Which US Debt Graph Represents the True Economic Picture?

[John Creighto]

This two graphs look vastly different. Which one is correct?

Wikipedia suggests the second graph is the correct one although the first graph might not cover the same time span.

http://en.wikipedia.org/wiki/United_States_public_debt

It looks like the first graph is using total debt while the second graph is useing net debt but the curves should be the same.

 

[BWV]

the 372% is total debt / GDP (corporate, consumer, financial system and government)

for US government debt / GDP there are two numbers - net (held by the public) which is currently (according to IMF #'s in my Bloomberg) is 86% and the gross (which includes the SS trust fund) is 112%.

The total (gov, corp, household, & financial sector) debt / gdp is over 300% for all the developed world, having increased from around 200% in 1990. A good reference is the McKinsey Debt & Deleveraging Report

http://www.mckinsey.com/mgi/reports/freepass_pdfs/debt_and_deleveraging/debt_and_deleveraging_full_report.pdf

or the IMF Global Financial Stability Report

http://www.imf.org/external/pubs/ft/gfsr/

 

[John Creighto]

I was going to start a new thread so sorry if I repeat some stuff but I want to keep my flow:

The total debt to GDP (Public Plus Private) in 2007 was at or at near historic highs. Some measures of Det to GDP put the total public and private debt to GDP at twice that of the great depression.

However, if you look at non finical sector debt it was on par with the great depression:
http://0.tqn.com/d/uspolitics/1/0/9/N/National-Debt-GDP-2008.gif
http://articles.businessinsider.com/2009-02-06/wall_street/30050766_1_sector-debt-private-sector-investment-banks

Regardless household debt rose steadily 1952 up until 2007

http://calculatedriskimages.blogspot.com/2010/04/household-debt-as-percent-of-gdp-q4.html

and aside from some capital gains which were financed via the dot com bubble public debt has been rising since 1980 which was the next biggest downturn since the great depression:

http://faithandheritage.com/2011/05/hitting-the-debt-ceiling/

Since about 2001 the total household debt has exceeded (yearly?) disposable household income:

[PLAIN]http://www.muhlenkamp.com/upload/image/Figure_9.9_Household_Debt_as_a_Percentage_of_Disposable_Personal_Income_.png
http://www.muhlenkamp.com/investment/principles/where_to_from_here

Debt servicing levels though must have fallen some since given in September 2007 putting consumer debt servicing as a percentage of disposable income at 2000 levels

[URL]http://m.icmarc.org/Images/investments/COTW/20101223HouseholdDebtServiceRatio.gif[/URL]
http://m.icmarc.org/for-individuals/market-view/chart-of-the-week/cotw-20101223householddebtserviceratio.html
http://ycharts.com/indicators/household_debt_service#zoom=10

and total debt as a percentage of income has fallen some as well putting us about half way to the year 2000 levels from the highs of 2007

[URL]http://cdn.theatlantic.com/static/mt/assets/business/household%20debt-to-income%202011-q2.png[/URL]
http://www.theatlantic.com/business...olds-debt-is-becoming-more-affordable/243783/

 

[John Creighto]

What I think the above graphs don’t show is that there is likely more net foreign ownership now in American debt now then in the great depression so a greater precetage of the debt we see today would represents a drain on the total economy.

Debt held within the country only represents a drain drain on part of the economy (e.g. lower/middle class) rather then a drain on the whole economy. Additionally the percentage of the GDP today which is made up of manufacturing is likely smaller then it was in the great depression. Consequently GDP is not a good proxy for the buying power of the people.

Perhaps the debt servicing rate divided by the interest rate would be more enlightening with regards to the total debt burden on the country. Additionally such a graph could be scaled by an inflation index so that the graph would better reflect real buying power.

 

[BWV]

Additionally the percentage of the GDP today which is made up of manufacturing is likely smaller then it was in the great depression. Consequently GDP is not a good proxy for the buying power of the people.

What is special about manufacturing? The US actually produces 3 times, in real terms, what it made in the 70s. However, it produces this with about half the number of workers, largely due to the productivity gains from technology. Similarly, it once took 90% of the population to produce less food than 2% of the population does today. Should we bemoan the lost agricultural jobs?

Perhaps the debt servicing rate divided by the interest rate would be more enlightening with regards to the total debt burden on the country. Additionally such a graph could be scaled by an inflation index so that the graph would better reflect real buying power.

there is this: http://www.federalreserve.gov/releases/housedebt/

calculating debt as a % of GDP inherently adjusts for inflation

 

[John Creighto]

What is special about manufacturing? The US actually produces 3 times, in real terms, what it made in the 70s. However, it produces this with about half the number of workers, largely due to the productivity gains from technology. Similarly, it once took 90% of the population to produce less food than 2% of the population does today. Should we bemoan the lost agricultural jobs?

