Home > Uncategorized > No bubbles on the horizon

No bubbles on the horizon

from Dean Baker

Ever since the collapse of the housing bubble in 2007–2008 that gave us the Great Recession, there has been a large doom and gloom crowd anxious to tell us another crash is on the way. Most insist this one will be even worse than the last one. They are wrong.

Both the housing bubble in the last decade and the stock bubble in the 1990s were easy to see. It was also easy to see that their collapse would throw the economy into a recession since both bubbles were driving the economy. We are in a very different place today.

The stock market is high. By any measure, price-to-earnings ratios are far above historic averages, but they are nowhere near as out of line as they were in the 1990s bubble.

The current value of the market is roughly 24 times after-tax corporate profits, based on the first quarter’s data. This compares to the historic average ratio of 15-to-1. But at the peak of the bubble in 2000, the ratio was over 30-to-1.

Furthermore, the higher than normal price-to-earnings ratio can very well be justified by unusually low real interest rates. The interest rate on the 10-year Treasury bond is flirting with 3.0 percent. With a 2.0 percent inflation rate, that translates into a real interest rate of just 1.0 percent. 

By contrast, when the stock market was soaring in the late 1990s, the yield on 10-year bonds was generally over 5.0 percent. Given an inflation rate also near 2.0 percent, this translated into a real interest rate of 3.0 percent. That made bonds a much better alternative in the 1990s bubble than at present.

It is true that profits are unusually high as a share of national income. This reflects a big increase in the profit share in the weak labor market following the Great Recession, and more recently the Republican tax cut passed last fall.

It can be hoped that labor regains some of its lost share and pushes profits downward. But there is no guarantee that this will happen, and stock prices that reflect current profit levels can hardly be said to be in a bubble.

House prices are also well above trend levels. Inflation-adjusted house prices are around 30 percent above their trend levels. But they are still about 14 percent below bubble peaks. Here too, the higher than normal level seems to reflect the fundamentals of the market.

Unlike the housing bubble years, rents have been rising far more rapidly than the overall rate of inflation over the last five years. This indicates that there actually is a shortage of housing pushing up house prices, not a speculative bubble.

On this point it is also worth noting that vacancy rates are relatively low at present. By contrast, in the bubble years of the last decade vacancy rates were hitting record highs even as the bubble continued to grow.

Unusually low interest rates also likely play a role in current house prices. Lower than normal mortgage rates make houses more affordable and shift the terms of the tradeoff between renting and owning in favor of owning. Through the bubble years, the 30-year mortgage rate was generally between 5.5 percent and 6.0 percent. Even with the recent rise in rates, a 30-year mortgage is still averaging just 4.6 percent.

Not only is there little evidence of bubbles just now, there also is no case to be made that bubbles are driving the economy. In the late 1990s, it was clear that the stock bubble was driving the economy. Through the stock wealth effect, the run-up in stock prices led to a consumption boom that pushed the savings rate to then-record low levels. In addition, investment surged as this was a rare period in which start-ups were actually financing investment by issuing shares of stock.

When the bubble burst, investment plunged, and consumption fell back to more normal levels. This gave us the 2001 recession. While most economists see this as a short and mild recession, we actually did not recover the jobs lost until January of 2005, which at the time was the longest period without net job growth since the Great Recession.

In the housing bubble years, the consumption triggered by the run-up in house prices sent the savings rate even lower than at the peak of the stock bubble. In addition, housing construction rose to 6.5 percent of GDP, compared to an average of roughly 4.0 percent.

Not surprisingly, when the bubble burst consumption fell back to more normal levels. The overbuilding of the bubble years led construction to fall far below normal levels, bottoming out at less than 2.0 percent of GDP in 2010. This enormous loss of demand was the cause of the Great Recession.

High stock and housing prices are not driving the economy in the same way as they did in the 1990s stock bubble or the housing bubble of the last decade. Investment remains modest by any measure. Housing construction is getting stronger, but very much in line with longer-term trends.

Consumption is high as a result of stock and housing wealth. But even in an extreme case, where the savings rate rose back to Great Recession levels, it probably would not be sufficient by itself to cause a recession and certainly not a severe one.

In short, the gloom and doom stories just don’t have much basis in reality. There are plenty of economic problems to concern us, but the prospect of another big crash is not one of them.

See article on original site

  1. Prof Dr James Beckman, Germany
    June 5, 2018 at 12:46 pm

    Interesting that as Mr T gave America extra demand by letting the well-off pay fewer taxes even as the government had to borrow, the same Mr T is shaking up both global trade / domestic production. Put these together & no bubble appears in my line of view.

