An outright contradiction

As I tell the circling buzzards while I'm mowing the lawn, I'm not dead yet. I'm working on something that's taking forever. So I interrupt my silence to present some related material.



In an upcoming post I quote Stephen G Cecchetti, Madhusudan Mohanty and Fabrizio Zampolli (CM&Z) from BIS Working Paper No 352: The real effects of debt:

Overall, real debt of the non-financial sector in advanced economies has been growing steadily at a rate of slightly less than 4½% for the past 30 years.

That's not for the US. Their growth number is an average for 16 advanced economies.

I have easy access to US data, at FRED, and I'm comfortable working with US data -- call me a patriot! -- so I want to compare CM&Z's growth number to US data. I'll be using "Domestic Nonfinancial Sectors; Credit Market Instruments; Liability, Level", which is similar to CM&Z's debt measure except mine includes the debt of nonfinancial noncorporate business. Should be good enough. I just want to get a rough idea.

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Following CM&Z, for real debt I'm dividing by the Consumer Price Index. (They describe their first graph as showing debt "deflated by consumer prices". Seems odd to me, but okay.)

Here's the graph for US data:

Graph #1: Real US Non-Financial Debt (see text)

I get a growth rate of 3.79% 4.05% (see The big picture is wrong). A little less than their number.

It looks like real debt goes up a lot faster after 1980 than before. This agrees with CM&Z, whose "past 30 years" is the 1980-2010 period. (Their paper is from 2011.) Still...

Exponential growth is growth that doubles at a constant rate.  I wonder how long it takes for this debt to double. Here is the same graph again, with some numbers on it:

Graph #2: Doublings

Starting in 1950 at 1709.6, the debt reaches twice that level in 1967, 17 years later.
Starting in 1967 at 3431.2, the debt reaches twice that level in 1986, 19 years later.
Starting in 1986 at 7136.4, the debt reaches twice that level in 2006, 20 years later.

The debt growth looks roughly exponential to me. If anything, debt growth was faster early and slower late.

Here's the same data again, this time showing logged values:

Graph #3: Logged

Definitely slower late. This is an outright contradiction of what CM&Z said.

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Let me review what CM&Z said, exactly. They said:

The past three decades have witnessed a remarkable rise in advanced country indebtedness.
...
Graph 1 shows the aggregate non-financial sector debt of advanced economies and its composition since 1980.
...
What these panels show is that the surge in non-financial debt preceding the recent crisis is not a new phenomenon. It is merely the continuation of a trend that was ongoing over the entire period for which we have been able to assemble comprehensive data...

One clear limitation of our dataset is that it starts in 1980. It is sufficient, however, to look back at the history of the United States (for which long back data are easily available) to understand how extraordinary the developments over the last 30 years have been. As Graph 2 shows, the US non-financial debt-to-GDP ratio was steady at around 150% from the early 1950s until the mid-1980s.

I'm not showing their graph. As I read it, they are saying:

Debt has been growing rapidly since around 1980: since long before the housing bubble. This rapid growth since 1980 is extraordinary: much different than what came before. For evidence that debt growth was slow before 1980, look at the US data.

I don't see slow debt growth before 1980 in the US.

I don't see an extraordinary change around 1980.

I see rapid debt growth from the start.