CutCutCutCutCutCutCut

I don't make predictions, but I don't mind looking at numbers.

I went to Rodger Malcolm Mitchell's Money Sovereignty site for start- and end-dates of the periods of US federal debt reduction. Added 2024 to the list, twice, for Musk's two estimates of deficit reduction -- $2 trillion, and $500 billion. I figure Musk seems to think he can do the cutting in two years, so I went with 2026 for the end date of this one.

I went to Chantrill's usgovernmentspending.com to get federal debt levels for Mitchell's dates. For each debt-reduction period I subtracted the end-year debt level from the start-year level. This tells me the amount of debt reduction in billions.

Chantrill shows a $400 billion increase in debt for the 1997-2001 period, where Mitchell shows a 15% decrease. I think this discrepancy arises because  Rodger is looking at deficits and I'm using gross debt numbers from Chantrill. The internet says the federal debt is the sum of the federal deficits, but if you actually add up the deficits they fall short of gross debt.

Come to think of it, I probably should have used deficits, as deficits are a measure of money that is spent into the economy in a year's time, and reducing deficits reduces the Q-of-M added into circulation... and reducing the money in circulation is a source of concern about the risk of depression. In an old post at Asymptosis, Steve quoted Randall Wray:

Since 1776 there have been six periods of substantial budget surpluses and significant reduction of the debt... The United States has also experienced six periods of depression.

I omit the dates that tie depression to debt reduction. But as Steve says:

Every depression was preceded by a big decline in nominal Federal debt.

I dwell on thoughts like that. My post today is one result. And for the moment, I'm ignoring the 1997-2001 discrepancy. Leaving that one off the list, and adding the proposed budget cuts of Trump's second term.

I went to MeasuringWorth and got their data on nominal GDP, back to 1792, and changed the units to billions. And I figured each debt reduction as a percent of its start-year GDP.

Here's the relevant part of my spreadsheet:

Slide the ScrollBar Right to See More, or just Click the Graph

So I got a low debt reduction, 1.27 percent of GDP, for the 1852-1857 reduction. I got a high of 11.73 percent of GDP for the 1823-1836 reduction, Andrew Jackson's reduction; and almost as high, at 10.94 percent, for the 1920-1930 reduction that led into the Great Depression. Milton Friedman said the Great Depression could have been avoided, and he's probably right. But I have to think that such a large reduction in the federal debt made that depression more difficult to avoid.

Most of the debt reductions are in the 5 or 6 or 7 percent range, including the proposed Musk $2 trillion cut. I thought it would be much higher. Still, if there is a change from increasing deficits to decreasing deficits, the Q-of-M will be affected. The Federal Reserve will have to keep both eyes open, and dance better than they danced around the so-called Biden inflation. Because this one will be the Trump depression, and I know he doesn't want that.

Neither do I.