  2. detroitdan
    June 5, 2018 at 1:33 pm

    Low interest rates do not justify high stock prices. In fact, the claim that they do is itself evidence of a bubble.

    To see this, imagine that low interest rates do justify high stock prices. (This is presumably do to the lower “opportunity cost” when bonds return less.) In other words, lower interest rates legitimately generate higher stock prices or, to put it another way, lower interest rates generate more investment. As this goes on for many years (interest rates have been low for a decade), more and more investment is made compared to the underlying rate of business activity. This is the very definition of a bubble.

    The bubble is obvious when one considers some of the hot investments these days, such as cryptocurrencies and self-driving cars. There are no reasonably priced investments to be made, so people are speculating.

    Baker also ignores the self-reinforcing nature of the financial world. Assets collateralize loans. Once assets devalue, then the whole structure becomes wobbly. To claim that this is not structurally significant ignores the fact that corporate borrowing and leverage has increased dramatically in recent years. See The Economist — America’s companies have binged on debt; a reckoning looms.

    This is all what one should expect from Baker’s observation that returns to capital have dramatically increased in comparison to returns to labor. Laborers have a much higher propensity to spend on consumption in comparison to stockholders, who often reinvest capital gains. More and more investment dollars are chasing fewer consumption dollars. This is what brought about the great depression in 1930 also.

  3. June 5, 2018 at 2:48 pm

    M1 is growing at a faster pace than M2. That is why there will be no crash until M2 grows faster than M1. All one has to do is look at the chart of M1 and M2 for the past several decades. Every time M2 grows faster than M1 for about 4 years a crash follows.

  4. Craig
    June 5, 2018 at 5:17 pm

    The ratio of debt to GDP is still much higher than prior periods which gives less room for bubbles to expand. Also, the employment participation rate has no where to go but down save a new “gig” economy where everyone makes their living exchanging flowers or dandelions….which would be reflective of what would actually turn the economy around long term…..policies based on the natural philosophical concept of grace as in gifting digitally/intelligently integrated into profit making economic systems.

  5. June 5, 2018 at 5:31 pm

    It’s a Trump bubble. Some economies fall into recession, others are pushed.

  6. detroitdan
    June 5, 2018 at 5:47 pm

    Agree with Lord. Political considerations are extremely important. Even though the bubbles in 1999 and 2007 were so pronounced, their impact was mitigated by mainstream consensus on how to dea with them. The current political environment is vastly different, and not in a good way for containing the fallout, both in the U.S. and overseas.

  7. June 5, 2018 at 10:28 pm

    What would Minsky say?

    • Craig
      June 6, 2018 at 12:15 am

      Minsky/Keen would undoubtedly say that the system is financially unstable because the fundamental direction of capitalism is “up”. And he/they would be right even though that is more an epi-phenomenon observation of the more fundamental economic fact that technologically advanced capital intensive economies have continually rising depreciation costs from all of the development we see looming up before our very eyes while simultaneously actually available aggregate demand is continually eroding due to labor being a soft target for cost savings, innovation and now AI.

      Again it’s a case of economists not looking in the right place for insights. I see that Steve Keen has recently published a video explaining how saving is problematic macro-economically/the paradox of thrift and all of that…and using double entry bookkeeping to prove it. Again he’s right, but he’s still splashing around on the surface of accounting debits and credits as a tool instead of investigating the potentially paradigm changing economic insights and policies to be derived from the digital nature of the pricing, debt based monetary and accounting systems along with the equally paradigm changing insights regarding the point of sale as a stopping and summing point for costs and prices and retail sale being that plus the terminal summing point for all consumer price inflation.

      I told Keen several years ago that he should be studying C. H. Douglas more than Minsky because he was the first disequilibrium theorist. He said he would have to investigate that, but went right back to making our eyes glaze over with mathematical abstractions. Old habits die hard. Don’t get me wrong, Keen is brilliant, but when you only observe abstract economic epi-phenomenons instead of their basic causes….it makes it hard to perceive the new paradigm and its transformational policies….even if you’re looking straight at it and advocating the very things they (the policies) will do.

      • Prof Dr James Beckman, Germany
        June 6, 2018 at 7:19 am

        Hi, Craig, I wonder what Keen has said or would say about a saving culture like Germany’s, where massive saving allows lending at miniscule rates. I believe the re-developer of my small apartment building is paying less than 4% for construction money, with permanent financing perhaps 2.8% through the local Sparkasse. At such rates I thing my area west of Frankfurt is over-building, but with advantageous taxes thrown in the wealthy are getting a better return than from normal savings accounts.
        Mr point obviously is that saving can have real benefits to employment (construction workers & suppliers) with the resultant product not well-occupied but the investors still benefiting. That is bad? Your ideas.

