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flation of the 1970s total debt increased more quickly than prices went up inflation did not solve the debt problem krugman s solution was tried and failed in the 1970s oh but i have forgotten to allow for the increase of real output very well then let us look at total debt relative to nominal gdp so that we allow for both real growth and price inflation at the same time if the trend line continues to increase during the inflationary period then again we must say that krugman s solution has failed the rate of increase was noticeable slow in the 1965 1980 period but the trend line continues upward debt increased faster that real output and the price level combined in other words the inflation of those years did not reduce the burden of debt in our economy but we didn t really need to look at another graph to know it we knew it already because the 1970s were sluggish not golden and the 1980s were not much better posted by the arthurian at 5 04 pm 2 comments islamic finance prompted by an article on islamic finance in the financial times the us moves are under way to lower barriers changes in tax law are being considered says aline van duyn many years ago i learned that the church in europe forbade charging interest on loans in the middle ages and that islamic law forbids it still to this day my reaction then as now is that these two religious institutions agreed on the trouble interest and debt can bring upon society and agreed in their reaction against it in europe or so i have read somewhere the church s rule opened the door for jews to become europe s bankers and then it seems to me the troubles that arise from excessive interest became in the practical but small minds of christian europeans of the time troubles arising from jews i m not making this up i m just putting fragments together whether any of them are true i cannot say but lacking any other story i take it for history it was longshanks king of england in the braveheart movie who expelled the jews from england because nobody liked them because of the banking thing centuries before hitler little fragments i know nothing of islamic law but islam arose after the fall of rome and i can imagine that concentrations of wealth and income were far greater then than now and interest was just that much more of a burden and two religions had the same reaction to it posted by the arthurian at 4 00 am 2 comments sunday may 29 2011 krugman s graph from paul krugman s inflation and debt wonkish may 28 2011 10 44 am household debt as of personal disposable income the rapid increase of household debt between 1950 and 1965 created the demand that drove the golden age economy the lack of increase between 1965 and 1985 brought the golden age to an end and produced a listless economy the large deficits and optimistic expectations of the reagan era gave consumer spending a boost in the mid 80s consumer debt growth slowed then in the late 80s and continued at a slower pace for a decade probably because the tax deduction for interest expense was eliminated rapid debt growth resumed after 2000 perhaps in part because of pent up demand from the previous decade and then the inevitable crisis changed everything posted by the arthurian at 9 38 pm 1 comments labels 1966 severity the text following graph 3 of the earlier post today boldly presumes that the 1974 recession was substantially more severe than the 1970 and 1980 recessions following a link from jzb s gdp revisited part 1 to calculated risk turns up this graph the container article introduces gdi as the income measurement version of gdp gdp is the output measurement version income equals output but measurements are imperfect the graph shows both gdi and gdp and there are discrepancies the graph is constructed as a percent of the previous peak in both gdp and gdi this shows when the indicator has bottomed and when the indicator has returned to the level of the previous peak if the indicator is at a new peak the value is 100 for my purpose here i m looking at the bottoms the low points the graph shows clearly that going back to 1959 the 1974 recession was substantially worse than any but the recent great recession at least when measured by the gdi the 1982 83 recession comes in a distant third the 1970 recession was among the mildest the graph presents information in an unusual way but i think it is a great way to show the severity of recessions posted by the arthurian at 12 00 pm 2 comments the limbo before 1980 graph 1 this is graph 9 from mine of 22 may this is graph 9 from mine of 22 may if you follow the fast dropping trend line from the start the fall slows down gradually before ending after a few wiggles in 1980 or 81 after that there were new policies in place and the trend line looks different so let s just look at the first part of the thing graph 2 the first half of graph 1 boring let s zoom in closer to 1965 1981 graph 3 the last half of graph 2 oh okay the falling trend line is interrupted by the near recession of 1967 and again but less by the actual recession of 1970 and again pretty severely by the pretty severe recession of 1974 but then the 1980 recession seems to have no effect but no that s not true a response to the 1980 recession is visible in the change that occurs between 1979 and 1980 on the graph so that s three recessions out of three in the 1965 1981 period plus one near recession i think we can say with confidence that recessions have some effect on the trend line of this graph and that only makes sense because the trend line goes down when non federal debt private debt say is growing faster than the federal debt and that doesn t happen during recessions private debt grows faster when the economy is growing federal debt grows faster when the economy ain t growing so the trend line of these graphs is in a sense an indicator of economic growth the greater the down slope the better the economy the greater the up slope the worse the limbo after 1980 graph 4 the last half of graph 1 now here is a roller coaster it doesn t even look like the same data there is a general and quite severe uptrend from 1980 to 1995 this would indicate that economic growth was not particularly good but that doesn t seem quite right growth was certainly better then than in the 2007 2010 period where again there is a severe uptrend so let me take another look there is a severe uptick associated with the 1982 recession okay this fits the rule that the greater the up slope the worse the growth then there is a flat spot 1983 1989 people generally say the economy was quite good in those years note that the fiscal policy of the time called for abnormally large federal deficits by the standard of that time in other words there was a conscious policy effort that drove the trend line up and the fact that the trend line goes up so gradually in those years says that private debt grew very nearly as fast as the federal debt well there ya go that rapid increase in private debt was the source of the economic growth of the period next on the graph from 1989 to 1994 there is a long and dramatic uptrend in federal debt relative to non federal but not much of a recession this up trend is due in part to continued federal deficits but i think it is also due in part to reduced growth of private sector debt a result of tax law changes that i have noted in previous posts in any event by 1995 we reach a high point in the trend line and so there is some space for the trend to fall for a time there