumer credit growth troy wants us to see the part where the two lines are similar since about 2002 when employment was pushed up and dragged down by changes in credit use i see it but what catches my eye is the time before 2002 when job growth was high and debt growth was low the macroeconomic miracle years i tweaked troy s graph to look at more years and to look at percent change i got two lines that run pretty close together except in the 1960s and the 1990s graph 2 percent change from year ago employment blue and consumer debt red in the 1990s the blue runs well above the red for near a decade in the 1960s the same thing happens two particularly good decades the sixties and the nineties and troy s graph shows it good graph troy posted by the arthurian at 4 00 am 2 comments sunday march 16 2014 we owe it to ourselves again steve keen i couldn t con vince sev eral of the aca d e mics in the audi ence of the impor tance of pri vate debt they kept com ing back to one person s debt is another person s asset there fore the level of debt doesn t mat ter yeah and i just ran across this again from paul krugman of all people so a few more thoughts on debt and what it does and doesn t signify start with the numbers that stockman loves to cite showing the ratio of total debt public and private to gdp stockman and to be fair quite a few people would have us see this as evidence that we have been on a vast spending spree ok the sheer size of that number should tell you immediately that this can t be right yes we have run trade deficits and moved from being a net creditor to being a net debtor but it s not that big a deal and we still earn more on our foreign assets than we pay on our foreign liabilities so the surge in debt reflects a surge in money americans owe to other americans krugman the surge in debt reflects a surge in money americans owe to other americans there it is again what steve keen said one person s debt is another person s asset we owe it to ourselves okay i went back and finished reading krugman s post he says this is how you want to think about debt it s not a burden on the nation s resources because it s mainly money we owe to ourselves and it s a problem not because we have to tighten our belt but because debt is currently leading to spending that s less than we need to maintain full employment the last part of that is good so good that i can almost overlook the we owe it to ourselves part but if it is true that debt is currently leading to spending that s less than we need to maintain full employment the growth of debt is the reason krugman acknowledges that debt has grown but seems to miss the point that it was the growth of debt that gradually undermined the spending we need to maintain full employment he gets the ending there was a moment all of a sudden when unemployment shot up and an output gap opened and he can see that the high level of debt was the cause of it but debt didn t suddenly jump to a high level and cause the sudden opening of an output gap debt was creeping up for a long time having a harmful effect on growth for a long time until a final straw broke the camel s back and created the output gap debt was excessive meaning debt was hurting the economy for a long time a long time graph 2 stages of the slowdown in real growth krugman doesn t seem to see it he says debt is currently causing problems but there is so much more to the story oh and the other thing debt it s not a burden on the nation s resources because it s mainly money we owe to ourselves i don t know what the hell that means a burden on the nation s resources resources debt is a burden on the people who owe it even though we owe it to ourselves or to each other or the many of us owe it to the few of us whatever no matter who we owe it to the money we pay for our debts is money that goes to finance rather than to labor or to productive nonfinancial business the money we pay for our debts adds to cost without adding to output oh yeah we may use that money to produce stuff or to buy stuff but we could as easily have used our income for those purposes instead of borrowed money as easily or more easily if policy encouraged it but policy does not policy encourages saving why i do not know maybe so banks have money to lend but hasn t that logic been shot down so policy encourages saving for no reason no economic reason policy encourages saving because people like the idea maybe it s not a policy that actually helps people save but nobody seems to get that eh regardless policy encourages saving when money goes into saving money goes out of circulation funny thing is it s money in circulation that we receive in our paychecks the mo...
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