      • Craig
        June 6, 2018 at 5:23 pm


        Micro-economically I’m sure he’d say that he admires them. Macro-economically their dominant position within the EU and the enforced usage of the Euro has lead to their enforcing austerity and debt penury on Greece, Spain and Ireland when finding a sane and humane way (like a debt jubilee for onerous indebtedness, a universal dividend and a discount/rebate at the general point of sale and retail sale) would enable them to right their economies and move forward with economically solidifying re-industrialization. Or at least those are the remedies he’d recommend if he recognized the new paradigm.

        I’ve said on here before that macro-economics is really just the study of palliatives and unresolvable paradoxes and conundrums because it resides almost entirely within the paradigm of debt Only as the vehicle and form for the distribution of credit/money. That also makes virtually all of its insights mere “epicycles” and perturbations of the orbits of Mars, Jupiter and Saturn when what is required is inverting the problematic positions/primacy of the Earth/Debt Only and the Sun/Direct and Reciprocal Monetary Gifting….and as a result macro-economic austerity, the paradox of thrift, the dominance of Finance, individual scarcity of available to spend income and the increasing unworkability of free enterprise due to lack of sufficient demand….will be resolved.

      • Prof Dr James Beckman, Germany
        June 7, 2018 at 7:24 am

        Craig, this is very useful, as usual. My focus is always on the multi-polarity of the world, whether looking at populations, GDP, tech patents or whatever. Leaving America in 2002 to sit in Middle Europe has given me this pespective. Financial economists must deal with multiple Central Banks and the Euro/Yuan near equality to the Dollar, for example. Indeed, Mr Trump’s attempt to isolate Iran may shortly bring the Euro/Yuan in as legal tender for valuation & payment petroleum. Logistically, Iran is linked to China by sea & now rail. A pipeline seems to be on its way. Therefore, financial pressure from geopolitical & economic causes will be taking another form.

      • Craig
        June 7, 2018 at 9:50 am

        Thanks James. Yes geo-political considerations ARE important. The most important consideration to keep in mind while trying to implement the new paradigm is probably being vigilante about preventing a regional or even world war which I have no doubt Finance would not hesitate to foment if they thought they were going to lose their monopoly paradigm. Meanwhile everything out of Trump’s mouth is dis-integrative of our democratic principles, institutions and alliances. Merchants of chaos like Trump and Bannon only know how to smash ideas together instead of integrating the truths in apparently opposing perspectives, and they ignorantly push an entirely sketchy “fourth turning” hypothesis which is really just looking at the all too frequent result of a lack of wisdom and unwillingness to accomplish the thirdness greater oneness that is the signature of true integrations….like paradigm changes.

      • Robert Locke
        June 7, 2018 at 5:10 pm

        Craig, why do you insist on blaming the Germans for the problem of financialization originating in the US UK financials capitalism.

        In the rwer, 68,2014, “Financialization, income distribution, and social justice: Recent German and American experience, I wrote:

        “When the Berlin Wall came down in 1989, European banking everywhere rested on three pillars: private commercial banks, public saving banks, and co-operative banks. Traditionally the big German private banks had operated in the “kingly merchant tradition,” where a firm retained a Hausbank and relations with it rested on trust, i.e., customers were not customers in the American sense but clients (Batiz-Lazo, Locke, & Mὔller, 2008).

        The new information technologies churning out of America allowed the flow of monies to increase dramatically and permitted investors everywhere to trade in rapidly created equity markets twenty-four hours a day. Taking advantage of this technology and the expanding geographical opportunities accompanying the collapse of communism, American and UK financial houses rooted in equity markets began to promote the financialization of enterprise in Europe by facilitating mergers and acquisitions, debt management, and capital acquisition.
        This British and American Drang nach Osten [push to the East] affected the investment business of major German private commercial banks in their own country; by 2004 they only transacted 38.3% of the German merger and acquisition business, 21.8% of the German equity market business, and 16.3% of the debt market business (The Economist 1.11. 2004, 82). J.P Morgan, Morgan Stanley and Goldman Sachs beat the German banks in their own backyard because it was an American kind of capitalism. According to The Economist (27.03.2004, 75) the position of German banks became so bad that a German agency, the Kreditanstalt fὔr Wiederaufbau, thought it best in order to optimize results in the privatization of Deutsche Telekom to auction off large blocks of the company’s shares through foreign investment banks, rather than through the investment bank arms of Deutsche Bank, Dresdner Bank a
        and other German banks.

