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gnificantly then it flattened again though it would not be right to call it stable i want to look at the drop zoom in once graph 2 and it appears that the drop begins around 1990 and ends around 1996 zoom in again graph 3 and those dates are pretty well confirmed 1989 to 1996 maybe the drop doesn t look so significant stretched out like this but it is the same drop and the same significance as before suppose we look at tcmdo total credit market debt owed for the same period it goes up of course graph 4 shows how much it went up as a percent change from the year before graph 4 the growth of debt was relatively low in the 1989 1996 years the same years that net interest dropped so fast graph 4 looks at growth of accumulating debt increases of debt but what is an increase in debt it is more credit use the record of more credit use when i borrow a dollar my debt increases when i borrow a dollar it s likely because i plan to spend it spending we can only spend money we borrowed or money we didn t borrow two kinds of money how much of each there is in the economy is a big deal graph 5 graph 5 adds money to picture 4 m1 money annual data percent change from previous year shown in red from 1989 to 1996 there is a good big bump in the growth of money we have looked at this before when the quantity of money rises faster than the accumulation of debt the factor cost of money is reduced this is the reason we saw a significant drop in net interest relative to gdi in graph 1 above oh and for the record the two data series shown in graph 5 are the two components of my debt per dollar ratio it looks like this graph 6 for the 1986 2000 period it looks like this graph 7 that big drop in the ratio was created by faster growth of money and slower growth of debt that big drop started around 1990 and ending around 1994 immediately after that big drop we had an economic boom this is no coincidence the reduced factor cost of money was the necessary precondition for growth this is not the first such drop that i know of the first occurred after the onset of the great depression it occurred during the years of the fdr presidency immediately after that big drop we had an economic boom that lasted two decades or more that was no coincidence either posted by the arthurian at 4 00 am 4 comments tuesday september 27 2011 nobody looks at the macro from yesterday this one graph 1 since 1992 the trend is horizontal here are four different interest rates all quite similar graph 2 here from graph 2 is fred s 3 month treasury bill secondary market rate very similar to the federal funds rate but it goes back to the 1930s together with net interest from graph 1 both series use annual numbers graph 3 why does interest cost rise more slowly than interest rate up to the peak dunno maybe the question is irrelevant it s just a graph but what i would like to say what i can t argue yet is net interest income understates interest cost graph 4 with each series on its own vertical axis interest cost does not rise more slowly than the interest rate but it does fall more slowly why does interest cost trend horizontal rather than falling with interest rates this i know the answer to as time goes by more and more of our spending makes use of credit more and more credit use is embedded in the average transaction as time goes by if interest rates fall by half while embedded credit use doubles there is no decline of interest cost but nobody thinks of it that way i ve been looking a little at a speech by ben bernanke from june 15 2007 the financial accelerator and the credit channel in the conclusion of the speech bernanke says i have taken you on a whirlwind tour of several decades of research on how variations in the financial condition of borrowers whether arising from changes in monetary policy or from other forces can affect short term economic dynamics the critical idea is that the cost of funds to borrowers depends inversely on their creditworthiness as measured by indicators such as net worth and liquidity the cost of funds to borrowers depends inversely on their creditworthiness everybody looks at the individual borrower everybody looks at the micro even ben bernanke even when his topic is macro nobody looks at the reliance on credit overall in the economy nobody looks at the macro posted by the arthurian at 4 00 am 9 comments monday september 26 2011 jackpot i ve run across gross domestic income once or twice before gdi is a different way of accounting gdp a measure of the income side i thought it might be useful as a way to look at factor costs land labor and capital costs as adam smith broke them down i googled gross domestic income and 3 or 4 items down on the list was a hit for bea bea does stats and there ya go quarterly data from 1947 to 2011 annual data from 1929 it downloads as a csv file which excel can read fine but if you want to get all the data excel cannot import it all too many columns if you can believe