And the "institutional changes" that enabled the rise of household debt did no more than keep the growth of debt on trend.

I don't want you to get the wrong impression. I think debt is the problem. More than that, I think private debt is the problem, and public debt is a consequence. But it just kills me when people I should agree with speak carelessly about debt.

Couple days ago I interpreted somebody interpreting Krugman's view, and I said: The core of the problem, as Krugman sees it, is the rise of household debt. And I looked at Bezemer and Hudson saying that credit "was no longer good for growth" by the 1990s, mostly because

credit was extended increasingly to households, not business.

When I read stuff like that, I figure household debt must have been growing faster and faster, and that's how we got in trouble. But that is not what happened. I looked at a few graphs, and that is not it.

The black line on these graphs is an exponential trend line. It shows a constant growth rate. It shows "same and same", not "faster and faster". Above the black line is "faster". Rising above that line and curving away from it would be "faster and faster".

The blue line is Household debt, from the fourth quarter 1951 to the third quarter 2017. The red line shows the data used to determine the exponential trend on each graph. The graphs show the trend thru 1960Q1, thru 1970Q1, thru 1980Q1, etc.

Household debt since around 1970 has been well below the trend established in the 1950s:

Graph #1: The Red Line Ends in 1960 Q1. Point 78 on the X Axis is 1971 Q1

Household debt pretty much remained on the trend of the 1950s and '60s, until the mid 1980s. After the early 1990s, household debt ran a little below trend:

Graph #2: The Red Line Ends in 1970 Q1. Point 144 on the X Axis is 1987 Q3

Household debt closely followed its 1951-1980 Q1 trend, right up to the crisis and 2009 recession. This is the only one of these graphs that shows household debt going above trend after 2000:

Graph #3: The Red Line Ends in 1980 Q1.

Household debt going above trend in the 1980s (see Graph #3) moved the trend line up a little. Based on the trend thru Q1 1990, household debt since the mid-1990s has been below trend:

Graph #4: The Red Line Ends in 1990 Q1

Debt running below trend in the 1990s moved the trend line down a little. Be that as it may, household debt after Q1 2000 remains below the 1951-2000Q1 trend:

Graph #5: The Red Line Ends in 2000 Q1

Household debt did a remarkably good job of staying on an exponential growth path right up until the 2009 recession. Note that debt was below trend since the mid-1990s.


If you want to point out that exponential debt can't continue forever, well yeah: We watched it fail to continue, ten years ago. But the problem is not that household debt was growing faster and faster: Debt was essentially on or below trend since the 1950s.

Yes, it was still too much household debt. Yes, there is too much debt everywhere, not just with households. But each of these trend lines shows a constant rate of growth. So if we have to say there is too much household debt now, we also have to say debt growth was a problem right from the start: It was unsustainable, right from the start.

If people make careless claims about the growth of debt in recent decades, they are probably careless with other facts as well. So now the main idea, that rising household debt is the problem, this whole idea has to come into question.

All debt is a problem, even when it is debt we need.