        German private commercial banks decided that survival depended on the adoption of the new model. They moved onto the turf of American and British capitalism, began trading in securities and engaging in business consultancy. They also, following the UK and US banks, marketed new products and services. These included selling loan packages, credit cards, insurance, and organizing electronic banking through automated machines, and on-line services. Banks acted less as Hausbanken for large companies and held less of their clients stock in their portfolios (Lütz, 2000). They shifted from the kingly merchant tradition environment of trust in retail banking to one of persuasion, to letting impersonal market
        mechanisms set price and determine transactions.

        In 1990, the business model of the second pillar, the European public savings banks, had five features. First they were “public,” which meant they were “in a certain sense owned or sponsored and governed by some regional or local public body such as a city or a county or region.” Second, they were organized under a public law regime. Third, they had “a dual objective: They were expected to support the local economy and the local people, and at the same time to operate according to common business rules and thus to be financially sustainable enterprises.” Fourth, they had to adhere to the “so-called regional principle, which restricts the operations of a saving bank to the area for which the public body is responsible.” As they were firmly rooted in the local economy, they did not compete with each other; “savings banks in a county or region had reason to consider each other more as peers and colleagues than as competitors.” Fifth, they “were part of dense and closely cooperating networks of legally independent institutions that constituted a special banking group.” Germans use the term “Verbünde for these dense networks, a term, Bübül, Schmidt, and Schüwer point out, that is hard to translate into English, “since such networks of banks do not exist in Anglo-Saxon countries” (3).

        Cooperative banks, the third pillar, were also banks that adhered to the regional principle and were part of dense networks. Their “mandate was to support economic undertakings of their clients and to be cost-covering and profitable businesses. Cooperative banks were organized almost like clubs wherein the owners and providers of equity were not called shareholders but members. The difference between shareholders and cooperative bank members is that the latter could not “sell their shares if they wanted to exit, at some market price, but only hand
        them back to the cooperative and in return get back what they had originally paid for them plus their part of the cooperatives accumulated profits.” Accordingly, they could not “benefit from policies that would increase the value of their shares because they could not sell their shares at higher prices” (Bübül et al, 3).
        In the 1980s British and American banks and their European partners pushed, as they did in the first pillar, the private commercial banks, to “modernize” the other two. “Strongly opposed to publicly owned banks” EU banking bureaucrats, who were educated in US financialization, joined in, since they thought public savings and cooperative banks old fashioned and outdated, because they did not conform to the “model” of how a good modern bank should be structured and operated.
        Reform occurred in Belgium, where savings and cooperative banks essentially disappeared, in the UK where public savings banks (TSB) were sold to Lloyds Banking Group, and several cooperative banks, the so-called building societies, sold to large private banks; in the Netherlands savings banks disappeared and independent cooperative banks were amalgamated into one big national bank (Rabobank); in Sweden the former local savings banks were converted into joint stock corporations in the 1990s and most consolidated into a single national savings bank (Swedbank); in Spain local savings banks, the cajas, were privatized and localization abolished. They were permitted to provide a broad range of financial services in all parts of the country, becoming universal banks, which invested heavily in real estate loans, with the approval of pre-financial crisis reformers who believed that regional banks could not compete with other banks operating with large branch networks.

        Only in Germany did the other two pillars of banking (423 savings banks and 1,116 cooperative banks) remain a “special case in which no substantial changes [occurred] during the last decades” (Bübül et al, 3). The savings banks have remained local and public and cooperative banks have not become essentially profit oriented institutions seeking to enhance shareholder value; nor has either been turned into centrally located stock-exchange listed corporations. Since each sector had a system of joint and several liability even before the financial crisis began, no individual member bank was allowed when it came to go bust. They came through the crisis with barely a scratch and, their spokesmen argue, their business model, working for the public or mutual good rather than for shareholders, has proved to be well-suited to the mixture of households and small companies (known as the Mittelstand) that they serve (Gerada & Netessine,1).

