The percentage of gdp graph is that, basically, but in percentage of change terms. I'll fix the other one.

Rubio is surprising:

http://www.cbsnews.com/video/watch/?id=7....

DAMN IT MAN....PIN THIS ONE!!!!

Sheeeot. My High School aged daughter understands this one.

This one should be MANDATORY READING in ALL College Econ classes. This is one for the TF Archives!

Genesis wrote..

America has never managed to obtain more than ~20% of GDP in taxes

Montysano wrote..

Interesting. So even during the 90% rates of the 50s-60s, it was never more than 20%.

The average rate paid, not the highest.

Karl, according to your chart 1, a $500b cut in credit will result in a loss of 250b in GDP.

Add one more - the people must have the ability to fire all of these clowns if they go in direct opposition of the peoples wishes.

Excellent. That fix shows we pulled over a 2 during the crisis. Yes, GDP was contracting, but debt was contracting *faster*. That 2 was the highest it's been by a long shot over the entire time period of the graph.

It would be nice if we had data going back to the Depression (1.0) and even before to the depression of '21 or so, but I doubt if total debt data goes back there.

It's very important to look at total debt, and not just govt debt, and some do with these debt to GDP comparisons. The claim is oft made that massing govt deficit spending during WWII pulled us out of the hole, but if you look at total debt, you'll see that, yes, govt debt was increasing, but private debt was decreasing more, thus total debt was coming down.

I suspect those "2 level" or better periods are during debt destruction periods, and I'd like to confirm that.

Remember in the depression of '21 (or was it '20) -- anyway, right after WWI, Harding did just the opposite of the modern Keynesian prescription. His Commerce Secretary demanded massive govt progams (we forget this about Hoover -- there's a lot of lies), but Harding told him to jump in a lake. Harding *cut spending* and lowered taxes massively. IIRC, he cut taxes, but cut spending even more, eliminating the deficit.

IOW, they went on austerity to the max. Of course, back then, the Federal govt was the Levithan it is now, with so many citizens dependent on it.

At any rate, if we plug those periods in, I'll bet we'll massive positive numbers in this formula.

Accurate data for that time period is not, as far as I've been able to determine, available. Best we got is the Z1 which goes back to 53.

Here's some quick graphs from FRED to illustrate my point about the depression of '21. You'll see Harding (and later Coolidge) cut spending massively in the face of that, producing a budget surplus. Second, while GDP data doesn't go back that far, CPI and PPI does (back to 1913) and you can see the severity of that '21 depression. It was the most severe deflation in our history, easily beating GD 1.0 in terms of year to year percentage drops.

And the Fed *raised rates* in the face of it as well. The response to that depression was the biggest austerity program we've ever seen, I think, at least in relative percentage terms. The austeriy in Greece that they're rioting over is nothing compared to that.

It was as anti-Keynes as you can get. And it produced the Roaring '20s.

Publius

Then I see from your charts that we fell right back into recession in 1923 (shaded area). How do you explain that?

The trouble is, those recession bars don't indicate how severe it was, just that one was defined. That recession, '23 was very mild, and the later one of '26 was even milder.

One could even argue if those periods would even be called recessions by the modern definition. Business activity fell in both (and probably the only thing that caused the recession of '26 was when Henry Ford shut down model T production to switch over to model A, causing a large decline in industrial activity for a short period).

Accurate GDP data apparently is hard to come by for that period, but according to some, such as this, GDP growth never went negative during the entire '20s.

GDP was growing at about 13% in 22 - 23, and probably declined to 1% to 2% during those recessions.

Back then, they dubbed them depressions because of the decline in business/industrial activity.

Gen,

This is the best, clearest, and most concise ticker that I have ever read from you on this topic.