that bea lists the years across in a row not down in a column and there s just too many years to get all the quarterly data gotta do it in pieces oh well for this post i downloaded the annual data csv openoffice opened the file no trouble at all i took a quick look graph 1 graph 2 graph 3 graph 4 posted by the arthurian at 4 00 am 1 comments sunday september 25 2011 diary with a twist lets not forget how we got here into this global mess globalization banking deregulation privatization and free market capitalism as the cure for everything lucky tan agreed but let s also not forget the prior problems that left us looking for the cure for everything posted by the arthurian at 4 00 am 1 comments saturday september 24 2011 andrei you ve lost another submarine another government shutdown i ll tell you the problem 1 republicans think the federal debt is a result of federal spending 2 democrats think the federal debt is a result of federal spending 3 and you think the federal debt is a result of federal spending that s the problem that and the federal debt is not the result of federal spending debt is not the result of spending debt is the result of credit use i ll tell you the problem 1 u s economic policy fights inflation by removing money from circulation 2 u s economic policy induces growth by encouraging the use of credit 3 u s economic policy removes money from circulation and encourages credit use and debt is the result of credit use we don t have all this debt because of spending we have all this debt because of stupid ideas about money and stupid ideas about credit posted by the arthurian at 9 46 am 7 comments yup a pacer the first thing i ever put on a credit card was back in the 1970s i got new tires at sears for our amc pacer yup a pacer i liked the thing anyway we can assume i ve always had a credit card balance since that day so if we look at it lifo last in first out then i guess i m still paying for those tires 18 annual interest 33 years 1188 just in interest for tires for that car long gone this is what happens when there are no tax incentives to accelerate the repayment of debt if i was the only one i d say forget it but it s not just me posted by the arthurian at 4 00 am 6 comments friday september 23 2011 pink and blue wilt liminal hack asks why can debt growth be described by a mathematically perfect exponential the word perfect bothers me a little however source 1000 memories via gene hayward these are almost perfect except for those endings of course posted by the arthurian at 4 00 am 4 comments thursday september 22 2011 the twist for some reason nine readable lines from a pdf turns into interminable fine print on the blog i have taken one paragraph and an afterthought eric swanson s paper and put a little breathing room between thoughts from let s twist again a high frequency event study analysis of operation twist and its implications for qe2 eric t swanson federal reserve bank of san francisco march 14 2011 pdf 34 pages john f kennedy was elected president of the united states in november 1960 and inaugurated on january 20 1961 the u s economy had been in recession since april of 1960 and the recession was ongoing it would ultimately end in february 1961 although the level of economic activity would remain low for several months into the recovery the incoming administration wanted to stimulate the economy with easier monetary as well as fiscal policy but european interest rates were higher than in the u s leading to substantial flows of dollars and gold to europe under the bretton woods fixed exchange rate system the federal reserve was very reluctant to lower short term interest rates for fear of worsening the u s balance of payments and the outflows of gold to europe the kennedy administration s proposed solution to this dilemma was to try to lower longer term interest rates while keeping shorter term interest rates unchanged the idea was that business investment and housing demand were primarily determined by longer term interest rates while the balance of payments and gold flows were determined by cross country arbitrageurs who act on the basis of short term interest rate differentials swanson s story continues if longer term treasury yields could be lowered without affecting short term treasury yields the reasoning went then investment could be stimulated without worsening the balance of payments and gold outflow thus on february 2 1961 kennedy announced to congress a policy i was almost 12 years old mom had gone back to school to become a nurse the daily paper cost 5 cents i went with her to some event at the college people there were doing the twist posted by the arthurian at 8 00 am 1 comments m1 and m2 2008 source the new york fed posted by the arthurian at 4 00 am 0 comments wednesday september 21 2011 and deeper in debt suppose i have a mortgage payment that s equal to my weekly paycheck but then after a few years of 1970 s style inflation my paycheck has doubled well the mortgage payment is