        This statement is borne out by their lending record since 2007. Private German commercial banks reduced their medium- and long-term lending to companies and households between 2007 and 2012 in favor of short-term loans, while the German savings and cooperative banks did the reverse. The savings banks and cooperative banks currently provide about two-thirds of all lending to Mittelstand companies and 43% of lending to all companies and households.
        Most people now agree that “the amazing resilience of the German economy” can be attributed to its reliance on the small to medium size enterprises of Mittelstand companies: Seventy percent of Germans are employed by them in the private sector. Inasmuch as private and cooperative banks have financed these flourishing Mittelstand firms, judgments about these two pillars of German banking have changed from those of the pre-financial crisis era. Petra Dünhaupt notes that locally rooted banks “compared to private commercial banks,” performed well before and after the crises, (18) and that the modern view that “capital markets, in which banks are large, private, purely shareholder-oriented and exchange-listed corporations has been severely discredited by experience from the recent financial crisis.” The best business model, she writes, is “being firmly rooted in the local economy and aspiring to strike a balance between the need to make a profit and the aim of serving members and clients, and the appropriate institutional structure is being embedded in a decentralized and dense network of affiliated financial and non-financial institutions”


      • Prof Dr James Beckman, Germany
        June 7, 2018 at 5:34 pm

        Robert, your words about the Sparkassen seem appropriate to where I live. I believe we will have an overbuilding with locally-funded structures. In fact, our Sparkasse has just moved
        into the lower floor of the addition to my small apartment structure. A new structure is being graded for just a few meters away. Yes, the German model sure works for local business.

      • Craig
        June 7, 2018 at 9:26 pm


        In fact I do not blame the Germans for the toxic brand of financialization that you accurately describe and ascribe to American financial institutions. My critique of Germany is in their domineering role in the structural straight jacket of the Euro and the paradigmatic monopoly of Debt Only that all private and public financial institutions enjoy.

        The Sparkassen being public banks are a far superior system than the blood sucking private too big to fail banks that exist here. I have followed Ellen Brown’s Public Banking movement since its beginning and affirm the better publicly administered variety.

        However, let’s not fool ourselves, without a new pattern for the vehicle, form and direct distribution of credit/money….banking whether public or private is still domination accomplished and maintained.

        We must focus on both the level of paradigm (a single unifying concept) and simultaneously on the way it can be rationally and ethically integrated/implemented seamlessly within the new pattern it creates.

        Heterodox economists have the problems largely identified….they are just hampered by a couple of remaining orthodoxies and a failure to look in the right place to discern how to implement the new paradigm therefore not seeing the way out and the way home that such a paradigm would effect.

    • Prof Dr James Beckman, Germany
      June 6, 2018 at 7:09 am

      Hi, Gracchibros, from my studies with him I think we would have agreed this is largely a “real economy” issue, with more returned tax money leading to more services provided to the better-off recipients: home additions, more exotic vacations, etc. No business wants to invest much now due to very rapidly changing tech as well as Mr T’s destabizing of cross border transactions. Of course, as the economy really improves for the few, interest rates would be expected to rise, putting some pressure on the majority with their reliance on credit to survive. There are a number of economies in the US, perhaps just as clearly as back in the 1920’s, it seems to me. Your ideas?

      • June 6, 2018 at 1:03 pm

        Hi Dr. Beckman, thanks for you comments. I’m trying to take it all in, the comments here, as well as reconcile Dean Baker’s point of view, with what I see out here in rural Red State Western Maryland, at eye level Main Street level. I try to make sense out of four or five business failures we’ve had locally, the last one a hotel and restaurant that went under, with nearly $500,000 of public money put into a revitalization effort, but only $200,000 of the local small bank. It failed in less than a year. We don’t know what happened because lips are sealed and the newspaper reporting has been superficial. I’m doing my own investigation right now: at one level, and I’ve made this a commentary with a zing (Dean Baker got a copy of my essay) – how does the wonderful economy position square with these businesses going under? My read is that the major miscalculation of the entrepreneurs has been to try to launch middle-class/upper middle class enterprises where the regional demographics just won’t support them. Since the official line in America is that we are a classless society, if you really believe this I think it blurs the realism in making one’s marketing -target audience assumptions. I took account of Larry Summers recent paper on designing help for rural red state areas, and he veered away from any grand New Deal type regional development programs, didn’t mention environmental restoration, and ended up at public money subsidizing wages but $ going to the employer, not the employee.

        I don’t have a specific angle of attack on Baker’s view, other than to say that in my estimation the bottom 60% has had no income level jolt, better employment numbers, but they are not the source of support for the economy in the spending area…Reading Varouvakis’s Minotaur book last night, where he say the public and private debt levels rising in Greece, Spain, Italy prior to the 2015 crisis and felt quite alone (a 2011 book) in crying a warning inside Greece. Any thoughts from contributors here, including Dean, on American debt levels (contrasted to GDP)…? I haven’t gone down that lane for a while, and haven’t seen any alarms land in my inbox. And I have L. Randall Wray’s book on Minsky on the to read list after my current load of three by Varouvakis.

