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ld be intuitive this reminds me of something maynard said it is fortunate that the workers though unconsciously are instinctively more reasonable economists than the classical school you knew didn t you being a debtor is not the same as being a creditor you know the consequences are different if economists don t know it maybe that s because they are looking at models okay to the crux of the matter first krugman sets the stage in the current policy debate debt is often invoked as a reason to dismiss calls for expansionary fiscal policy as a response to unemployment you can t solve a problem created by debt by running up even more debt say the critics households borrowed too much say many people now you want the government to borrow even more krugman rejects the critics view then he adds it follows that the level of debt matters only because the distribution of that debt matters because highly indebted players face different constraints from players with low debt well okay so he needed a model to see it at least he can see it now the distribution of debt matters the consequences are different good job paul but then we get to krugman s next thought and this means that all debt isn t created equal which is why borrowing by some actors now can help cure problems created by excess borrowing by other actors in the past all debt isn t created equal this is krugman s justification for increasing the federal deficit it s pathetic and who are these some actors that can cure problems created by the excessive borrowing of other actors why the federal government of course i don t do models i don t know how to make a model but i know how to look at the numbers and see what they show it ain t rocket science maybe it ain t even economics but the math is simple enough and the math tells me my eyes are on debt in the previous post and my good eye tells me that the apparently monstrous federal debt is nothing compared to the size of our private debt krugman knows debt is a problem but his model tells him it s okay to make the public debt bigger my simple arithmetic says don t make the small debt bigger make the big debt smaller for the overhang of debt continues to be a drag on recovery and debt is the problem that we must solve posted by the arthurian at 6 37 pm 2 comments it s not what you thought based on my post of november 15th a couple years back there was a flurry of excitement over a graph showing that total u s debt had reached 350 of gdp this graph breaks that 350 into its public and private components the public debt shown here includes debt of federal state and local governments the trend in government debt relative to gdp the black line is essentially flat from 1960 until the paulson crisis of 2008 and all that time private debt the red line was climbing so if the increase in debt relative to gdp is a problem the fault lies entirely with the private sector for notes on sources refer to this google docs spreadsheet for the graph shown here refer to this excel file for data and calculations refer to either file posted by the arthurian at 7 10 am 7 comments symmetry for some reason i don t clearly understand a lot of people seem to think that printing money causes inflation but using credit doesn t but if global economic deleveraging the shared desire to reduce debt asap threatens to cause deflation then surely global economic leveraging credit use and the creation of debt could have contributed to inflation or probably contributed to inflation or must have contributed to inflation increasing debt contributes to inflation decreasing debt contributes to deflation it is simple symmetry related but irrelevant to the topic of this post deleveraging is deflationary because it draws money out of circulation if we can reduce debt without drawing money from the spending stream it will not be deflationary my proposal to print money and use it to pay down debt is such a plan oh and it won t cause inflation because the new money is destroyed when the debt is repaid posted by the arthurian at 4 20 am 0 comments saturday november 20 2010 catechism questions q what is the problem with debt a the problem is cost q what is the problem with paying it off a the problem is cost q when does debt become a problem a debt becomes a problem when not paying it off becomes too costly posted by the arthurian at 4 14 am 2 comments friday november 19 2010 a look at the debt problem 4 people used to think we could balance the budget by getting the economy to grow that was the whole notion underlying supply side economics but people these days some of em more and more of em seem to doubt we can ever grow like that again much time has gone by many people have never known a good economy as jude wanniski said in reader s digest feb 1995 p 49 you have to have lived in the 1950s and 1960s to have experienced a good economy it s 15 years since he said that too much time has gone by it must be gradual but in 10 years we could be on top of the world instead of simply hoping that the great sluggish will one day be over my solution to get the economy going again is to print money and use it to pay off debt that s because i think debt is the problem but not the federal debt private debt is the problem our debt yours and mine is keeping us down and keeping our economy down our fault no it is the fault of economic policy bad policy and i say let policy pay let the federal reserve pay and let congress sit on their hands and be quiet posted by the arthurian at 4 08 am 2 comments thursday november 18 2010 a look at the debt problem 3 not the changes of direction but the direction of those changes government debt increases during recessions until the economy starts to grow private debt increases during periods of growth until growth cannot continue when a recession slows the economy private sector debt growth slows when the economy recovers private sector debt growth resumes with every recession public cfpy increases and private cfpy decreases dare i say it the graphs seem to show it is private sector failure that leads to public sector debt growth anomalies there are very few times that the above generalizations do not hold 1 the debt trends appear to change in the middle of the 1991 recession this would directly contradict my generalizations but the problem here is that the recession bar is inaccurate according to the st louis fed the 1991 recession started in july of 1990 and ended in march of 1991 so the recession ended early in 1991 by these dates the cfpy graphs show debt trends that fit my generalizations the recession bar for the 1991 recession makes it look like the recession lasted from january to december of 1991 this is the source of the discrepancy for more on this see my jealousy bars post 2 a peak is visible around 1966 67 on the public cfpy graph but there is no corresponding recession ah but there is almost as paul kasriel put it the lei contracted on a year over year basis from q4 1966 through q2 1967 although no recession was declared by the nber however unofficially this period was referred to as the mini recession of 1966 67 the fed quickly began cutting the funds rate in december of 1966 thereby averting an official recession recession was averted but it was in the works the generalizations hold posted by the arthurian at 4 16 am 0 comments wednesday november 17 2010 a look at the debt problem 2 this post is a follow up to mine of 15 november a further look at the