Friday, August 24, 2012

Good News and Bad News

The following chart shows the annual growth of total credit market debt owed (in dollars) divided by the annual growth in GDP (in dollars).

Click to enlarge.

As seen in the exponential trend failure in red, the bad news is that we will probably not return to the old normal.

As seen in the long-term sustainable trend in blue (growing our overall debts no faster than we grow our GDP), the good news is that we will probably not return to the old normal.

This chart does not imply that we all need to immediately build doomsday bunkers. On the other hand, this chart also doesn't imply that the debt-based "prosperity" growth engine of the 1980s, 1990s, and more than half of the 2000s will soon be repeated.

Plan accordingly. I'm talking to you Illinois!

August 23, 2012
Pension trouble: Illinois' TRS pushed to lower return expectations

TRS officials in the past have disagreed with the notion that the 8.5 percent expectation is unrealistic or that it would lead the fund's managers to take unreasonable risks to attain that result.

Double your money every 8 1/2 years or bust!

1.085^8.5 = 2.00

How do you get to 8.5%? No problem! Start with a guaranteed 1.68% 10-year treasury bond and then add in something a bit more risky to make up the difference. What's the worst that could happen?

Source Data:
St. Louis Fed: Custom Chart


Troy said...

Red is total credit leverage.

blue is non-TBTF credit leverage.

yellow is TBTF leverage.

1980s featured leveraging up of both TBTF and normal economy.

1990s featured leveraging up of TBTF only

2000s was both again.

2010s is TBTF deleveraging and normal flat.

What a mess. Guillotines are what is needed, but instead we've got one of those PE mofos a couple of states' EVs away from the White House.

Mencken was the man.

Stagflationary Mark said...


Here's some more good news.

“Every decent man is ashamed of the government he lives under.” - H. L. Mencken

Record low approval ratings of Congress! Look how decent we must be! Woohoo! ;)

Fritz_O said...

Mark, I just noticed your "Inflation Mood" indicator has changed.

I don't browse much during the summer and haven't been keeping up. Do you have a post that corresponds with the change and explains why?


Mr Slippery said...

The Illinois pension fund might find a way to 8.5% returns on a risky investment.

Of course, they probably want to stay in safe and sensible stocks and continue to lose money in real terms.

Troy said...

For California, the difference between 7.5% and 1% is around $20B/yr of lost interest income, or 2% of ALL wages in the state.

Stagflationary Mark said...


Here's why I changed my short-term inflation mood.

February 18, 2012
Inflation Mood

Well, we made it through the Christmas season without a deflationary event (barely).

I'm therefore changing my short-term inflation mood (as seen in the upper left hand corner of my blog) to match my long-term one (between 2% and 3% per year?). I expect it to stay there until we start approaching the Christmas season again.

Stagflationary Mark said...

Mr Slippery,

Perhaps they will time the next recession perfectly and managed to move to an investment kept under one of these just in the nick of time? Could happen.

Monkeys could also fly out of my, well, you know.

Stagflationary Mark said...


$20B/yr of lost interest income

Shhh! Don't panic the markets!

Troy said...

inflation-adjusted (2005 dollars) per-capita government expense (blue) and per-capita debt take-on (red)

Troy said...

that recent red bulge looks like this, no?

Stagflationary Mark said...


that recent red bulge looks like this, no?

Or even this!

Troy said...

Blue is participation, red is annual CMDEBT take-on, green is annual gummint spending increase.

I call this graph "The Leaky Tire"

Stagflationary Mark said...


I call this graph "The Leaky Tire".

It goes nicely with *itty *itty Bang Bang. Sigh.