        In my region, I asked outloud in the Intro to my essay: if these businesses can’t make it at the peak of the business cycle, what will it look like on the way down, closer to another bottom? Neither our income levels or pop. densities make it easy…for entrepreneurs to succeed, and it was the de-industrialization of the area between late 1970’s and early 1990’s that really intensified the social problems of crime and drugs. Cumberland is a case study of downward spirals…

      • Prof Dr James Beckman, Germany
        June 6, 2018 at 1:56 pm

        Hi, Gracchibros, thanks for taking the time to explain your interests/ideas in more detail. With so much change coming from shift demand & tech, any regions needs to be alert to new opportunities. I recall when way back Baltimore & Boston spruced up their harbors, using great location/history as a basis to re-purpose their old buildings. This can be–and often has–proven beneficial.
        Having been raised in Silicon Valley I naturally look to tech to lead re-vitalization, as Pittsburgh has done so well, for example. Accordingly, if I had been Larry I would have spoken to job-skill upgrading, to both draw new investment & increase wages. Perhaps as a full-time academic he doesn’t feel drawn to this approach. However, since I consult with a number of Germany firms, as well as also teach in China, I see how tech in production & in products–often then exported–makes THE difference.
        Let us know your response to the many books your are reading, please. Enjoy.

      • Robert Locke
        June 6, 2018 at 2:50 pm

        I remember attending a business history conference in Baltimore, shortly after they spruced up the harbour area. My hotel was in walking distance, so a strolled out in the street towards the harbour in order to see the “Constitution” which was anchored there. After a hundred yards or so a police car drove up beside me and asked where I was going. I told them that I wanted to visit the Constitution area. They answered, “no, its too dangerous for you to walk here. Go back to your hotel and we’ll follow beside you, to make sure nothing happens to you.” Spruce up the harbour was possible, but not the people. Now you know why I live in Goerlitz.

      • Prof Dr James Beckman, Germany
        June 6, 2018 at 4:50 pm

        Robert, you’ve made your point admirably. I am also a walkabout person. In my California profing days I also did some real estate on the side, to support the living costs as well as to remain empirical. When I would visit industrial property in the Compton (Los Angeles County) area I would hire a couple of body guards at a local, trusted liquor store. I would leave my car keys & wallet with the owner & go with severak locals to check my listings. $10 to each when I returned within the hour. It worked fine, but I also had no jewelry & was certain to maintain my normal affable demeanor. So the social side of re-development can be another matter, as you know well.

  8. June 6, 2018 at 7:11 pm

    Well, I’m still digging on debt, private household debt and corporate debt, and I quickly re-skimmed Dean Baker’s posting here, and forgive me if I missed it, but there doesn’t seem to be any mention of debt.

    But with some quick Googling I found this: https://www.cnbc.com/2018/02/13/total-us-household-debt-soars-to-record-above-13-trillion.html ..

    .now that’s not grounded in a GDP comparison, but take a look at this Federal Reserve data with a longer time horizon: https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2017Q4.pdf

    I’m giving the link to a PDF, and page five shows a cumulative private debt chart with the various components – mortgage, student loans, auto loans, credit card debt and all, back to 2003, which shows that the cumulative levels in the range of 13 trillion now equal or exceed the level – private household debt – just before the Great Recession struck in the fall of 2008. Hmmm. Dean, what do you make of that?

    Of course, private debt level is the preliminary…at the top of business cycle, especially with good employment, conventional numbers, it can be borne…and to cause real problems it needs a trigger of events to interfere with the paying back, paying down process…

    I certainly need to do more digging on this, but it is suggestive and it took me back to Martin Wolf’s handling of private – corporate and household – vs public debt and deficits in his 2008 book “Fixing Global Finance.” He’s never an easy read, dense is the word, but I still remember the logic of how in the peak of the glory days of the late 1990’s, the Roaring ’90’s, the US had no governmental debt but the private sector was running large deficits…then after the 2000-2001 stock tech bubble burst, home mortgages took off and private debt and credit card debt soared…and with a large trade deficit James Galbraith reminded us that the equations have to balance so that either the US gov’t or private/household must run a corresponding deficit. Forgive me if I’m not writing with the precision the issues demand, but at this point I’m trying to give better factual shape to my feeling that things are not as good as the formal numbers would indicate, and looking at debt levels is required.

