Comments on: Great Depression 2.0: 90% More Downside

By: Conor

Conor — Wed, 29 Oct 2008 21:36:28 +0000

Alex, apparently the Revolving Credit, GDP, and US Debt data is mostly available on the Federal Reserve site. I searched it for a while, but was unable to find exactly what I wanted to get to run the correct regressions. If you are able to find and study, I would love some further feedback.

And yes, definitely needs to be exponential and take into account inflation. My bad.

By: alex

alex — Wed, 29 Oct 2008 13:59:57 +0000

It’s refreshing to read this. I thought I was the only crazy bastard that thought this way. However, let me make a couple of points:
1) Graph must be exponential.
2) Values must be adjusted for inflation.
3) The Debt/GDP ratio seems to be positively correlated with real GDP growth and the stock market (I wish I had the Debt/GDP data to do the regression). Deleveraging will cause the stock market and GDP to crash. However, I can’t think of any way to estimate what the Debt/GDP ratio will have to fall to in order to restore the equilibrium.

By: Conor

Conor — Mon, 27 Oct 2008 21:50:18 +0000

Great point, Tnuts. I realized this last night. I forgot to take into account things like inflation and accumulation of wealth. 5500 leaves us with roughly 35% more downside. Still a long ways to go, and do expect an overshoot, but that makes more sense for longer term stability.

By: Marty

Marty — Mon, 27 Oct 2008 20:16:24 +0000

Great post. I like how we can look at our situation as a moment in time on a chart or graph. It is amazing what you learn from trends.

By: Tnuts

Tnuts — Mon, 27 Oct 2008 19:41:40 +0000

Try using an exponential trend instead of a linear one for the pre-1980 line – the fit is the same and puts us at an expected value today of 5,500 instead of 1,500.