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f you google interest cost or interest cost data or stuff like that it s pretty easy to find how to figure the cost of a loan and pretty easy to find info on everybody s favorite fall guy the federal government but it is hard to find info on interest costs in the private sector so i had a thought why don t i use the total interest cost on government debt to figure an average interest rate for government debt each year and then use that number as a proxy for the average interest rate of private sector debt i don t know how totally valid this approach might be but it is representative it will give me something to look at assuming i can find the relevant data for the federal government got it the omb site has a historical tables link with a good handful of excel files available for download table 6 1 shows the composition of federal outlays for 1940 2016 including net interest table 7 1 shows federal debt at the end of the year for the same period i took the ratio to get an average interest rate for the whole federal debt it s got the same 1982 peak that you might see in the federal funds rate no surprise there i guess see that odd short bar in the middle around 1977 that s an accounting adjustment labeled tq third quarter in the file it s in both tables if i use these numbers as a proxy for the average private sector interest rate i m just gonna delete the tq line posted by the arthurian at 4 00 am 0 comments labels fcm sunday february 19 2012 everyday you probably won t be able to tell from my post here but i actually liked josh hendrickson s post and also the one marcus nunes links in his comment there so you know from nominal income and the great moderation at the everyday economist the period from 1984 through 2007 was one that exhibited a marked decline in macroeconomic volatility as such it is commonly referred to as the great moderation this period has potentially important implications for policy if for example the reduction in volatility was the result of smaller exogenous shocks to the economy then we can largely view the period as one of good luck however if the reduction in volatility can be linked to a change in policy then this period can potentially provide guidance as to how policy should be conducted in the future not too much macroeconomic volatility in the dark age either sometimes i don t understand where people are coming from it s not just this guy josh hendrickson who wrote the post it s the whole notion that moderation is great no it s bigger than that or smaller probably first there was the golden age the economists of the time had basically nothing to do with that but that didn t stop them from saying things like president lyndon baines johnson s budget director charles l schultze said we can t prevent every little wiggle in the economic cycle but we now can prevent a major slide reported in time magazine 31 dec 1965 later came the great moderation economists really had little to do with this either except possibly by accident as is suggested by josh hendrickson s ambivalence regarding luck versus policy as the source of the moderation but that didn t stop them from saying things like my thesis in this lecture is that macroeconomics in this original sense has succeeded its central problem of depression prevention has been solved for all practical purposes and has in fact been solved for many decades robert e lucas jr pdf january 10 2003 history is written by the victors and economic history is written by people claiming to be right reminds me of what i wrote in christina at 50 the paper presents the myopic and egotistical view that 50s policy was right because it is comparable to modern policy the authors write we show that policy in the 1950 s was actually quite sophisticated they do not say actually quite sophisticated by present standards but that is clearly what they mean they do not say the policy of the 1950s was surprisingly sophisticated which would have expressed surprise they say policy was actually quite sophisticated the words actually quite seem to suggest arrogance rather than surprise as if coming from a position of modern superiority see i m doing it too posted by the arthurian at 4 00 am 2 comments my wife bakes for the dogs i have nothing else to say about that posted by the arthurian at 3 18 am 4 comments saturday february 18 2012 jw mason 4 see it s micro my continuing saga of reading jw mason s fisher dynamics in household debt pdf 31 pages from page 6 discussions of leverage typically focus on the saving decisions of individual units posted by the arthurian at 12 00 pm 0 comments jw mason 3 because debt is a stock my continuing saga of reading jw mason s fisher dynamics in household debt pdf 31 pages page 5 because debt is a stock its adjustment must take place over time an economic unit targeting a substantially lower level of leverage will typically seek to reduce its consumption relative to its income over a number of periods producing an ongoing drag on aggregate demand i was gonna let that stand by itself because it is beautiful but i kept reading and i had a thought this is the next sentence after the one quoted above unlike other factors depressing output whose effects should not be expected to persist once the initial cause is removed a crisis that results in many units finding themselves with leverage levels that are seen to be too high may lead to a long period of depressed output even after the initial crisis is resolved well sure debt is not just a stock debt is an accumulation over time that s what a stock is i guess it took sixty years from the start of the golden age in 1947 to the start of the crisis in 2007 to accumulate enough debt that we couldn t deal with it so it should come as no surprise that we cannot solve the debt problem in the blink of an eye the solution is to reduce by half or more the debt it took a lifetime to accumulate posted by the arthurian at 8 00 am 6 comments jw mason 2 what context for debt my continuing saga of reading jw mason s fisher dynamics in household debt pdf 31 pages part 2 of mason s paper opens thus traditionally economists have attributed only a minor role to leverage the ratio of economic units gross liabilities to some some measure of their income or net worth in understanding macroeconomic outcomes a few days back i had some trouble understanding the interest coverage ratio which looks at some portion of income as a multiple of total interest owed leverage is the leviathan relative of that looking at total debt owed as a multiple of some measure of income graph 1 debt per gdp let me again make the point that looking at debt relative to income widely used by lenders in micro economic encounters even if it plays only a minor role in macro analysis looking at debt relative to income is like inbreeding every dollar of debt becomes somebody s income income is a false support for debt a sudden urge to deleverage will undermine income as we well know and income can collapse faster than debt can be repaid this is the truth that irving fisher spoke and steve keen speaks today edit changed debt is a false support for income to income is a false support for debt oops 1 august 2014 graph 2 debt per dollar i prefer to look at debt relative to the quantity of unencumbered money relative to m1 or base relative to the money that must be used to repay debt the money for which the quantity of money is reduced when debt is repaid spending money but