Quick check

What I said on the 17th, #1:

Nonfinancial Debt increased from $2895.4B to $3290.0B during 1978. The inflation of 1978 inflated the difference, the $394.6B that was added to the accumulation during 1978. The 7.0% inflation makes the $394.6B 107% of what the increase would have been if there had been no inflation. With no inflation that year, the increase in debt would have been $368.8B. Add this to the starting value ($2895.4B) to get a number for what domestic nonfinancial debt would have been if there was no inflation in 1978. The number I get: $3264.2B.

Using FRED's source data as a place to start, I get debt-to-GDP ratios of 1.391 for 1977 and 1.399 for 1978. We could round them both to 1.4.

Using my numbers, figuring zero inflation in 1978, I get 1.391 for 1977 (same as above) and I get a ratio of 1.485 for 1978.

With seven percent inflation in 1978, FRED's number, we got a debt-to-GDP ratio of 1.399. With zero inflation in 1978, we would have got a debt-to-GDP ratio of 1.485.

Rounded to two decimal places, 1.40 versus 1.49. Rounded to one decimal place, 1.4 versus 1.5. The difference: one tenth of a percentage point.

 

What I said on the 17th, #2:

But putting it down in words, and being specific about the start-of-year accumulation and the during-the-year increase, I realized: At no point do I allow for debt that is being paid down!

 

What I have to say now: Let's suppose that during 1978, people paid off 10% of the $2895.4 billion starting balance of debt. So then the "low-point" of that balance would have been $2605.86 billion.

But the end-of-year balance was unchanged, at $3290.0 billion. To bring debt up to that number, during 1978 people must have borrowed (3290.0 - 2605.86) or $684.14 billion -- much more than the $394.6 billion I said on the 17th.

I assume all of this new borrowing was done so that the money could be spent: a fair assumption, I think. And I say that all of this spending would have occurred during 1978, at 1978 prices. So the amount of debt that was affected by the inflation of 1978 was $684.14 billion.

Because of the 7.0% inflation in 1978, this $684.14 billion was 107.0% of the debt that would have been required to make the same purchases if there was no inflation during 1978.

$684.14 billion is 107% of $639.38 billion.

If there was no inflation during 1978, and our low-point balance that year was 2605.86 billion, we would have ended the year with a debt accumulation of (2605.86 + 639.38) or $3245.24 billion dollars.

For GDP, as figured in the previous post, the number would have been not $2351.6 billion, but $2197.8 billion.

My corrected real-to-real debt-to-GDP ratio is (3245.24 / 2197.8) or 1.477 rather than the erroneous 1.485 reported in mine of the 17th.

This new debt-to-GDP ratio of reals stands in comparison to the 1.399 ratio of nominals arising from the FRED data for 1978. 

The ratio of reals remains higher than the ratio of nominals.

I don't know how much existing debt was actually paid down during 1978. I said 10%, but I think that's on the high side. I'll be looking into this again.