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n a graph along with fred s debt service data graph 3 combining the data egads it s worse than i thought funny how red and green can run so close to blue for most of the years after 1980 but so far from each other in the years before oh well at least i got a blog post out of it at january 23 2019 no comments email this blogthis share to x share to facebook share to pinterest labels debt service before 1980 tuesday january 22 2019 why didn t i think of this before debt service includes the payment of interest and the payment of some portion of existing debt fred has household debt service as a percent of disposable personal income they have household debt and household interest paid and disposable personal income i can set up a calculation where i take interest paid add some percentage of existing debt and divide the total by disposable income then i can tweak the percentage number to get my calculated number close to fred s debt service number on a graph the percentage number i get will be a rough estimate of how much debt we repay each year this calculation assumes that we pay the same percentage of our income our debt every year is that a good assumption well the graph will show us if the lines run near parallel from start to finish it is a good assumption we could then say that on average we repay so and so percent of our debt every year but if the two lines veer apart it s not a good assumption my method will be to try different percentage numbers till i find one that brings the lines close together i know there is a better way regression or least squares or something but i don t know the one and don t remember the other so i ll just guess and see how it turns out graph 1 household debt service since 1980 blue and my calculation red okay if i narrow the graph at fred part of the upper border text goes missing that s unacceptable so i left the thing the default width made it taller and saved the image then shrunk it down more than i normally do to fit the blog space as a result the text on this graph is smaller that usual and more difficult to read thanks a lot fred to see the graph bigger of course you can just click it the blue runs a little above the red at the start and end and a couple spots between the two run tight together in a couple places and blue runs a little below red for the rest i m saying they run nearly parallel and pretty close together the graph says that on average we repay about 4 5 of our debt each year couple thoughts i can look at the discrepancy the difference between red and blue and try to find how the differences arise recession related recovery related extremedebtburden related i can work backwards and calculate the percentage repayment numbers instead of guessing them might be interesting to see that something else if i m satisfied that my red line calculation is good rough but good then i should be able to say that the red line is an estimate of household debt service all the way back to the late 1940s that would be useful at january 22 2019 1 comment email this blogthis share to x share to facebook share to pinterest labels debt service before 1980 monday january 21 2019 minsky s second in a recent post i quoted minsky the second theorem of the financial instability hypothesis is that over periods of prolonged prosperity the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system i hope minsky means not that a period of prolonged prosperity gives people enough time to do things that move the economy from stability to instability but rather that decisions are made and things are done specifically to prolong the prosperity and these decisions and things have the effect of moving the economy from stability to instability at january 21 2019 no comments email this blogthis share to x share to facebook share to pinterest sunday january 20 2019 sometimes you wake up in the morning and there it is another hoarding related post from nine years back one way the federal reserve can fight inflation is to sell some of its assets if it sells a t bill to someone in exchange the fed receives money that someone was willing to spend the fed receives that money and holds it and it is no longer in circulation i get it now a few days ago i wrote you can only either spend or save i wrote people make their own decisions here s the thing you can only either spend or save but while you re deciding between the two you are holding money here s the picture that was in my head when i woke up this morning the heavy line between hoard and flow represents the range of possible attitudes toward holding money call it the hold line if you don t hold money very long your spending happens near the flow end of the line if you do hold money a long time your spending shows up closer to the hoard end the diagram also shows that hoarding is not the same as saving if you save a dollar your bank will put it to use lending out multiple copies of it but until you put it in the bank you are holding that dollar and as long as you hold it no one is putting it to use the money you hold may count as being in circulation but it is not in circulation just like at the fed oh and the active point on the hold line determines velocity at january 20 2019 no comments email this blogthis share to x share to facebook share to pinterest saturday january 19 2019 growing wealth by holding money in a recent post i wrote glasner says that holding money costs you money reading that now i am reminded of something i read many years ago it is possible that one s wealth may be increased by hoarding money under the mattress or somewhere like for in a time of deflation your money becomes more valuable the irony in that is that if enough people with enough money decide to hoard as much as they can prices will fall and their hoarded wealth will increase in value not irony exactly but it is a way to induce the death of a nation or a civilization found it i first came upon the word hoarding in the general theory some thirty years ago the economy was different then hoarding was not something in the news not part of the world i understood i had trouble with the concept below are some notes and quotes gathered since that time friedman free to choose p 74 a run that results in hoarding of cash by the public tends to reduce the total money supply samuelson economics 1958 edition p 269 a hoarder who earns no money interest on his mattress cache finds the real value of his wealth increasing every day as prices fall hoarding reduces the amount of circulating money which causes deflation which causes the value of the hoard to increase in other words there are times when money under the mattress will increase in value as though it were collecting interest in a bank perhaps something david glasner never thought of holding money doesn t necessarily cost you money yeah and hoarding by itself if there s enough of it is enough to bring on the deflation that grows your wealth ooh it is irony isn t it also in case you were wondering the old apple tree is there too at january 19 2019 no comments email this blogthis share to x share to facebook share to pinterest wednesday january 16 2019 to sharply distinguish between money and credit it took quite some time but i finally have a response to david glasner s price of money post in his post glasner quotes milton friedman the interest rate is not the price of money the interest rate is the price of credit and