This should be mandatory reading for every single person on capital hill.

step aside, dead country walking

the pols wont solve this and we all know it
pardon my cynicism

it's politically undoable in that pols would actually have to tell
the american public the hard truth that they - the pols - have legislated
too much govt'l assistance to too many

i dont know how this is gonna end but it aint gonna be nothing pretty ...
or bloodless as in non-violent

i think we'll all be able to say 'yeah we saw it coming we read denninger'

i hope im wrong but when it blows i think it's gonna make the la rodney king
fires look like a single birthday cake candle

something like the terror following the french revolution but again i hope im wrong and it's late and im tired

Karl wrote : "This is simply a graphing mathematical ratio relationship of the number of dollars of GDP created and the number of dollars of new debt created anywhere in the economy."

Instead of the number of new debt created wouldn't be more accurate to take difference in the outstanding balance of the two quarters [credit issued minus credit redeemed or defaulted] ... As an important part of the income is used to serve the debt [amortization of the borrowed capital] this part doesn't add to the GDP but is an income used to refund past consumption or an investment... This refund in the case of an investment create wealth [lowering the loan to value]...

Sorry for the bad english...

Phev, that's what "new credit created" is. You subtract the balance outstanding at the beginning from the balance outstanding at the end. The difference is the net new balance.

Note that since all debt is taken to buy something (in virtually every case) the act of taking the credit itself does not change the ratios, since "1 / 1 = 1". It is what you do with the debt that matters. IF you simply consume with it then the drag later on depresses GDP. If you use it for productive investment at a rate that exceeds the amortization of the debt then GDP increases later on.

ok thanks sorry for having misunderstood.

"Note that since all debt is taken to buy something (in virtually every case) the act of taking the credit itself does not change the ratios, since "1 / 1 = 1". It is what you do with the debt that matters. IF you simply consume with it then the drag later on depresses GDP. If you use it for productive investment at a rate that exceeds the amortization of the debt then GDP increases later on."

I do agree it is the only usefull "use" of credit according to me...

Neither the left nor the right gives a flying **** about truth.

They only care about power. Power over the money when times are good. Power of life and death when the money runs out.

People here keep talking about Zimbabwe and inflation, but are leaving out the most important part.

The current Governor of the Reserve Bank of Zimbabwe, Gideon Gono is the man who did all the printing. This hyper inflation must have worked for someone, or this man would be out of a job. So even after inflation rates of 231,150,888.87% this man still controls the central bank!

The Fed will continue buying debt as long as the bankers get to steal everything not nailed down and have a 'get out of jail free card'.

This will keep rates low for decades to come (see Japan if you are confused) as there is a lot to steal besides money. All those nice hard assets like buildings and national parks come to mind.

Banksters can steal faster than you can catch them

You are all missing the "fundamental flaw in the model" which is first question the pols ask themselves, which is: Ask me if I care.

“The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure,” he said. “It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Leadership means that ‘the buck stops here.’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt and a failure of leadership. Americans deserve better. I therefore intend to oppose the effort to increase America’s debt limit.”

- Senator Barack Hussein Obama, March 2006

Publius wrote..

It was as anti-Keynes as you can get. And it produced the Roaring '20s.

The '20s were a period of rampant speculation. Debt-to-GDP went from 160% to 300% in those ten years. It was not exactly real prosperity.

^^This! I think we have much in common with the Great Depression right now. The difference is that during the Great Depression, insolvent banks failed, bad debts were realized and losses incurred, and regulations were put into place to prevent the same structural problems from happening again, regulation that worked very well for 60 years, until "free market" propaganda gradually led to its repeal. We also have higher total debt levels this time than we did in 1929, 300% of GDP. I don't believe it was that high back then, but by historical measures, it was equally unprecedented.

The Roaring Twenties, and its prosperity, however, was based on the same type of bubble speculation that we saw up to 2008.

Yep, Kondratiev waves, The Fourth Turning, etc. It was Fall, now we're getting into Winter. No regulation will do a thing about it without recognizing cyclical time for what it is, and even then you can only hope to make it orderly, not prevent it from happening.

Depressing but true, Tristan, me thinks.