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of the money we spend in 1966 when the rate of interest was about 5 our economy had about 7 debt for every dollar of circulating money each circulating dollar therefore over the course of the year carried an interest cost of about 35 cents in 2006 when the rate of interest was again about 5 our economy had about 24 debt for every dollar of circulating money each circulating dollar carried an interest cost of about 1 20 posted by the arthurian at 4 00 am 0 comments monday december 12 2016 you remember john nash right from ideal money and asymptotically ideal money pdf 8 pages a lecture by john f nash jr under the heading keynesians quoted for context the thinking of j m keynes was actually multi dimensional and consequently there are quite different varieties of persons at the present time who follow in one way or another some of the thinking of keynes and of course some of his thinking was scientifically accurate and thus not disputable for example an early book written by keynes was the mathematical text a treatise on probability the label keynesian is convenient but to be safe we should have a defined meaning for this as a party that can be criticized and contrasted with other parties so let us define keynesian to be descriptive of a school of thought that originated at the time of the devaluations of the pound and the dollar in the early 30 s of the 20th century then more specifically a keynesian would favor the existence of a manipulative state establishment of central bank and treasury which would continuously seek to achieve economic welfare objectives with comparatively little regard for the long term reputation of the national currency and the associated effects of that on the reputation of financial enterprises domestic to the state and indeed a very famous saying of keynes was in the long run we will all be dead this is the part of that quote that i want to focus on a keynesian would favor the existence of a manipulative state establishment of central bank and treasury which would continuously seek to achieve economic welfare objectives with comparatively little regard for the long term reputation of the national currency a keynesian would continuously seek to achieve economic welfare objectives with little regard for the national currency got it john maynard keynes wrote in the new york times of 10 june 1934 i see the problem of recovery accordingly in the following light how soon will normal business enterprise come to the rescue what measures can be taken to hasten the return of normal enterprise on what scale by which expedients and for how long is abnormal government expenditure advisable in the meantime for how long is abnormal government expenditure advisable in the meantime in the meantime got it not continuously only at times when policy has done so much damage to the economy that a great depression ensues then and then only said keynes nash was wrong about keynes nash was careless posted by the arthurian at 7 39 am 2 comments saturday december 10 2016 it s not a metaphor from page 22 of how to predict the next financial crisis pdf 30 pages 2012 by steve clemons and richard vague creating consumer demand the goal that so often eluded policymakers from roosevelt forward is a straightforward process in 1990 the u s consumer debt to gdp level was 62 percent in 2000 it was 70 percent today even after some deleveraging it is 88 percent reduced demand is largely a function of these high levels reduce the debt and demand reappears reduce the debt and demand reappears it s not a metaphor for something else it is offered as a way to fix the economy if clemons and vague are right we must be able to see it in the numbers okay so here is consumer debt or more precisely household debt graph 1 household debt there after 2009 or so the debt was reduced now it s going back up again so where s the improvement to consumer demand and you know what consumer demand was good in the 1990s after about 1994 that was the time they call the goldilocks years when everything was just right where s the reduced debt that made those years good ha oh you know what the quote says debt to gdp but i only showed debt this next graph shows consumer debt to gdp graph 2 household debt relative to income after 2009 debt is reduced not much but more than on the first graph on this graph the going back up again did not happen yet but it looks like it might start soon and the 1990s there s a sharp increase in the mid 1980s not a reduction of debt and then from the mid 80s to the year 2000 persistent increase again no reduction of debt appears on this graph let s try one more graph this one shows household debt relative to the quantity of money that s used as income that s the money we use when we make payments on our debts and the money we spend on other things instead of using credit graph 3 household debt relative to the money we use as income after 2009 debt is reduced reduced a lot this time more than on the other graphs but debt looks a little less ready to start going up again just now and the 1990s well look at that yes on this graph debt fell a bit in the early 1990s just before productivity improved and the economy got pretty good for a while there it is in the numbers the reduced debt that made the goldilocks years good posted by the arthurian at 4 04 am 4 comments thursday december 8 2016 a look at non financial debt in bezemer and hudson s finance is not the economy i searched the b h article for the terms non financial and nonfinancial copied the interesting sentences all to one place organized them and decided i like what bezemer and hudson are saying more than i thought i ll go through some of those excerpts now bezemer and hudson federal reserve economists note that many contemporary a nalysts have found that over long periods of time there has been a fairly close relationship between the growth of debt of the nonfinancial sectors and aggregate economic activity bgfrs 2013 76 these correlations suggest a one on one ratio between bank credit and the non financial sector s economic activity figure 1 growth in credit to the real sector paralleled growth in nominal u s gdp from the 1950s to the mid 1980s conveniently fred offers a series for nonfinancial business credit the blue line on graph 1 the red line is gdp remember b h say growth in credit to the real sector paralleled growth in nominal u s gdp from the 1950s to the mid 1980s do you see parallel lines graph 1 comparing non financial business debt blue and gdp red indexed to 1951 the red and blue start out the same or at least they look the same the lines are so close to zero it s hard to say anything with confidence if they re the same that s the parallel that b h were talking about these parallel lines separate by 1969 that s well before the mid 80s and at the default line width which is narrower than shown here the start of separation moves to the mid 1960s you might be willing to say the lines are parallel depending on how much you want bezemer and hudson to be right and how rigorous you are about the meaning of words i just thought of something not quite relevant but i ll quote it anyway the classical theorists resemble euclidean geometers in a non euclidean world who discovering that in experience straight lines apparently parallel often meet rebuke the lines for not keeping straight if we pin the lines together in 1960 instead of 1951 the separation is still visible by 1969 if we