Let
reducing government debt be third on our to-do list, not first on that
list. After excessive private-sector debt comes down some -- after
business and household debt come down --it will be easier to reduce
government debt. Oh, and notice the word help in the graph title there.
Happy Holidays. Merry Christmas.
Peace.
Going with debt relative to income, I'll compare household debt to "disposable" personal income (DPI), the measure of "after tax" income.
In FRED's Table 2.1. Personal Income and Its Disposition: Annual they subtract "personal current taxes" from "personal income" to get "disposable personal income". Then, from disposable personal income they subtract three categories of cost
and what's left is called "personal saving".
Hey, I'm just making sure it makes sense to subtract household interest cost from DPI. Where else?
Funny you should ask. Because "Personal interest payments" is half or less than half the interest that is paid by households:
 |
| Graph #1: "Personal Interest Payments" as a Percent of the Monetary Interest Paid by Households |
Why? They have their reasons. Apparently the rest of the interest is counted as business expense. According to the CHAPTER 12: RENTAL INCOME OF PERSONS PDF,
The housing stock provides a flow of housing services that are consumed by persons who rent their housing and by persons who own the housing they occupy (referred to as “owner-occupiers”). In the NIPAs, owner-occupiers are treated as owning unincorporated enterprises that provide housing services to themselves in the form of the rental value of their dwellings.
Chapter 12 continues:
Thus, personal consumption expenditures (PCE) for housing services includes both the monetary rents paid by tenants and an imputed rental value for owner-occupied dwellings (measured as the income the homeowner could have received if the house had been rented to a tenant)...
So the "Personal consumption expenditures", which is counted in GDP, includes the cost of an imaginary monetary rent that homeowners (called "owner-occupiers") pay to live in their own homes. Conveniently, this cost is offset by imaginary income:
... and rental income of persons includes the monetary income earned by landlords and an imputed rental income earned by owner-occupiers.
Apparently, this imaginary rental income is counted as an addition to homeowners' income, offsetting the imaginary cost of paying the rent. This imagining allows "owner-occupied" houses to be "treated as fixed assets" for accounting purposes, just as "tenant-occupied" houses are.
In a paper on modeling imputed rent, Arnold J. Katz points out that "The rental value of owner‐occupied housing ... accounts for about 8 percent of GDP". Katz is right. Unbelievably, in 2022, imputed rent added two trillion dollars to GDP.
Oh, they have their reasons.
5:31 AM Fri, 10/15/2021
She's getting old, and she knows it. Me too, I'm getting old and I know it, so I have sympathy for her.
Perhaps
I should say, I'm retired a few years now. Retiring simplified my life
and made the dogs a bigger part of it. They get a lot of my time.
When I bring her a treat her eyes are on me, not the treat. Until I'm arms-length away from her, her eyes are on my eyes. (Our other dogs look only at the treat.)
For the past couple months, her back leg
troubles her. She has a bit of a limp. It varies, some days worse than
others. Finally it occurred to me to stop the roughhousing. I keep an
eye on our (hundred-pound) puppy so he doesn't jump on her. Actually, he
caught on quickly. He knows, too, that she is getting old.
Yesterday I noticed some blood by her butt. Oh, that can't be good.
6:36 AM Fri, 10/15/2021
Sometimes, she wants something. "What do you want?" I ask. She licks her lips: A treat, Daddy. I want a treat.
I love it that she talks to me like that.
1:37 AM Sat, 10/16/2021
All the dogs I ever had, had dark brown eyes. Except Mish. Hers are very light brown, almost golden.
28 Oct
She loves to "hold hands" -- to wrap her front leg around my forearm while I'm petting her with the other hand.
And I've been watching her eyes: She definitely watches my eyes when I bring her a treat, till I'm within arm's length of her.
3 Nov 2021
When I take her paw in my hand, it's a handful. But she does prefer wrapping forearms.
4 Nov 2021
Yesterday I let our three dogs out and (later) in again, around lunchtime. I was in a good mood and gave them each a "chicken stick" treat.
Today, just now, just before noon, I let them in. They all looked at me expectantly. Mish looked at me and licked her lips: A treat, Daddy. I want a treat.
What a personality that dog has!
10 Nov 2021
I was sitting on the couch. Mish was on the couch, lying down, her front paws out in front of her. I put my hand gently on her paws. She pulled one paw out and put it on top of my hand.
Her butt is improved, by the way. No more blood.
She has a lot of good days, too, with that achy hind leg. The MSM helps, and the Dasuquin. And for a while we stopped the roughhousing that (I think) was the original source of the ache. Gave her time to heal up. I still interrupt them when they roughhouse, but not immediately.
3:23 PM 1 Dec 2021 // Dad's birthday. Happy Birthday, Dad!