    Please weigh in…

    • Craig
      June 6, 2018 at 7:28 pm

      Most of the data and analysis you’re looking for is in Steve Keen’s research and videos. He’s excellent at analyzing economic problems, but like nearly every other economist and economic pundit he/they have no idea how to resolve them.

      • June 6, 2018 at 7:30 pm

        Thanks Craig, will do on Steve Keen.

      • Prof Dr James Beckman, Germany
        June 7, 2018 at 7:39 am

        Craig, one of the virtues of this discussion is to allow us to consider how much of the valuation of debt is for depreciating assets, most of which in reality retain far more of their value. The effect is weakened measured income but increasing real wealth.

    • Prof Dr James Beckman, Germany
      June 7, 2018 at 7:31 am

      Hi, Gracchibros, recall many businesses are based on debt & not much on stock. Think real estate & the airline leasing business, for example. These are long-term deals, with little rolling over of debt so billionaires in Europe, for example, can add to their wealth predicatably at 1-2% a year, unless we hit another 2008 soon. Wall Street loves the short term, at least giving them commissions. Here in Europe we operate differently much of the time. –Perhaps the Chinese will buy up a few trillion in our debt at discount, using some of their trillions of US dollars or the about to-be-accepted Yuan. That’s just for thinking….

  9. June 6, 2018 at 7:30 pm

    And here is a series for various types of debt grounded to GDP…unfortunately the years don’t always match…the one here that caught my eye was rising levels of consumer debt compared to disposable income levels to pay it off…the international comparisons surprisingly show us doing pretty well, with Canada at the top, the highest ratio to GDP…

    From the St. Louis Fed. Dig in economists, I did a fast scan and there’s much more here from this mid-central US branch of the Federal Reserve: https://fred.stlouisfed.org/tags/series?t=debt

    • detroitdan
      • June 7, 2018 at 7:52 pm


        My apologies, I did not. And from the economist, no less. Most of the table I referred to were about private consumer household debt of various types, so it was needed to fill us in on corporate debt. Thanks.

      • Prof Dr James Beckman, Germany
        June 7, 2018 at 8:11 pm

        Hi, gracchibros, for anyone who knows America there is nothing to shudder at regarding the companies’ owners: they hide a bit, sell some assets, go bankrupt & then in two years are back in business if fraud is not found. For the workers it can be a different matter; with Trump’s trade moves he may wash out the boost from the tax reductions, I think. Then people will not find decent replacement jobs, so may just drop out & too many go on opioids.

  10. June 8, 2018 at 11:22 am

    I agree the doom and gloom merchants have got it horribly wrong this cycle, remember 2015/16 when almost every pundit claimed the sky was about to fall in?
    There is no major private debt thesis for the US, none the less IR’s are rising and the current cycle is as expected nearing a close around 2019.
    The US, though it should expect choppy stock markets and a slowdown, may well avoid a technical recession until the end of the next cycle, when house prices are highly likely to enter a bubble which will create conditions for the next GFC (est 2026/27), but the effect of rising IR’s now on other economies more vulnerable to a crisis means many others will not be spared.
    Australia is high on the list, the Banking Royal commission having uncovered bad/practice and debts everywhere it looked, house prices are falling and a soft landing seems highly unlikely. Norway, Sweden, Canada too, as well as many EM’s. China is the hardest to read, their debt levels are astronomical but their debt composition being largely internal means they can write much of it off with less pain, but to me that suggests faster devaluation is inevitable and this will create contagion across the region sometime over the next 1-3 years.

    • Prof Dr James Beckman, Germany
      June 9, 2018 at 7:28 am

      Hi, Mark, as an American academic based in Germany but frequently teaching in China, my comment about China is not-to-worry. It has trillions in foreign exchange reserves & its own currency (Yuan) which will soon be far more visibile globally as Trump’s rejection of the Irani deal will force many nations to purchase Iranian oil in Yuans & perhaps Euros, to bypass the American banking system. China’s Belt & Road expansion is probably being financed largely in Yuans, but I have no information on this.
      My point: with both the EU & China as large as the US in purchasing power terms, & with their own currencies, America’s debt problems will not spill over to them unless they borrow as political entities, firms or individuals IN DOLLARS & then have repayment problems. Other nations, such as Argentina, have fallen into that trap. As regards America, sure there will be lots of bankruptcies, but hopefully Wall Street will not self-destruct anytime soon.

  11. June 8, 2018 at 7:05 pm

    Thanks Dr. Beckman; good timing; I posted the following little essay this morning at the Daily Kos:

    Dear Citizens and Elected Officials:

    I’ll keep this brief, a journalist’s report from the front lines, from someone hoping that instead of making America Great Again, we could just begin to make it whole, if that ever has been possible in a land of such mixing, churning and social turbulence as ours.