chop things off at the mid 80s to get a better look at the early years the separation is visible back to the mid 1950s non financial debt growth is faster than gdp growth for the whole period shown on the graph the lines are not parallel b h take too many liberties their words lack rigor and they offer wishful thinking as evidence i am not pleased to say so there are ways to compare two lines other than just eyeballing them to see how parallel they seem to be we can take a ratio divide one line by the other then for example we can see non financial business debt relative to gdp or we could multiply the ratio by 100 and call it non financial business debt as a percent of gdp if we do this and the ratio runs flat at 40 say it would mean that gdp and debt run parallel in other words they are growing at the same rate even if the ratio is only pretty flat for the years that it returns repeatedly to the same 40 level and doesn t wander far from it we can say gdp and debt are growing at the same rate i m willing to take liberties that far here s non financial business debt as a percent of gdp graph 2 non financial business debt as a percent of gdp blue i marked it up a little nonfinancial business debt increased from 30 of gdp in 1952 to 50 of gdp in 1975 and to 70 of gdp in 2015 from 30 to 50 in 23 years from 50 to 70 in 40 years the increase is substantially faster in the earlier period perhaps because there was less debt to begin with i was going for round numbers 30 50 and 70 i could have eyeballed in or even calculated better trendlines if i wasn t constrained by my round numbers so i m not showing graph 2 as a perfect presentation of relative growth trends i ve taken liberties but the graph is good enough to give you the idea the increase slowed after the 1974 recession if you relocated the red lines to suit your best estimate of trend you d still see a change somewhere in the mid 1970s and a steeper slope before the change than after nonfinancial business debt was growing faster than gdp for all the years shown and faster in the early period than in the late this presents a problem for in the b h paper they say that growth of bank credit to the real sector and nominal gdp growth moved almost one on one until the early 1980s they say the line was flat before the change it s not and then while the total credit stock expanded enormously in the 1990s and 2000 credit to nonfinancial business was stagnant at about 40 percent of gdp they say the line was flat after the change it s a stretch granted the quotes apply to two different measures of debt that sort of slipperiness is part of what makes it hard to pin down what bezemer and hudson really mean their sentences slide from one context to another almost continuously that makes for a very good story until you sit down to write about it then you find that no two of their thoughts fit cleanly together so if you are not pleased with my evaluation of their work do sit down and try to piece together your own orderly montage of their thoughts let me know how it works out the two measures of debt referenced in the above quotes are credit to nonfinancial business and credit to the real sector the latter includes the former and also includes household debt i d say it includes government debt as well but i won t guess what s in the debt measure bezemer and hudson used i know government debt doesn t play a large role in their article household debt includes consumer credit and increasingly household mortgage credit bezemer and hudson have a strong focus on mortgage debt they imply that mortgage debt crowded out non fi business while the total credit stock expanded enormously in the 1990s and 2000 credit to nonfinancial business was stagnant at about 40 percent of gdp while its share in overall credit plummeted by contrast the share of household mortgage credit issued by banks rose from about 20 to 50 percent of all credit in our time arguably the most significant form that rent extraction has taken is in the household credit markets especially household mortgages the contrast is with loans to non financial business for production b h are concerned about the growth of mortgage debt comparing it and non fi business debt as shares of well as shares of different things here are the two debt series shown as percent of tcmdo the series formerly known as total credit market debt owed graph 3 household mortgage red and nonfinancial business blue debt as of all credit mortgage debt red runs consistently below 20 of all credit until 2005 it reaches a maximum of 21 in 2006 then falls mortgages never come close to 50 of all credit in the u s data good grief non financial business debt blue climbs to near 35 in 1974 then falls consistently till the crisis but clearly in the u s data the fall in the blue line is not matched by a rise in the red line non financial business debt was not crowded out by mortgage debt and the plummeting in the 1990s and 2000s is curvier but not faster downhill than the plummeting between 1974 and 1990 i should say i had to guess what data to use for these graphs and sometimes b h use multiple country averages that i cannot duplicate i m just using u s data from fred still graph 3 doesn t show anything comparable to what bezemer and hudson describe nor does graph 1 nor does graph 2 i can t duplicate the bezemer and hudson graphs but i can inspect the u s data for the changes and levels and patterns they describe if their argument is valid i should be able to find some evidence that supports it in the graphs that i make the graphs of u s data i don t find that evidence posted by the arthurian at 4 00 am 3 comments labels b h finte wednesday december 7 2016 a look at mortgages in bezemer and hudson s finance is not the economy bezemer and hudson mortgage credit is extended to buy assets mostly already existing it generates capital gains on real estate not income from producing goods and services the distinction becomes blurred to the extent that mortgages are used to finance personal consumption especially equity loans to homeowners or new construction but that is a minor part of the total volume of mortgage loans i sold my house so i could afford a bigger house i bought my new house from a guy who was building himself a new house so the guy who bought my old house and me and the guy who sold me his old house were in a real sense working together to divide the cost of one new house into three affordable parts in this economy how else can you afford a house bezemer and hudson are telling you that me and the guy who bought my old house contributed nothing to gdp i say we did contribute because without our help the guy who sold me his old house could not have build himself a new house posted by the arthurian at 4 00 am 0 comments labels b h finte tuesday december 6 2016 a look at causation in bezemer and hudson s finance is not the economy bezemer and hudson in figure 2 based on calculations by dirk bezemer maria grydaki and lu zhang 2016 we plot the correlation of income growth with credit stocks scaled by gdp this provides a proxy for the growth effect of credit over time the trend is downward from the mid 1980s and from the 1990s the correlation coefficient is not significantly different from zero credit was no longer good for growth as many had for so long believed from king and levine 1993 to ang 2008 a major reason for this trend was that credit was extended increasingly to households not business the growth effect of credit has been ...