Total U.S. credit market debt as % of gdp (Update to March 2009)

[ThePythonicCow]

Back on Sept 15, 2007, EJ posted the thread Ka-Poom is a Rhyme not a Repeat of History. This thread included the following chart of the total U.S. market debt as a percent of gdp, where the total debt was about 304% of GDP as of late 2005 (guessing - fuzzy chart).


I see an update of that chart was posted on a forum that google search found at http://uselectionatlas.org/FORUM/ind...?topic=91933.0, showing total debt at 350% of GDP as of March 2008.



Now on a subscription of Bert Dohmen there is another update, from the same place (Ned Davis Research) as the chart just above, showing total debt at 375% of GDP as of March 2009. I can't show that last chart here, as it is not available freely on the web. But just take the chart above and extend the line upward and you'll be pretty close.

If it is going to return anywhere close to its previous lows of 130% to 150% during the period 1950 through 1980, then we've got a long, long way down to go, and it seems we haven't (as of March 2009) even turned the corner yet. Ouch.

[doom&gloom]

Re: Total U.S. credit market debt as % of gdp (Update to March 2009)

150%, 300%, Billions, Trillions -- it's all just numbers in the end, right? right?

[ThePythonicCow]

Re: Total U.S. credit market debt as % of gdp (Update to March 2009)

150%, 300%, Billions, Trillions -- it's all just numbers in the end, right? right?

Well, I suppose the counter-parties to this debt thought this debt was worth actual money, you know, the stuff you buy things with.

But I guess you're right. By the time we're done, much of this will be worth no more than numbers scribbled on a piece of paper.

[doom&gloom]

Re: Total U.S. credit market debt as % of gdp (Update to March 2009)

Well, I suppose the counter-parties to this debt thought this debt was worth actual money, you know, the stuff you buy things with.

But I guess you're right. By the time we're done, much of this will be worth no more than numbers scribbled on a piece of paper.

zactkly! we get trinkets, they get paper with pictures of dead presidents!
neither is worth all that much in the end anyway.

[jpatter666]

Re: Total U.S. credit market debt as % of gdp (Update to March 2009)

Well, I suppose the counter-parties to this debt thought this debt was worth actual money, you know, the stuff you buy things with.

But I guess you're right. By the time we're done, much of this will be worth no more than numbers scribbled on a piece of paper.

Regrettably I'm agreeing we're heading towards a worst-case scenario which is why we bought more physical today (I'm turning into a jtabeb clone! Help!)

Each day I see more articles making it just how clear the market is manipulated by the big boys and their HAL 9000 computers.

[Spartacus]

Re: Total U.S. credit market debt as % of gdp (Update to March 2009)

Any reason do think the new debt is of higher quality, or is better insured ?

I think it maybe marginally better as the ratings agencies have been running for cover as this new debt was being written

BUT .... if the ratings agencies have not been rating, it, WHO HAS, USING WHAT CRITERA?

[/B]

Back on Sept 15, 2007, EJ posted


Now on a subscription of Bert Dohmen there is another update, from the same place (Ned Davis Research) as the chart just above, showing total debt at 375% of GDP as of March 2009.

Copyright "fair use" lets you use small chunks, but I suppose if you have an agreement separate from copyright not to use it, that could be more restrictive than copyright.

Ouch indeed.

[Jim Nickerson]

Re: Total U.S. credit market debt as % of gdp (Update to March 2009)

Below is from Steve Keen, see pdf attachment. What I cannot determine is exactly when it was written. Piddling around on his website, something I ran across made me think it has been written since March 2009, but I wouldn't bet a bunch on that.

The last bullet point, should be the third one from the top, sorry, I screwed it up.

Bailing out the Titanic with a Thimble

• The now commonplace observation in the media that this financial crisis is "the worst since the Great Depression" may appear to be hyperbole to many academic economists. It is not—if anything, it may understate the scale of the crisis.

• Ever since Milton Friedman's Monetary History of the United States (Friedman and Schwartz, 1971), neoclassical economists—including the current Chairman of the Federal Reserve, Ben Bernanke (Bernanke, 2002A)—have asserted that the Great Depression was caused by poor monetary policy by the then Federal Reserve.1 So much for that theory: today's stark reality should make it unarguable that the real cause of Depression-scale financial crises is excessive private debt accumulated during a preceding speculative bubble—which accords with the "debt-deflation" hypothesis first developed by Irving Fisher, and perfected by Hyman Minsky, rather than Milton's tale of errant regulators.

Conclusion

• There are good empirical and theoretical grounds on which to expect that the proposed bailouts will fail to arrest the decline of the US and global economies into a Depression.

• If so, what are the policy alternatives to bailouts, pump-priming, and the printing press? Obviously we have failed in the ultimate policy, to, as Minsky put it, “establish and enforce a ‘good financial society’ in which the tendency by businesses and bankers to engage in speculative finance is constrained” (Minsky 1977, p. 16)—though that clearly has to be a post-GFC objective.

• Recovery from the Depression the GFC will probably cause requires direct attention to the cause of the crisis itself—excessive private debt accumulated during a sequence of Ponzi-financed speculative bubbles.

• The pillars of the American banking system in particular acted as direct descendants of Charles Ponzi,16 and they have bankrupted the American financial system as effectively as Ponzi bankrupted himself. The system should be temporarily nationalised, and during that (potentially lengthy) interim, compelled to do what should be the main activity of finance—provide working capital for non-financial firms.

• The debt must be reduced, whether by monetary means (reflation) or outright debt moratoria. On the former front, while I doubt the effectiveness of Bernanke’s printing press in causing inflation (and Japan’s attempt to do likewise in 2002 was a dismal failure), an effective way to cause inflation would be to increase money wages, with the direct objective of causing firms to increase their prices to compensate.