still the same so now it only costs me half a week s pay existing debt comes to look smaller as a result of inflation if i may paraphrase jazzbumpa art wants to tell a story where debt growth has been on a continuously increasing trajectory through the entire post ww ii period clearly this was the case until the onset of the recent recession jazz disagrees showing this graph graph 1 household credit market debt outstanding relative to wages salary accruals of this graph jazz writes the graph above shows there was an actual decrease in debt burden in the 60 s then only a slight increase during stagflation and the moribund carter administration i responded to that as follows true enough but and i didn t figure out how to look at this yet there was big inflation in those years where debt does not rise a lot i m thinking wages went up a lot and maybe additions to total debt went up a lot but existing debt shrank probably a lot relative to the inflation of the time and this is probably why the graph flattens out in those years this is what i want to look at what does inflation do to accumulating debt i worked it out in an openoffice spreadsheet suppose i start with debt equal to 50 of my income and suppose i borrow an amount equal to 3 of my income each year allowing this debt to accumulate but beginning in year 5 and lasting to year 10 there is inflation and my income increases at 5 per year note that my new borrowing increases with my income but my existing accumulation of debt is reduced by inflation inflation reduces the burden of pre existing debt so even with new borrowing that increases in proportion to rising income accumulated debt stabilizes as a portion of income if new borrowing increases at a slower rate than inflating income accumulating debt will decline as a portion of income this is the reason jazzbumpa s graph shows an actual decrease in debt burden in the 60 s then only a slight increase during stagflation the openoffice spreadsheet download the google docs spreadsheet view posted by the arthurian at 8 00 am 6 comments face it i can t stop posted by the arthurian at 4 00 am 0 comments tuesday september 20 2011 who s pissin me off now posted by the arthurian at 6 45 pm 0 comments anomaly in mine of the 10th i showed federal deficits relative to base money here is that relation again omitting this time other data lines graph 1 the federal deficit relative to base money deficits relative to base money seems to me a meaningful ratio it is a comparison of two ways money comes into our economy it looks disorderly at first so i eyeballed in some trend lines to show the trends i see hover the mouse over the graph to see the trend lines to my eye the trends are these 1 flat until the early 1960s 2 rising sharply then through the 1980s 3 falling sharply through the 1990s 4 rising even more sharply since 2000 we could quibble about turning points especially the transition at the end of the 1980s perhaps the change came immediately after the 1982 recession where the blue line shows a high point or perhaps the change came about halfway between the 1982 and 1991 recessions where the decline suddenly becomes more rapid or perhaps as i show the change came just after the 1991 recession or perhaps it came two or three years after that with the obvious wiggle one third of the way down my falling sharply through the 1990s trend we could quibble but obviously there s a turning point in there somewhere the sharp drop of the 1990s or since the early 1980s says that federal deficits fell relative to base money deficits fell now that s not surprising for the clinton years when the budget came briefly into balance but it s not what we typically think of when we think of the reagan years this sharp downtrend wherever it starts whatever its cause i am calling an anomaly i think the anomaly is related to the widening of the gap visible on graph 2 expanding all through the 1990s graph 2 the federal debt and the gross federal debt graph 2 is a log graph the blue line is the federal government debt that is part of tcmdo debt credit market debt the red line is the gross federal debt the space between them is internally held federal debt if that s not right please let me know the space between them widens from almost nothing after the 1982 recession to a pretty good gap by the 2000 recession while the federal budget was by all accounts coming into balance more and more of the federal debt was moving to internal government accounts a pebble in the shoe back on 1 june 2011 i showed this graph graph 3 and i wrote graph 3 shows each year s change in the gross federal debt basically this is like showing federal deficits except it never goes below zero you can see the anomalous decline from 1992 2001 on graph 2 while the federal budget was approaching balance and briefly achieved a surplus but when the budget is in surplus you d expect to see the annual increase in debt go negative in this graph it doesn t it approaches zero but never falls below th...