A look at the growth of debt using "Kruger Industrial" smoothing

Household debt, for starters. Quarterly data. Change in billions, relative to Disposable Personal Income in billions. Flow relative to flow.

The numbers are small: 1%, 2%, 3%. That's because it's quarterly data. Multiply by 4 to approximate annual values, and we're talking 8-to-12% annual increase here.

That ain't nothin.

Graph #1

The blue is the FRED data. The red is the super-smooth trend, the Hodrick-Prescott with a smoothing factor of 400,000.

The trend line shows household credit use rising already in the 1960s and, if you look, already even in the 1950s.

Inflation may have caused an increase in borrowing in the 1960s and '70s, as prices went up on things purchased on credit. But prices went up also on things purchased not on credit; and inflation caused an increase in incomes, in the "nominal" numbers. So inflation cancels itself out of the "change in debt relative to income" calculation.

The same is not true for "accumulated debt relative to income" of course. Because last year's debt is increased by the addition of this year's credit use, but last year's debt is not increased by this year's inflation. That's why inflation is said to be good for borrowers and bad for lenders, at least as long as wages are going up along with prices.

Come to think of it, the "bad for lenders" thing could be the main reason wages no longer go up along with prices. That would be just one more piece of evidence saying there's too much finance in our economy these days, and that we go out of our way too much for finance, and that this creates problems for people, and it changes the economy.

Well this post sure didn't end up where I thought it might.