• The last suggestion is, of course, heresy in terms of conventional neoclassical economic theory, which brings me to the elephant in the economic living room: there are compelling reasons why this crisis should lead to a drastic revision in economic thought as well. It is no exaggeration to say that the naïve faith in deregulated financial markets engendered by neoclassical economics played a large role in the institutional changes and regulatory action (and inaction) that gave rise to this crisis. It is also patently obvious that neoclassically-trained economists were caught completely unawares by the crisis, despite—or rather, because of—the sophisticated mathematical forecasting models that their predecessors in the 1920s lacked, but which in turn lacked any appreciation of the actual financial dynamics of a credit-driven economy.

• The true measure of how big this financial crisis is compared to the Great Depression is therefore the ratio of private debt to nominal GDP, since this ratio of dollars to dollars per year tells us how many years of current output would be needed to repay outstanding debt. On this metric, the USA and Australia entered the current crisis with substantially more debt than prior to the onset of the Great Depression. The USA's debt to GDP ratio was 275% of GDP at the beginning of 2007, versus 175% at the end of 1929. The comparable ratios for Australia were 238% at the beginning of 2008, versus 65% at the end of 1929 (see Figure 1).

[ThePythonicCow]

Re: Total U.S. credit market debt as % of gdp (Update to March 2009)

The true measure of how big this financial crisis is compared to the Great Depression is therefore the ratio of private debt to nominal GDP, since this ratio of dollars to dollars per year tells us how many years of current output would be needed to repay outstanding debt. On this metric, the USA and Australia entered the current crisis with substantially more debt than prior to the onset of the Great Depression. The USA's debt to GDP ratio was 275% of GDP at the beginning of 2007, versus 175% at the end of 1929. The comparable ratios for Australia were 238% at the beginning of 2008, versus 65% at the end of 1929 (see Figure 1).

Thanks, Jim. Interesting.

Just to point out something that might be missed on first read, what you quote here from Steve Keen pertains just to private debt, whereas my original post pertains to private plus public debt. Given that the federal debt was perhaps 75% of the GDP in 2007, that plus the private 275% debt equals the 350% I originally quoted (give or take a year and a few trillion.) So the numbers balance close enough for gub'mint work.

[jtabeb]

Re: Total U.S. credit market debt as % of gdp (Update to March 2009)

Regrettably I'm agreeing we're heading towards a worst-case scenario which is why we bought more physical today (I'm turning into a jtabeb clone! Help!)

Each day I see more articles making it just how clear the market is manipulated by the big boys and their HAL 9000 computers.

If you want help, buy some guns and ammo too (and food).

That's the only "help" any of us non-bank holding entities are gonna get.

[dummass]

Re: Total U.S. credit market debt as % of gdp (Update to March 2009)

If you want help, buy some guns and ammo too (and food).

That's the only "help" any of us non-bank holding entities are gonna get.

Can you make some recommendations? I currently have a small .40 Glock and a 12 gauge shotgun. Would you add anything to the must have list?

Excellent post PC. They may only be numbers, but they scare the hell out of me.

[ThePythonicCow]

Re: Total U.S. credit market debt as % of gdp (Update to March 2009)

Excellent post PC. They may only be numbers, but they scare the hell out of me.

Thanks for the kind words, dummass. Yeah, kinda scary. Either we get that debt down the old fashioned way with a decade of depression and probably general war :eek:, or we find some more catastrophic way to get it down quicker :eek::eek:, or we screw things up so bad that chart no longer matters :eek::eek::eek:.

I don't see a good option.

[ThePythonicCow]

Re: Total U.S. credit market debt as % of gdp (Update to March 2009)

CaseyResearch just sent me an email with a link to this total U.S. debt through March 2009. Here's their chart:

[FRED]

Re: Total U.S. credit market debt as % of gdp (Update to March 2009)

CaseyResearch just sent me an email with a link to this total U.S. debt through March 2009. Here's their chart:

The fatal flaw in this chart is that it does not account for the fact that the high Debt/GDP ratio in 1933 was caused by a 24% decline in GDP not by a rise in debt levels. GDP declined more than debt. GDP declined only modestly in nominal terms this time around, while debt is increasing and private debt is falling.

[ThePythonicCow]

Re: Total U.S. credit market debt as % of gdp (Update to March 2009)

The fatal flaw in this chart is that it does not account for the fact that the high Debt/GDP ratio in 1933 was caused by a 24% decline in GDP not by a rise in debt levels. GDP declined more than debt. GDP declined only modestly in nominal terms this time around, while debt is increasing and private debt is falling.

In other words, the public debt this time is far worse than that chart displays. Yup.

[jtabeb]

Re: Total U.S. credit market debt as % of gdp (Update to March 2009)

Can you make some recommendations? I currently have a small .40 Glock and a 12 gauge shotgun. Would you add anything to the must have list?

Excellent post PC. They may only be numbers, but they scare the hell out of me.

A semi-auto rifle in 5.56 nato or in 7.62 x 39mm russian is on the MUST HAVE list. (should be gas piston driven)


I personally recommend
http://www.msarinc.com/STGE4.html

lots of $$ but worth it IMHO (yes I have one)

The "nice to have list"

includes

12 gauge clip fed semi auto shot gun (saiga 12)

[MEDIA]http://www.saiga-12.com/images/Large/Saiga_12K.jpg[/MEDIA]

.338 Lapua sniper rifle

http://www.deserttacticalarms.com/photo-gallery.html