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Hey, I missed my chance to make a prediction at the 1994 bottom. Looks like it's now or never!!I emailed the link to Steve Keen. He wrote back re my third graph: "Interesting transformation, but seeing how M1 exploded during the crisis, I think it mainly picks up the impact of Bernanke's pump-priming rescue efforts--not private sector deleveraging, which has been trivial."I agree, most of the change in the debt-per-dollar ratio since 2008 has been due to M1 creation, not deleveraging. Still, from looking at my graphs, I have to think the ratio matters more than the level of debt.We'll see how things turn out! Thank you Tom.
I should add that it was only after I read Mike Norman's Keep buying the dips. Spending really accelerating now that I started thinking about this. And Matt Franko's link.
Thanks much for the analysis. Since you are you using money as a proxy for spending why not just compare the private debt to private spending? A breakdown between business and non-business debt might be insightful - I'm not sure.Also since interest rates are low, the payment obligations of private debt has fallen more steeply than the level of the debt itself. Don't know if that is meaningful but just throwing it out there as a possible plus.
Something that Keen has not talked about recently is the divergence between household debt and corporate debt since the Great Recession. Keen tends to lump them together.Households have deleveraged, and continue to do so. Two particluar household sectors are worrisome -- subprime auto loans and student loans -- but households as a whole have been behaving themselves. Corporations, on the other hand, have gone on a borrowing spree, and risky borrowing at that -- the fracking bubble and debt-financed corporate buybacks. Lumping household debt and corporate debt together makes it look like nothing important has been going on. But when you break them out separately, corporate debt is worrisome. Household vs. Corporate net private accountsUnlike households, corporations seem capable of running in the red for many years (1960 - 1990). Nonetheless, most recessions are preceded by a rise in corporate debt, and we're at that point. I think there is significant risk of a recession led by corporate debt. Of course it depends on what the politicians do and no one can predict that, especially in an election year.I would like to see Professor Keen, who I admire greatly, pay more attention to the separate roles of household debt and corporate debt.
Excellent points Dan. I remember years ago an article comparing us to Japan where the author was using the "balance sheet recession" model and he was pointing out how Japans 20+ yr slump was driven by corporate debt as opposed to the 2008 GFC being mostly household debt. A large point of the article if I remember correctly was that Japanese households were not indebted and therefore they were able to keep japans economy chugging (slowly) while japans corporations deleveraged but that US households would have to consume less and that we would have a worse recession without countercyclical measures. Another factor he talked about was that Japans culture did not allow a bail out of the corporations so there would have to be slow de and re-leveraging, which of course we in the US have no problem bailing out the elite, in fact it is our MO. All that to say that while I agree that our corporate debt is troublesome and potentially a source of crisis I think we will do our usual and bail the CEOs out. It won't be overt, like the plea from whats his face to Pelosi on one knee, but it will be done. Id rather have our corporate sector be the place where the bubble is, we will do something countercyclical for them.
Whats his face?--------- Paulson!!! How could I forget?
Charles: "A breakdown between business and non-business debt might be insightful ..."Dan: "... pay more attention to the separate roles of household debt and corporate debt."I couldn't figure out your graph, Dan. Using BIS data, to my eye the overall patterns of household and corporate debt look strikingly similar. So, two or three years from now, if the economy is really starting to pick up like I say, and people are starting to talk about boom instead of recession, will you be willing then to wonder if maybe Art was on to something?
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