is slack the trend line falls from 1995 to 2001 and then again to 2007 the 1995 2001 decline is associated with the balancing of the federal budget and with an expansion of private debt during the good years of the late 1990s the years that jazzbumpa calls a bronze age the 2004 2007 decline may be associated with the bush tax cuts but i have not looked in to that last but not least the massive spike of 2007 2010 is associated with the great recession tax policies and other factors play into it but the trend line of the limbo graph has a clear relation to the quality of economic growth the trend line of graph 1 before 1980 shows a gradual transition from rapid decline rapid economic growth to less rapid decline to no decline at all and terrible economic growth the graph is a growth gauge and another measure of credit efficiency posted by the arthurian at 4 00 am 0 comments saturday may 28 2011 assumptions me and my buddy b had some discussion at work t other day about the weight per square foot of steel plates 10 21 lbs per square foot for quarter inch thick plate in our work we need to know weights of things because we make assemblies that are supposed to float when they go into the water anyway next morning i was looking at his fabrication drawings for that job found a big aluminum plate on a couple drawings figured those were old and the plate spec got changed to steel but i couldn t find a drawing for the steel plate so when b came in i asked that 10 2 number we were talking about that was for a steel plate right he knew right away where i was going i never even thought about it he said i just grabbed the steel book he did half a day s work making adjustments for the weight of the plate based on a wrong number assuming it was the right number didn t catch it til i asked about it now suppose he was an economist not a draftsman and suppose he was working back in the 1970s when stagflation arose and the economy started going south and instead of figuring the weight suppose he was figuring out why the economy was going south and what could be done about it and suppose instead of half a day it was half a century before anybody pointed out the mistake by then of course it wouldn t be just one mistake by then there would be a whole system in place built on flawed assumptions faulty explanations would be embedded in the minds of economists all over the globe it would be difficult to get the thing corrected even when it was obvious the economy was sinking btw an aluminum plate of the same size weighs about one third as much as a steel plate based on the one plate we were looking at posted by the arthurian at 4 00 am 2 comments friday may 27 2011 harvey s new assumptions heteconomist com links to john t harvey on inflation the harvey link is a four page article prefaced by an advertisement with a confounded graphic that makes you wait while it scrolls text up and down the screen every time you turn the page impatience aside the article reviews the equation of exchange mv py harvey says nothing new until the last paragraph of page three where mmt stuff comes into play even then it doesn t get interesting until harvey states his new assumptions with respect to m v p and y i want to look at some of his new assumptions about m a precise definition and identification of money is elusive in a modern credit money economy as jude wanniski said reader s digest feb 1995 p 49 you have to have lived in the 1950s and 1960s to have experienced a good economy sadly many people have never known a good economy some of those people do studies and base their views on stats going as far back as the 1970s those studies consider only the bad economy those views are based on a bad economy it is no doubt true that a precise definition and identification of money is elusive in a modern credit money economy but that definitions are elusive is not the problem it is a result the problem is that we have become a modern credit money economy define money and regulate it and financial innovation will come up with something new and unregulated and then money is undefined again the problem is excessive debt additions to debt are created when the quantity of modern credit money is increased debt is already excessive and has been since the 1970s creating more debt in an environment of already excessive debt does more harm than good yet this is what happens in a modern credit money economy because central banks almost always target interest rates the price of holding cash rather than the quantity of money they tend to simply accommodate demands from banks when private banks communicate that they need more reserves for loans and offer government debt to the fed the fed buys it it s the private sector that is in the driver s seat in this respect not the central bank because central banks almost always target interest rates rather than the quantity of money they tend to simply accommodate demands from banks and what happens if central banks stop targeting interest rates and start targeting the quantity of money again what happens then the central banks no longer provide reserves on demand so the private banks cannot make loans first and get the reserves to cover them later so then banks need deposits before they can lend so then it is no longer true that loans create deposits does the mmt argument fall apart in that moment posted by the arthurian at 4 00 am 9 comments thursday may 26 2011 first robin of spring driving home from work i saw a new car carrier half full of little economy cars does it mean the recession is over or is somebody hiring truckers to drive around the countryside to make people think the recession is over posted by the arthurian at 5 16 pm 1 comments the limbo how low can you go this is graph 9 from mine of 22 may it shows gross federal debt it shows how much federal debt there is compared to how much other debt there is in the u s economy debt other than the gross federal debt federal debt used to be the big portion back when the economy was good after world war two for 20 years or more but all the while the federal debt portion was shrinking and the other portion was growing then in the 1970s the federal portion stopped shrinking and started growing about as fast as the rest of debt oddly then or as i think by no coincidence at all the economic growth boom ended we have been in the doldrums ever since except for the late 90s boom when the federal portion again was falling one solution that comes to mind one way to get another growth boom would be to reduce the federal debt as many people wish to do the trouble is the federal debt is already so low on this graph that it barely has room to drop further before the federal debt can fall it has to go up again there are two ways to do that we can have massive increases in the federal debt and deficits as we have had recently but that makes total debt bigger and that in itself is a problem and it won t work anyway unless other debt is falling the other way is to reduce the level of other debt reduce non federal debt we can do this by waiting 20 or 30 years or more while people gradually reduce their debt by hook or by crook or we can do it by an act of policy debt forgiveness or something equally quick and painless we might even benefit from a strategy that increases the federal debt and uses the money not to expand government but just to pay off private sector debt posted by the arthurian at 4 00 am 4 comments wednesday may 25 2011 i...
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