Manufacturing represents the actually goods produced. Most services are ways of distributing those goods. There is crossover of course like medicine because a patient may not know what drugs to take and certainly can't preform surgery on himself. Certainly in some sense surgery is like manufacturing but perhaps many of our visits to the doctor add little value to our lives.

It is difficult to classify services like night clubs and tourism but such services are luxuries. Aside from difficult to classify luxuries like travailing, the function of most services is to distribute the goods produced. Distribution such as transportation, warehousing and retail are all forms of overhead and the lower we can make the overhead costs the greater the percentage of the goods the people in the factories produce they can enjoy.

A great part of the transportation and supply train infrastructure today is a result of consumers in the third world countries lacking the ownership of capital to be able to demand comparable wages to those in the developed world. This creates a situation where our economy organizes in a large part to distribute the goods produced by the third world rather than produce our own goods.

Well, this helps to develop the third world the artificially low wages of the third world due to dollar pegs means that often third world wages don`t keep pace with inflation. At the same time the relatively cheaper cost of third world good means a destruction of the capacity to produce in the developed world. Additionally the dollar pegs created to subsidize third world manufacturing create artificial capital flows into the developed world driving up the living cost in the develop world.

People were able to sustain themselves long before the industrial revolution. They were able to build large castles and pyramids, support nobility and fund wars. The technology growth from the industrial revolution onward has always promised greater wealth and more leisure for the worker. Well, on average the lower class have had gains in that they are less likely to starve or suffer an illness and possibly even have greater nutrition even if it is too much bad fat and low in nutrients: the worker has not seen the leisure promised despite all of our technological gain, and much of the assistance to workers in times of need has come though high overhead state programs that take away respect from the poor and while they give them what they need to survive this is not enough to keep them above poverty.

Why didn’t technology lead to the promise of wealth and leisure it promised hundreds of years ago? What has happened? I suspect it is in a large part because we are less efficient, because less people are actually making things. You claim America production has tripled sense the 70s. Here is a graph showing automobile production per capita

[URL]http://schutt.org/blog/wp-content/uploads/2008/10/bicycle_production-pc-mean.png[/URL]
http://schutt.org/blog/2008/10/gas-prices-and-bike-production/

I picked automobiles because they represent an expensive purchase and are very valuable to people. They are also heavy so more difficult to outsource. An automobile represents a quantifiable unit of production rather then production such as prepackaged food which takes a good that already exists and ads very little value relative to the markup. The graph shows that automobile production has remained flat despite gains in automation.

Here is what happened to manufacturing jobs since 2000:

[PLAIN]http://financemymoney.com/wp-content/uploads/2010/01/manufacturing-jobs.png
http://financemymoney.com/the-5-percent-solution-how-5-percent-of-the-workforce-generated-40-percent-of-u-s-business-profits-and-all-of-it-was-a-ponzi-scheme/

Imagine how many more people could have had cars if manufacturing didn`t decline by 35% since 2000?

there is this: http://www.federalreserve.gov/releases/housedebt/

calculating debt as a % of GDP inherently adjusts for inflation

The debt servicing graphs don't say much because the interest rate is always kept low enough to keep debt servicing in a reasonable level.

 

[mheslep]

Manufacturing did not decline 35% in the decade, mfn jobs did. And don't you agree demand for cars has something to do with how many cars are sold and owned, not just supply?

 

[John Creighto]

Manufacturing did not decline 35% in the decade, mfn jobs did. And don't you agree demand for cars has something to do with how many cars are sold and owned, not just supply?

Let's not split hairs. Manufacturing Jobs certainly declined by 35% and output may have declined by a comparable amount. Regardless, that is still a large amount of workers that could be making things that people need. Demand depends on several factors but if people don't have the money to buy cars they will use transit or own one car as a family instead of two. One constraint on demand for manufactured goods is how much money is injected into the economy and how the injection of dollars into the economy are distributed. The primary mechanism of monetary injections into the economy is though the creation of debt (either public or private).

The supposed gains in manufacturing output are likely primarily phantom GDP gains due to gains from trade:

https://www.physicsforums.com/showpost.php?p=3574067&postcount=99

But these gains are not widely shared by the people:

https://www.physicsforums.com/showpost.php?p=2912434&postcount=1

 

[mheslep]

Let's not split hairs. Manufacturing Jobs certainly declined by 35% and output may have declined by a comparable amount.

This is not a quibble. Again: US manufacturing output has not declined over the long term, or event the last decade, it increased: doubling in the 25 years 1975 to 2000, and up 16% more from 2000 until the crash. Like most I am in favor of more US manufacturing jobs.