The Credit Bust

Moneybox
A blog about business and economics.
March 16 2012 5:29 PM

The Credit Bust

I was a little confused by this post from Felix Salmon since he has a chart that seems to compare a nominal quantity to an inflation-adjusted one, so I thought I'd just do the ratio of Total Credit Market Debt Owed (which is nominal) to Nominal Gross Domestic Product, and we see:

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This is one of these things that I'm not sure what to make off. If you ignore everything that happened subsequently, that mid-eighties debt boom sure looks unsustainable. And yet sustained it was, and it would take an extraordinary period of decline to get us back down to those levels.

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It turns out that we can disaggregate TCMDO considerably, although doing so in FRED gives us a very ugly chart. So I disaggregated into four slices and made a pretty chart in Excel. One is financial sector debt, one is non-financial corporate debt, one is household debt, and one is federal debt + state and local debt all then expressed as a share of GDP:

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Now it looks like in the eighties we had an unusual situation in which all four categories of debt went in the same direction simultaneously. And lately some more stuff. I don't have a strong hypothesis here.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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