    Sometime between 6:15 AM and 6:45, I was shaken from a deep, tired sleep after yesterday’s four mile walk through the west side of Town, not wanting to get up yet. I couldn’t locate or even pin down the origin of the loud, distressing wailing I heard, even whether it was human, because there is a dog kennel nearby, and one of the younger pups has a near human sounding cry, a sound laden with the despair of being abandoned.

    This isn’t the first time something like this happened to me. When I lived in the Twinbrook section of Rockville, in Montgomery County, an old working class neighborhood, I heard what sounded like woman being chased by a knife or axe wielding assailant, that’s what my imagination said to my brain about those urgent and blood curdling screams. And it was deep in the night: 2:00 AM or thereabouts. I dressed fast, grabbed a lantern and leashed my dog Josie, a Belgian Malinois shepard, and headed out in search of the screams. I never did locate the exact place, but it turned out later that the police had been called; it was several streets away, about a third of a mile away, and it turned out that a woman was being chased by a knife-brandishing man.

    After slipping into sandals, out I went this morning, compelled by a sense of duty, curiosity and the memory of this earlier episode. I headed down the steep incline of Charles Street, towards Wood, in the heart of the student district of Frostburg State University, which is now nearly deserted for the summer, which made the sound at this time of year even stranger. I didn’t have to go far down Charles to see the four police cars, and an ambulance pulled up just as I noticed the broken window on the second floor of the house where the wailing was coming from.

    It was now clearer that it was the sound of a distraught young man. I didn’t wait to see him brought out. I said to the officer that I had heard the cries, but didn’t call because I couldn’t establish where it was coming from. I asked the policeman if I could help, and if it was a drug overdose. He said, nonchalantly, as if this was routine for him, that my question was a likely guess. All the police and paramedics had rubber gloves on or were donning them as they entered, which made sense looking up at that broken window. Was it blood I saw on the window shards, or just my imagination?

    I turned and headed back up the steep hill that was Charles Street, and marveled that no one else had appeared. There were tenants here and there in some buildings, and some much closer than I was. But I do sleep with the window open…still…

    So that’s the story from here in the rural Red State portion of Mountain Maryland, even on a beautiful late spring morning in early June, as we wait for the Summer Solstice to arrive.

    My morning glories are sending me the signal, very new, sprouting thin reaching tendrils, that they want to climb to greet that June sun, so I have to give them some good green twine to meet their needs, to properly greet their source of sustenance. The prickly pear cacti are about to burst out too, in large yellow flowers, with orange centers, the size of half-a-man’s fist, in their regular seasonal pattern, ready to bloom between the Solstice and July 4th. Downright patriotic on their part, but maybe just a bit pagan in their sun-worshiping timing. They supply some cheer, and hope, if you know where to look for it, amidst the wails and cry of a deeply troubled nation.

    In the movie Dunkirk I watched again last night, for the third time, I felt that same surge of energy when the British troops on the naval ships, and those stranded on the beaches 20 miles across the tough English Channel from home and temporary safety, in the late spring of 1940, the same time of year in which I now write, heartily cheered the arrival of their fellow citizens in their small private boats. The movie otherwise is bleak almost beyond viewer endurance… until those cheers. In England’s darkest hour, troops with their backs to the wall on the verge of despair, gave a rousing cry to their compatriots, not in uniform — but civilians who had come to save them at considerable personal risk, sailing into the unknown.

    As inspiring as that sounds, historians tell us that’s not the whole story: most of the troops were rescued by naval vessels, especially destroyers, who could carry off more than a thousand soldiers at a time. And the lesson I draw from this correction is this: individual citizens and their personal efforts count, but given the place where we Americans are in 2018, it will take a large institutional response, maybe from new institutions, to get us off our own Dunkirk beaches.

    Best to you all,

    billof rights

    Frostburg, MD 21532

    • Prof Dr James Beckman, Germany
      June 8, 2018 at 7:25 pm

      Hi, gracchibros, you wrote eloquently of living with strangers, whom you counted as neighbors. I am aggressively friendly here in Central Europe. The locals know me, so they either just accept me but mostly show some warmth. I think this is the only way to go. Should someone become a possible target of predators, actions must be taken to maintain an open, friendly countenance, I believe If I become a somewhat totttering 90 in such a setting, I will certainly acquure a protector-dog. I once had a Great Dane….

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