Comparing Households & Nonfinancial Corporate Business: Interest Paid

 

Graph #1: Interest paid by households, relative to interest paid by NCB

Now that's a spike!

At the 1.0 level, the two measures of interest are equal. At 2.0, household interest paid is twice the level of interest paid by nonfinancial corporate business.

The starting value (in 1946) is 0.94191, or 94 percent. Household interest costs were almost as much as NCB interest costs.

At the peak in 1956 the value is 1.99490, or 199.5 percent: Household interest costs are twice the level of NCB interest costs.

It occurs to me that this initial spike is related to a spike in household borrowing and spending. Can't really tell from this graph. But that spike in spending would likely have had a lot to do with economic recovery and "golden age" following the second World War. At the time, a lot of economists were expecting secular stagnation. That didn't happen.

Again, this isn't the right graph to see it, but I'm also thinking that the 1946-1956 spike in interest cost was at least partly responsible for creating a rising cost of living, and perhaps for helping to create the inflation of 1955-1958 that Samuelson and Solow (1960) could not explain.

Two things to look into, for another day.

And another: How did interest costs manage to fall so fast, between 1965 and 1970? But again this is the wrong graph. Maybe what looks like a big drop in household interest cost was really a big increase in nonfinancial corporate business interest expense.

Another day.