Tuesday, May 29, 2012

Hook, Line, and Stinker

The trend in red implies that each $1 in real credit growth helps create $1.15 in real net worth growth.

Unfortunately, a kind of a malaise of some sort has recently appeared and only some of it is understandable.

We are in this kind of malaise of some sort. Some of that is understandable. - Jamie Dimon, CEO and chairman of JPMorgan Chase & Co., June 25, 2011


Hook, Line and Stinker

An elaborate Rube Goldberg-type gag ends the cartoon. The Coyote uses a tiny slingshot to knock loose a stick holding up a watering can suspended on a wooden yardarm. The can tips and water pours onto a plant which has a wooden match attached to it. The plant grows and the match strikes against a rock and lights a stick of dynamite. On top of the dynamite is a boot with a brick in it. The blast sends the boot ontop of a teeter board, which rises and releases a mouse in a cage at the other end. The mouse runs to grab a piece of cheese on a scale. A weight on the other end of the scale falls, pulling the trigger on a rifle attached to a cliff. A bullet from the rifle ricochets off two metal bullseyes and knocks down an upright cannon. The wick on the cannon is lit by a nearby candle, which fires a ball that goes through two funnels and plummets on top of the unsuspecting coyote. After the coyote is bashed into the ground, 'The End' appears on the cannon ball.

Just like our economy, *nobody* could have seen it coming!

The Rube Goldberg-type gag begins at 4:48.


I've added a bonus trend line based on the observations of Anonymous in the comments. It shows the declining bang for the buck as we take on ever increasing amounts of debt.

Source Data:
St. Louis Fed: Custom Chart


Stagflationary Mark said...

Apologies to those who click on my charts and expect a bigger image.

As of a few days ago, uploading pictures to blogger gives you WYSIWYG (What You See Is What You Get). Sigh.

Mr Slippery said...

The title of the post made me see a fish hook shape in the chart, or did it?

The fish-hook economy is not a good sign. Neither is the 10-year hitting all time lows -> 1.63! We are about 60 basis points away from Japan.


Stagflationary Mark said...

Mr Slippery,

The title of the post made me see a fish hook shape in the chart, or did it?

The chart's shape inspired the title!

I was concerned that I was obfuscating the fish hook image with my annotations. Glad you can still see it. :)

Anonymous said...

Something about the graph doesn't jibe with other measures of debt and net worth that I've seen , but I can't figure it out.

It's been widely noted that from the 1940s to ~1980 , total debt/gdp was quite stable around 150-160% ( excluding the financial sector debt , admittedly ) and also net worth as a % of gdp ran about 300-350% , as I recall. So , for $1.50 in debt we got $1.00 in gdp and about $3.00 in net worth.

Since 1980 , it's taken growing amounts of debt per dollar of gdp , reaching about $6-7 per dollar gdp at the end of the bubble. During the same period , net worth climbed to ~ 500% of gdp as first stocks , then housing , bubbled. Still , for the same $1.50in debt , we got maybe $.25-.30 of gdp , and , say, 5x that in net worth , or $1.25 - $1.50.

The earlier deal was clearly the better one , if only for sustainability purposes.

I'm surprised that I don't see any transition between these two regimes on your graph. I'll have to think about it some more , I guess.

Stagflationary Mark said...


Thanks to the exponential growth of both series, all the data from 1952 to 1980 is bunched up on the chart.

1952:Q1 has $25k of real total credit market debt owed per capita

1980:Q1 has $56k of real total credit market debt owed per capita

That entire time period makes up a small part of the chart.

So if you look real close at the 1952 to 1980 time period on the chart, I think you can see a different slope. It's steeper. Credit was offering more bang for the buck.

Hope this helps.

Stagflationary Mark said...

I would also point out that my trend line doesn't use any data past 2000: Q1. That makes the line steeper than it would be if I included all the data.

I was attempting to show how far we are from the trend before things started falling apart.

Stagflationary Mark said...

In summary...

Had I done one trend line for the period from 1952 to 1980 then it would have been steeper.

Had I done another trend line from 1980 through 2011 it would have been flatter.

It's hard to spot the transition in the chart, but it is there.

Anonymous said...

Yep , I see what you mean.

You're right , the new slope , especially one that extends to some realistic net worth valuation ( which might end up quite a bit lower than the 2011 figure! ) would show the break clearly.

Thanks , that was bugging me.

Stagflationary Mark said...


Based on your observation, I've added a bonus chart to this post.