right up top in the title of his post glasner says friedman says the rate of interest is not the price of money don t listen to him i had been taking glasner to mean the rate of interest is the price of money not the price of credit that was wrong glasner doesn t say the interest rate is not the price of credit what he says is the interest rate is the price of credit and the price of money too at least that s how i read him now the word credit appears seven times in the quote glasner takes from friedman but only once in glasner s response in this sentence so although the interest rate is in some sense the price of credit it is indeed also the price that one has to pay or of which to bear the opportunity cost in order to derive the liquidity services provided by that unit of currency the phrase in some sense threw me but now i see glasner is saying that the interest rate is the price of credit and indeed also the price of money he s not saying that the interest rate is not the price of credit so i can live with it i did think glasner should have said indeed also the price of holding money not the price of money but i now see this is what he says though not all in the one sentence glasner opens the paragraph by saying there is also a rental price for money and that rental price represents what you have to give up in order to hold a unit of currency 1 everything is there glasner s view is that the interest rate is in some sense the price of credit and is also in the holding money sense the price of money i get it now that said however i still find glasner s post troubling it s not all bad parts of glasner s post are great for the longest time i had trouble understanding what holding money means glasner has cleared this up for me he describes the rental price of money as what you have to give up in order to hold a unit of currency and what you give up is the interest you forego by not lending that unit of currency to someone else i understand if you re holding money you keep it where you have immediate access to it you don t put it in a cd say because you would have to wait for the cd to mature before you can access the money when you hold money you keep it in your pocket or in your bank account as glasner puts it in your pocket or in your demand deposit account immediately accessible or under the mattress or in a box buried under the apple tree if you re holding money as glasner makes clear you re not lending the money to someone else and if you re lending it you re not holding it also spending it doesn t come up in glasner s post but if you re holding money you re not spending it and if you re spending it you re not holding it so i get that now almost 70 friggin years old he mumbled under his breath before i learnt what holding money means some parts of glasner s post are great some are not the thing is too wordy to suit me his sentences are often too long to fit between my ears for example the sentence where he describes what you have to give up in order to hold money what you sacrifice is the interest you pay to the one who lends you the unit of currency or if you already own the unit of currency it is the interest you forego by not lending that unit of currency to someone else who would be willing to pay to have that additional unit of currency in his pocket or in his bank account instead of in yours 2 in fewer words what you sacrifice is the interest you pay to the lender or if you didn t borrow the money the interest you could earn by being a lender that s what he says my way is a little shorter i have to shorten and restate sentences sometimes to get the meaning and now that i get glasner s meaning it troubles me if i want to hold the money he says i have to pay interest on it or not earn interest on it one or the other he says this again later in the post and makes it explicitly either or anyone holding deposits is either by paying interest to the bank or is foregoing interest that could have been earned by exchanging the money for an interest bearing instrument 3 to hold money glasner says either you pay interest or you forgo interest either or but this is not correct the two costs are not mutually exclusive they can combine in various ways if i earn a dollar i can lend it or hold it if i borrow a dollar i can lend it or hold it the decision to lend or hold is independent of the decision to earn or borrow if i choose to hold money i choose not to lend it so i cannot earn interest on it take that as a given but if i choose to hold borrowed money i m paying interest on it and i cannot earn interest on it that s not either or it s both it doesn t work as glasner describes if i borrow money i pay interest 4 if i hold money i forgo interest those are the options it s not an either or situation glasner mixes up the options and confuses them together i can earn money or borrow to get it once i have the money i can hold it or not if i choose to hold the money i forgo interest income from it no matter how i got the money and if i borrow money i pay interest on it whether or not i choose to hold it glasner s either or plays no role at all in this there are four possibilities i can earn and hold or earn and not or borrow and hold or borrow and not four possibilities do not make an either or choice the part where you pay interest if you borrow the money that s milton friedman s price of credit view the part where you forgo interest if you hold the money that s glasner s price of holding money broken out this way it makes good sense to me i should say though that foregoing interest is not the same as paying interest paying interest is a contractual obligation between you and someone else foregoing interest is a personal choice beyond that paying interest is an actual expense foregoing interest is an opportunity cost the two are simply not the same let s go round again either you earn money or you borrow it if you borrow you pay interest on it borrowed money has an extra cost that earned money does not have borrowed money and earned money are different that is why i distinguish between earned and borrowed money calling one money and the other credit 5 there is no distinction between money and credit that arises from holding them let me take these thoughts a step further the opportunity cost which arises from choosing to hold money or credit exists for you only as long as you hold the stuff if you lend it the opportunity cost passes to the borrower if you spend it the opportunity cost passes to the recipient the recipient or the borrower becomes the one who must decide whether or not to hold the money the opportunity cost travels with the money this is not true for the actual cost the interest on money borrowed the cost of interest remains with the borrower until the loan is repaid no matter whether the money is held or spent the price of credit is therefore different from the price of holding money the economic consequences differ the cost of interest remains with the borrower until the loan is repaid no matter whether the money is held or spent or lent again the opportunity cost by contrast stays with the money and moves from hand to hand with the money the burden of interest remains with the borrower the burden of choosing what to do with the money remains with the money apart from the length of glasner s sentences and his erroneous treatment of borrowing and holding i have a few other specific problems with his price of money post the omission of spend...