Public Debt or Private Debt? – Part 2
In 24 hours a number of people have contributed data and graphs related to the request in Part 1. These are pasted below, including the two remarkable graphs sent by Beaker in Australia and which he made from data obtained by clicking through on the link sent by kkalev.
But I am still drawn to the simplicity of the two kinds of debt graph that Steve Keen is using in various public forums to illustrate the situation in his country. It would be useful if such a single-country graph existed for many countries for anyone to use in public discussions.
First, here are two graphs from Beaker. Click on them to enlarge.
- Mike Meeropol
On page 77 of THE ABC’S OF THE ECONOMIC CRISIS by Fred Magdoff and Michael Yates (Monthly Review Press, 2009) there is a similar graph which breaks down private sector debt into the household sector, nonfinancial business, and financial business.
- kkalev
The macro imbalances scoreboard of the eurostat is handy for EU countries:
http://epp.eurostat.ec.europa.eu/portal/page/portal/excessive_imbalance_procedure/imbalance_scoreboard
Here’s the UK:
https://docs.google.com/a/aldur.co.uk/spreadsheet/oimg?key=0ArdjNI9-uVaDdEd5Q0c0THFPeTNtcTh2X0lWYlFOSVE&oid=8&zx=jetqj2f0fwpk
- Nick
For private debt to GDP ratio from March-12:
http://business.financialpost.com/2012/03/15/portugals-private-debt-mountain-threatens-recovery/
Stacked bar graph breakdown:
http://www.gfmag.com/tools/global-database/economic-data/11855-total-debt-to-gdp.html#axzz2AmleUmCd
interesting to see which troubled nation is last with the least private debt to GDP on both graphics.
- Beaker
I made a graph of (prive debt)/(GDP) for many countries from data obtained by clicking through kkalev’s link.
Click the calculator with green ball in the “Private Debt” section. The data can be downloaded by clicking the disk icon. On the upper left hand side one can click graph and map which makes a graph for a single date.
The situation for Germany:
http://tandemvipera.blogspot.de/2012/06/im-netz-der-spinne.html
and in english
http://genreith.de/index.php?id=economics-of-growth-and-crisis
. Link to free web-text for graphs and so on.
You mean Steve Keen in Australia, not Steve King as you have written in this blog piece.
good point, thanks
I don’t know how the eurostat works out private sector debt, but ONS (Office for National Statisitics in the UK) show that the current debt to GDP ratio is 427%, not 200% as depicted in graph 1. This is a pretty major difference. I got the 427% figure from Neil Wilson’s blog http://www.3spoken.co.uk/. He used the same methods as Steve Keen to calculate the measures.
It is interesting that a simple google search will provide you with the public debt to GDP ratios for any number of countries but the private sector debt to gdp figures are hard to find. Is this a reflection of current economic ideology, where public sector debt is supposed to doom us all to oblivion but private sector debt is good because it reflects wealth in the market (ie one man’s debt is another man’s asset)?
I fully support Keens remark „You might be an economist though, because even though most economists can’t understand my obsession with private debt, plenty are willing to say that the emphasis politicians are putting on reducing government debt now is misplaced.“ (Source: http://www.businessspectator.com.au/bs.nsf/Article/Australian-economy-debt-GDP-budget-surplus-pd20121028-ZHE7W?opendocument&src=rss )
First of all Keen is right, there is no big difference between private and states debt. And private debt is today much larger in all western countries.
Indeed, in classical growth theory of macroeconomics the financial sector of the economy is not mentioned enough, and even not mentioned in a suitable way, but mostly not even anyway. And this is of course the main fact why classical theories of economic growth did not work, as they never include a financial crisis as an intrinsic possibility. If one takes every asset, every financial product, into the account (the whole of debt owned to the market), the outcome is quite perfect. It will show perfectly the evolution of the economy as the upcoming of crisis after time also.
To say it in short, the reason why the economy gets into crisis is, that the whole of interests for the whole of all assets traded in an economy after two generations gets larger than any remaining possible growth of the economy. From this point on interests and especially the compound interests „eat up“ the entire growth plus more.
As a rough approximation of this fact, we shall have a look at the well known quantity equation MV=HP , saying that the flow of money MV equals the flow of trade HP. In classiocal growth theory, this assumption is used just for the rael economy. But we have to expand it to all traded goods, including the socalled financial products. Thus we split it to the two parts of it:
KV=M_R V_R + M_I V_I=H_R P_R + H_I P_I=Y_0
where index R is denoting the „real“ economy and index I the „Banks own Business“ (I for Investmentbanking) with financial products, which are by them selfs a kind of money (derivatives). The index 0 just identifies the maximal possible GDP Y(t) at time t. We can thus rearrange it easily to:
(M_R V_R + M_I V_I) – H_I P_I = H_R P_R
which can be rewritten by definition to
KV – H_I P_I = H_R P_R = Y_R < Y_0
The effect we see is, that the BanksOwnBusiness shortens the money available for the real economy. But as all of the functions M,V,H,P are (mostly growing) functions of time, the effect increases dramatically only after some time, when the I-part of the economy has about doubled the real economy. This will take about 60 years in average. A reset of the dramatic increased situation can only be done by destroying the M_I part, and thus is a political „incorrect“ way, which leads allmost offen to the large wars, which work as the main gadget to reset economies.
Especially it is politcally a very problematic task, as the mixing of Banks Business between the I and the R part of financial business is as such strong, that destroying M_I also effects deeply M_R.
How it works in detail you may find some literature which evolved since 2009 at the linkhttp://genreith.de/index.php?id=economics-of-growth-and-crisis .You’ll find there also a free readable mathematical Webbook to the whole Theory. With best regards, Heribert Genreith.