Garbage day. Time for my weekly-if-I-remember start-the-garden-tractor-and-let-it-run. Took the dogs out with me, two birds one stone.
After about 15 minutes Mish came to get me -- came up within 5ft of the noisy tractor to get my attention. I could see the other two by the house. Probably want to go in, I figured. Hopped off the tractor & walked toward the house. Mish stayed right with me.
As I got close to the house, Max and Lexi walked up to the door, definitely ready to go in. I opened the door and as they went in, I turned to look at Mish. She looked at me as if to say "No, I'm not ready yet" and walked away.
That's my Mish.
5:14 AM 15 Jan 2022
I love it when she looks me in the eye as I bring her a treat. She loves me more than she loves the treat!
Lately, I have Mish on a leash every time she goes out. To prevent the running and roughhousing. We seem to have it down to a schedule. Every two hours Max (the puppy) is ready to go out again. So the four of us go out, Max and Lexi and Mish and me, with Mish and me leashed together. 20 minutes, give or take. Retirement creates time for such things.
Every two hours, 6 AM to 6 PM, but perhaps we can skip one around noon.
//
7:52 PM Fri Aug 12 2022
Around 3:30 this afternoon, I figured it was time to watch a little TV. Found season one of Brokenwood, set the volume right, and settled down into the sofa.
Mish barked, that urgent bark that means I-need-your-attention-pronto. I mumbled to myself and settled deeper into the sofa. A minute later, the urgent bark came a second time.
I got up. When I got close enough to see her, she looked me right in the eye and licked her lips three times: "I'M GETTING PRETTY HUNGRY NOW"
The nerve of that dog! I laughed and went back to the couch. Not five minutes later, the third urgent bark. I shut off the TV and made their dinner.
//
Later, about 20 minutes ago, 7:30 PM, the dogs are quiet, settled-in for the night. I decide to have a glass of wine.
I grab the glass, grab the bottle, pour the wine, you know the steps.
Before I get to step four (put the wine away) Mish hobbles into the kitchen as if to say "I'm ready for wine-on-the-porch". I couldn't feign misunderstanding. We had to go out.
She does love her time outside.
/////
11 December 2023
Today, my girl Mish died, a victim of the cancer. We found out seven months ago. The vet gave her three months. She lasted seven.
She was fine on Saturday. Sunday she woke up in pain so bad she could hardly move. Monday, today, we took her to the vet and had her put to sleep.
You spend your whole life developing a trust relationship with your dog. And the last thing you do for her is lie and say the vet is going to help you sleep better now. It was as close as I could come to not lying. But not close enough.
She was the prettiest, smartest, most human dog I ever knew.
.jpg) |
| Mish |
The blue line on the graph shows household debt service since 1980. The red line is my estimate of household debt service going back to 1946:
 |
| Graph #1: Household Debt Service since 1980 (blue) and my estimate back to 1946 (red) |
My estimate is based on 4.6% of outstanding household debt being repaid each year. Less than 5%. Evidently the actual (blue) percentage varies some from year to year: When the blue line is higher than the red, we are repaying more than 4.6% of our outstanding debt; when the blue line is lower than the red, we are repaying less than 4.6%.
The red line
starts in 1946 at almost exactly two percent. So, in 1946, my parents
probably used about 2% of their disposable (after-tax) income to pay
down their outstanding debt. The red line shows that by 1956 they were
probably using more than 5% of their income each year to pay down less
than 5% of their debt. And by 1965, when I turned 16, my folks may have
been using almost 7.5% of their income for the debt service payment -- while still repaying less than 5% of their debt.
On average, by my estimate, each year people were paying down less than 5% of their existing debt. But by 1956, on average, people were using more than 5% of their disposable income to make the payment. Perhaps we should say that by 1956 people were already "under water" on their financial obligations. By 1956.
CHAPTER 12: RENTAL INCOME OF PERSONS
(Updated: November 2019)
https://www.bea.gov/system/files/2019-12/Chapter-12.pdf
The Bureau of Economic Analysis (BEA) makes the official estimates of the National Income and Product Accounts (NIPAs). Two key aggregates in these accounts are the nation’s gross domestic product (GDP) and the personal income of households. The rental value of owner‐occupied housing is an important component of both. It accounts for about 8 percent of GDP and largely determines the rental income of persons.
I had been looking at the relation between what we spend
("Personal Consumption Expenditures") and our after-tax income
("Disposable Personal Income") and I got some particularly interesting
results because of a mistake in my calculation. So then I was being
extra-careful, going over details...
The FRED graph page listed some tables for the data I was looking at. I've been discovering recently how useful such tables are: They show components that are added together (or subtracted out) to come up with the data; they identify all the datasets involved; and the tables even provide links to the data.
