Federal Debt Held by the Public, 1970:Q1 - 2023:Q3

So I happened to look at Federal Debt Held by the Public at FRED:

Graph #1: https://fred.stlouisfed.org/series/FYGFDPUN

It curves up a little from 1970 to 1990. It curves down a bit then in the 1990s, the Clinton years, as you may remember. Then, since 2001, it goes up for a short decade, and UP for a long decade, and then SCREAMING UP to end-of-data.

You may have heard some of that screaming in Congress in the past couple years.

Hey, I'm writing this because the federal debt in the current millennium is eye-catching (to say the least). My first reaction, looking at the years since 2001, was That's gotta be exponential. So I had FRED show the "natural log" values:

Graph #2: https://fred.stlouisfed.org/graph/?g=1hHJY

Now it doesn't go up and UP and UP. Shown as log values, it's almost a straight line going up from the low point in 2001, to end-of-data in 2023.

When log values show a straight line it means the rate of growth is constant. That's "exponential" by definition -- a constant rate of growth, and a constant doubling time. On this graph, since 2001, it looks pretty straight. It suggests that the growth rate of the federal debt has been nearly constant since 2001 -- something that is hard to see on the first graph. There is a bit more curve in the Obama years than before or after. But there was more fixing of the economy to do at that time, what with the financial crisis and all.

After 2020, the slope of the line looks about the same as the slope from 2001 to 2008. So, the rate of federal debt growth might be about the same in the Biden years as it was in the George W Bush years.

Sure, there is more debt after 2020 than there was by 2008. That's what happens when debt grows. You get more of it.

I wanted to put an exponential curve on that first graph, to see how it fits the plotted data. FRED doesn't let me do that. So I brought the data into Excel and did it there:

 

Graph #3: The red line is an exponential curve based on
data for the 2001:Q2-to-2023:Q3 period

The red line shows the "trend" since 2001; data from before 2001 was not used to create the red line. It shows the 2001-2023 trend of "held by the public" federal debt. If the red line matches the blue in the 1970s it is by chance, or due to the constancy of human nature maybe -- or my eye is off -- but it is not due the arithmetic making them match.

The lows of 2005-2008 (which probably contributed to starting the 2008 financial crisis), of 2016-2020, and from 2022 to end-of-data, together offset the high of 2009-2015 (a high which probably prevented a collapse of the banking system). (Dates approximate.)

And it is interesting to see that the very large debt increase of 2020 did no more than bring the federal debt back up to the trend.

Again, these dates are approximate: From 1975 to 1995, debt held by the public rose more and more above the trend. In other words, all through the Reagan years, and the first Bush, and the Clinton years before the 'New Economy" of the latter 1990s, the growth of federal debt ran increasingly above trend.

The next graph uses the same data as graph #3, but shows the "natural log" values of that data (as with graph #2):

Graph #4: The red line is an exponential curve gone straight
because the graph uses log values.

Based on what I see in these graphs, it still holds good that:

• The below-trend federal debt growth of 2005-2008 probably contributed to starting the 2008 financial crisis. There was also the low growth of M1 money in the same years, and the low growth of base money in those same years as well. As Milton Friedman points out in Chapter 2 of Money Mischief, "a substantial decline in the quantity of money is a necessary and sufficient condition for a major depression." We almost had one in 2008.
• The high federal debt growth of 2009-2015 probably prevented a collapse of the banking system.
• And, again, the very large, covid-related debt increase of 2020 did no more than bring the federal debt back up to the trend. Graph #1 clearly shows the size of that increase and #3 shows the return to trend.

The graphs also show that all through the Reagan years, and the first Bush, and the early Clinton years (before the 'New Economy" of the latter 1990s), the growth of publicly held federal debt ran increasingly above the trend. People often talk about how the federal debt "exploded" after 1980 -- how it grew so much faster than GDP. Well, debt did grow faster for some years  after 1980 than before, but most of the difference we see on the graph is because the rate of inflation was coming down after 1980.

At the lower rates of inflation, nominal GDP increased at a lower rate, so the rapid growth of the debt was easy to see. Debt did grow faster after 1980 than before, but most of that was due to inflation coming down -- to disinflation -- not to accelerated debt growth. Anyway, as the graphs show, above-trend growth of debt started in the mid-1970s. So some, but not all of the rapid debt growth was due to Reagan spending like a madman. I know nobody wants to hear it, but that's how it is.

One more graph:

Graph #5: Five-Year CAGR Growth Rates
Each plotted point shows the end of a five-year period
and the compound annual growth rate for the period

Now I see that federal debt growth was all over the place. Some things are recognizable:

• "Morning in America" around the time of the 1984 peak;
• The federal budget falling toward balance, 1995-2001;
• The response to the 2008 financial crisis, 2008-2013.

I find it interesting, too, that federal debt growth seems drawn to the 10% level: briefly, after 1975; momentarily after 1980; for the five years from 1990 to 1995; and since 2020. It is as if some policymaker said "I dunno, let's see what happens at ten percent." It is most strange to see such things in our economy. It doesn't fill me with confidence.

Nor does my interpretation of logged data fill me with confidence... So much for the growth rate of the federal debt being nearly constant since 2001.