mason prefers to look at the same ratio that everybody else looks at debt relative to income mason prefers the same guide used by lenders and policymakers in the run up to the recent financial crisis debt relative to income what constitutes a sustainable ratio of government debt to gdp has long been a central concern for public finance more recently the behavior of and limits to the debt income or debt net worth ratios of other economic units have become salient questions as well and again if units assets are not reliable sources for either funding or market liquidity then the capacity to service debt out of current income becomes paramount sure but total income is equal to the sum of its micro economic parts aggregate money measures on the other hand are macro measures mason and the others prefer a micro economic analysis of the macro economic problem see also context posted by the arthurian at 4 00 am 3 comments friday february 17 2012 a birthday and my war on debt continues apart from all else happy birthday to my son jerry it is occasionally said that fighting the supply of illegal drugs has failed to stem the drug trade and fighting demand would give better results if people were somehow convinced not to buy illegal drugs the drug trade would wither away i see the same solution for a different problem another four letter word that starts with d debt if we can somehow convince people to borrow less and pay back more then debt need never again accumulate into the kind of problem it has become for us if we cut demand in half the business of lending will shrink and creditors will have to find better things to do with their money productive things perhaps don t get me wrong i don t blame borrowers for the mess we re in today i don t even blame lenders i blame policy you you can blame lenders if you want but if you want lenders to change you still have to change policy all hills and valleys the unlimited deduction for corporate interest payments originated in 1918 since then the history of our economy has been a long ride up the hill of debt accumulation down the hill of global depression and war and up the hill of economic recovery and debt accumulation again you can see that here graph 1 debt per dollar of income generated with that debt it is easier to see the hills and valleys here graph 2 debt per dollar of spending money the second graph also i think better conveys the scale of the current problem a tax deduction for corporate interest payments means that corporations don t pay income tax on the income they use to pay interest it makes borrowing money a way to avoid paying income tax of course businesses can also deduct the money they spend paying their employees wages are a deductible cost just like interest but for the cost of interest you get money to spend for the cost of wages you get attitude but i guess if you borrow money and use it to pay wages you get to deduct the wages and the interest payments from your taxable income the tax deduction for interest expense encourages businesses to borrow that s good for economic growth or it would be if there was not already too much debt in our economy still it should be clear that increased borrowing has not been a very great boost for economic growth for a decade or more forty years more like follow the money consider the years after world war two up to the end of the time before reagan this period some three decades includes both the golden age and the great inflation interesting the great inflation begins around 1965 basically in the middle of those decades before reagan and more and more i am coming to think that the golden age ends around 1965 though it is often said to run into the 1970s one might say this period encompasses both the keynesian era and the death of the keynesian era graph 3 interest costs rise as employee compensation falls all through those years corporate interest costs increased as a portion of total corporate income tax deductions and corporate compensation of employees fell corporate interest costs absorbed corporate income making that money unavailable for wages and salaries and unavailable for profits graph 4 interest costs eat into wages by 1965 interest costs were starting to push up prices in the 1970s the news reported a wage price spiral but wages were not the problem wages were not a rising share of corporate costs wages were a falling share the cost of interest was the problem and it was fully deductible update 2 44 am 2 19 2012 graph 1 was developed on sheet1 and graph 2 on sheet7 of my debt to gdp spreadsheet google docs graphs 3 and 4 come from sheet1 of the components of corporate cost spreadsheet this sheet is a copy of the one linked in my comment below update 6 october 2015 due to changes in google docs the graphs in this post were not being displayed so instead of trying to use interactive graphs i just did screen captures of the four graphs and stuck them in the post in place of the empty rectangles that were being displayed too many words i fixed it posted by the arthurian at 4 00 am 4 comments labels 1966 thursday february 16 2012 private debt 2012 7 confusion some things cannot be said often enough excessive private debt is the problem sometimes i say excessive private debt is the problem sometimes i say excessive total debt is the problem which is it art the problem is not the federal debt the federal debt is not the problem everybody is focused on the federal debt and nobody can solve the problem because the federal debt is not the problem so i always say private debt is the problem pretty soon maybe the people who focus on the federal debt will open their eyes and see that the federal debt is not the problem and then they too will say that private debt is the problem as soon as that happens i will always say yes but total debt is the problem posted by the arthurian at 4 00 am 2 comments wednesday february 15 2012 night mare from tim duy at seeking alpha st louis federal reserve president james bullard graciously responded to my latest post regarding his much considered speech i actually do not enjoy drawing bullard s attention in that it makes me fear that one day i will find that my access to fred has been disabled posted by the arthurian at 8 20 pm 2 comments jw mason fisher dynamics in household debt at the slack wire jw mason introduces his and arjun jayadev s new study of debt a 31 page pdf from the abstract specifically if average rates of growth inflation and interest remained the same after 1980 as before 1980 household debt burdens in 2011 would have been roughly the same as they were in the early 1950s despite the sharp increase in borrowing in the early 2000s unfortunately the costs of debt led to inflation in the 1960s and 70s which led to the suppression of growth since the 1980s through the whole period of course debt burdens continued to increase and were encouraged by policy to increase the deleterious effects of debt on prices and on aggregate demand made it impossible for average rates of growth inflation and interest to remain the same after 1980 as before 1980 that s my story and i m sticking with it from the abstract if lower private leverage is a condition of acceptable growth then in the absence of a substantial fall in interest rates relative to growth rates large scale debt forgiveness of some form may be unavoidable yes we have to to something like that i still say print money and use it to pay off debt pay off private sector debt so the private sector can...