Turns out, it's
not Disposable Personal Income minus Personal Consumption Expenditures
that leaves us with Personal Saving. Nope. It's Disposable Personal Income,
minus Personal Consumption Expenditures, minus Personal Interest
Payments, minus Personal Current Transfer Payments -- and after that,
what's left over is our Personal Saving.
So I checked the tables and gathered the data I should have been using. Then I had to go back and make sure that when they use a data series in more than one table, it is always the same dataset, not just the same description. Yup. I guess it has to be, or the tables would be more trouble than they are worth.
One
of the things they subtract to get from DPI to personal saving is
"Personal Interest Payments". I looked at the data: Personal interest
payments are always less than 3% of Disposable Personal Income. I wish!
If our interest costs were really that low, our economy would be healthy
and vigorous. "Monetary Interest Paid: Households" hasn't been that low since the 1950s!
The interest cost measures I usually use are all subsets of "Monetary Interest Paid". The "Household" subset has two parts: the mortgage interest part, and the non-mortgage part. The non-mortgage part runs close to the the "personal interest payments" number, for some reason averaging roughly a quarter-point higher. But the two series follow the same path. I figure those two are the same.
That leaves the mortgage interest. Who pays that? We do -- but it's not counted as part of Personal Consumption Expenditures or Personal Outlays. Where is is counted? And why is it not counted as part of personal spending?
Well, I rummaged around the internet for half an hour before I found anything worth noting. In the glossary at BEA, "Personal interest payments" is defined as "Non-mortgage interest paid by persons." So I got that right.
But to answer the question where is my mortgage interest counted? took another hour or more of rummaging.
I searched BEA for mortgage interest. There seemed to be a lot on "rental income of owner-occupied property" in the search results. That stood out when I saw it, because I remember Oilfield Trash telling me about it a while back. Finally, somewhere in the search results I found this:
"Note that mortgage interest paid by households is an expense item in the calculation of rental income of persons."
So, my mortgage payment comes out of the money I pay myself for renting my house to me.
After that, I searched BEA for rental income of persons, and then I started making progress.
From page 5 in CHAPTER 12: RENTAL INCOME OF PERSONS:
As noted in “Chapter 2: Fundamental Concepts,” purchases of newly constructed housing are treated as private fixed investment rather than as consumption expenditures in the NIPAs, and the stock of housing is treated as fixed assets. The housing stock provides a flow of housing services that are consumed by persons who rent their housing and by persons who own the housing they occupy (referred to as “owner-occupiers”). In the NIPAs, owner-occupiers are treated as owning unincorporated enterprises that provide housing services to themselves in the form of the rental value of their dwellings.8 Thus, personal consumption expenditures (PCE) for housing services includes both the monetary rents paid by tenants and an imputed rental value for owner-occupied dwellings (measured as the income the homeowner could have received if the house had been rented to a tenant), and rental income of persons includes the monetary income earned by landlords and an imputed rental income earned by owner-occupiers.
Emphasis added. Their thought continues:
This treatment is designed to make PCE, GDP, and the incomes associated with them invariant to whether the house is rented by a landlord to a tenant or is lived in by the homeowner.
What, they do all this imputed-rent stuff to make life easier for the stats guys? Really? Or maybe, as footnote 8 says, they do it to be "consistent" with the SNA. Footnote 8:
This treatment is consistent with that of the international System of International Accounts (SNA): “Households that own the dwellings they occupy are formally treated as owners of unincorporated enterprises that produce housing services consumed by those same households” (SNA 2008: 6.117).
Yup:
My mortgage payment comes out of the money I pay myself for renting my
house to me. It's like something out of Alice in Wonderland.
And what was it Arnold Katz said? "The rental value of owner‐occupied housing ... accounts for about 8 percent of GDP".
From LibreTexts -- Section 26.2: The Quantity Theory of Money
Prior to the Great Depression, the dominant view in economics was an economic theory called the classical dichotomy. Although this term sounds imposing, the idea is not. According to the classical dichotomy, real variables are determined independently of nominal variables. In other words, if you take the long list of variables used by macroeconomists and write them in two columns—real variables on the left and nominal variables on the right—then you can figure out all the real variables without needing to know any of the nominal variables.
Following the Great Depression, economists turned instead to the aggregate expenditure model to better understand the fluctuations of the aggregate economy. In that framework, the classical dichotomy does not hold. Economists still believe the classical dichotomy is important, but today economists think that the classical dichotomy only applies in the long run.
The classical dichotomy can be seen from the following thought experiment. Start with a situation in which the economy is in equilibrium, meaning that supply and demand are in balance in all the different markets in the economy. The classical dichotomy tells us that this equilibrium determines relative prices (the price of one good in terms of another), not absolute prices.
"If among a nation of hunters," Adam Smith wrote, "it usually costs twice the labour to kill a beaver which it does to kill a deer, one beaver should naturally exchange for or be worth two deer."
Okay, that's relative prices.