changes in debt took the debt numbers used for my november 15th graphs got rid of the oldest mismatched stuff then figured change from previous year calculations for public and private debt made a graph of that but cfpy numbers vary a lot showing public and private on the same graph made a messy picture i ended up with two graphs graph 1 cfpy private portion of total debt graph 2 cfpy public portion of total debt does size matter the first thing i see in these graphs is that the ups and downs of public debt graph 2 are much bigger than those of private debt it is not immediately clear to me why the two screen clips above show some of my numbers the left hand clip shows the values i started with the right hand clip shows percent change figures for today s graphs the source numbers the left hand clip are shown in graph 2 of november 15th i used them to figure the public and private portions of total debt shown in graph 1 of november 15th the right hand clip is what s new here it shows change from previous year values for those portions of total debt today s graphs show annual changes in the indebtedness balance of the public and private sectors graph 2 cfpy public portion of total debt repeated in that right hand clip you can see the pub tot numbers in column b vary from a low of 7 4 in 1973 to 5 3 in 1974 to a high of 8 2 in 1975 on today s graph 2 repeated at right you can see that big jump from the 1973 low to the 1975 peak with the shading of the 1974 recession behind it i accidentally exaggerated this jump by going with newer data switching from the 1956 1995 data series to the 1975 2009 series at 1975 as i did for the graphs in the previous post but the exaggeration is slight if i had only used the 1956 1995 series the 1975 peak value would have been 8 0 rather than 8 2 almost the same number whatever anyway that s what i did it turns out that the cfpy jumps are bigger for public than for private debt because public debt is smaller so a given jump stands out more in comparison to public debt for example between 1974 and 1975 public debt increased from 24 3 of total debt to 26 3 at the same time private debt fell from 75 7 of total debt to 73 7 in both cases the change is two percentage points of total debt but for private debt the change was 2 out of 75 7 percentage points that s less than a 3 change for public debt it was a change of 2 out of 24 3 an increase of 8 2 so the change looks bigger for public debt than private because public debt is so much smaller the when of it the next thing i notice on the public graph is that the big changes in public cfpy do not begin until the 1974 recession the change from 1974 to 1975 is the first big one on the 15th i linked to a graph by ross perot from his 1992 book that showed the number of generations required for u s living standards to double before 1973 less than two generations were required after 1973 12 generations are required perot s graph shows a significant slowdown in economic growth in the years after 1973 that slowdown makes an appearance on my graph 2 as a dramatic increase in the size of the public cfpy changes since 1974 the change in public cfpy is clearly associated with the economic slowdown so either the economy slowed immediately in response to suddenly increased government deficits or the economic slowdown came first and increased deficits were the response the latter is what happened of course but it is worth noting that public cfpy changes continue to be large meaning that the 1974 slowdown has not yet abated below zero the next thing i see on the public cfpy graph is that before the 1974 recession all of the changes take place below the zero line most of the changes before 1974 are between zero and 5 below what this means is that all of the public cfpy changes between 1957 and 1973 were decreases in plain language the public share of total debt was decreasing until the 1974 recession the private eye the public cfpy graph shows small changes until the 1974 recession and large changes after on the same graph the entire trend line is below zero until the 1974 recession after that recession the trend line is more or less centered on the zero and crosses the zero easily it is as though there are two different graphs here or at least two different sets of circumstances shown on the graph before 1974 and since graph 1 cfpy private portion of total debt repeated having noticed this 1974 shift on the public cfpy graph the eye expects to see something similar on the private cfpy here there is no clear shift in the size of the changes but it is easy to see that the red trend line of this graph is entirely above zero until the 1974 recession those are the same years that public cfpy was entirely below zero and it is easy to see that since 1974 the red trend line like the black one looks to be centered on the zero summary the big jumps in public cfpy only start in 1975 everything on the public graph is below zero until the 1974 recession and everything on the private graph is above zero until the 1974 recession changes in public debt were small until the 1974 recession but larger since that time until the 74 recession the tendency of public debt was to decrease until that same recession the tendency of private debt was to increase since the economic slowdown of 1974 the end of our so called golden age the tendency of government debt to decrease has dissipated these changes suggest it was the economic slowdown the change noted by perot and others that caused the trends of debt to change these changes also suggest that government debt grows more when the economy is slow than when it is healthy but that since 1974 the growth of public debt has not restored economic vigor increased public debt has not restored economic vigor since 1974 but neither was it an increasing public debt before 1974 that undermined economic vigor in the years before 1974 it was private sector debt that was increasing these observations suggest that the solution to the federal debt problem is to make the economy vigorous again by reducing debt in the private sector posted by the arthurian at 4 27 am 0 comments tuesday november 16 2010 simplified from this page at perotcharts what i think i think the debt issues discussion of the past 30 years was already simplistic and over simplified posted by the arthurian at 4 22 am 14 comments monday november 15 2010 a look at the debt problem pretty much everybody is focused on spending cuts and balancing the federal budget everyone sees the federal debt as a problem but for thirty years or more we have been unable to solve the debt problem to me this suggests that something is wrong with our solution so i thought it time to take another look at the debt the size of it people say the massive government debt is a problem i agree and yet private debt is four times the size of government debt graph 1 shows public and private debt as shares of total u s debt against a background showing recession years graph 1 the portions of total debt the red line that starts high drops in a sharp v during world war ii then rises again and ends high is private debt as a percent of total u s debt private debt is very high government debt is low by comparison the black line that starts low rises to a peak during world war ii then drops off and ends low is government debt as a percent of total u s debt that s federal state and local government debt combined if the debt is too big and there can be no doubt it is too big private debt is by far...