US Households: Interest Burden on Debt Lowest Since 1993

[Beet]

Thanks to a combination of deleveraging and lower interest rates, US households are paying the lowest share of disposable income on debt service since 1993.

http://www.federalreserve.gov/releases/housedebt/

The total 'Financial Obligations Ratio' has fallen to 16.09-- the lowest in nearly two decades.

[Beet]

The deleveraging itself still has a long way to go because gross debt to income has only reversed 35-40 percent of the bubble-era buildup. Debt service has come down a lot faster owing to falling interest rates.

Wonkish1: During the Great Depression, interest rates collapsed and remained low for decades. Low interest rates aren't necessarily a mirage-- just ask Japan. Low interest rates can go on for a loooong time.

And yes, deleveraging has indeed occurred. If you look at total credit market debt, even including government debt, it has fallen by about 30% of GDP for the US since the peak (as percentage of GDP) in the first quarter of 2009. That's something that hasn't happened in at least 30 years.

[Beet]

I am looking directly at a total credit market debt to GDP series:

http://www.economagic.com/em-cgi/data.exe/var/togdp-totalcreditdebt

Total credit market debt fell from 380 percent of GDP to 350 percent in 3 1/2 years. In the series going back to 1952 there is no such decline as large.

As to your charts they show basically the same story as I am saying-- after decades of relentless acceleration, nominal total credit market debt did not grow from the first quarter of 2009, while real GDP exceeded its peak 2007 level this quarter. Inflation means that nominal GDP is substantially higher than 2007, so total credit market debt to GDP has fallen over the period.

[Beet]

As to the question of interest rates, I can't address the appeal to prior to knowledge argument. However, if you factor in inflation, the low interest rates the US currently faces is even more impressive because those rates are even lower on a real basis. The only way there would be a forced upward rise in US interest rates on a contractionary basis would be capital flight out of the US that would push the dollar downward. But instead we are seeing the opposite- whenever there is trouble, money flees towards the dollar, not away from it. If money were to flee away, then it would indeed result in a crisis and force the US into a balance of payments adjustment, the big nightmare that I know a lot of people fear. But here again, we are in a better position than we were in several years ago-- the US trade deficit is down since 2006, and the deficit ex-petroleum is at 2000 levels. The main thing is to ween our dependence on imported oil.

[Beet]

I should also point out that the figures don't count for current corporate unfunded pension liabilities. That is another few trillion of debt you could add.

As you well know corporate pensions are being phased out and are not as invincible as their backers understandably insist-- if those corporations cannot pay the obligations they'll simply be defaulted on. Which is unfortunate, but future promises are no the same as present debt.

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I'm not sure if they do, but even if not, I would not be concerned because intragovernmental debts are nonmarketable securities held in government trust funds. They are not traded in secondary markets, so the bond markets have no power over the government's ability to issue them.

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All of which can (and in many cases should) be reduced. Everything you are talking about represent projected future expenditures, far out into the future. This can all be changed. Also, you would have to project out GDP far out into the future, as well as asset price performance, to gauge the true value of these pension investment funds and the like, and no one can predict that, nor can the experts agree on it. I am only talking about real debt levels as they are currently trending. This is not about futures that none of us can predict.

[Beet]

No its the same as after 2001 except on a much more profound level. You get your growth back and the Fed gets a choice of very fast galloping inflation and rampant asset bubbles or raise the FFR in 50+ basis point decisions for many meetings.

And when is this choice of three going to start? We are seeing no sign of either galloping inflation, rampant asset bubbles, nor increases in the FFR rate. So far a lot of your contribution to this thread is saying 'this is going to happen, that is going to happen'. Well it could happen. You will find experts out there who will predict anything. But that's not what I'm saying. All I'm talking about is what's already happened.

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Now you're too steps ahead of me. I haven't conceded an imminent rise in the FFR. As for growth, we've been seeing that (slowly) for a couple of years now and the government debt service is actually down. The only way the government would not be able to cover its debt service as if the coupon payments began to become an unmanageable large percentage of the total budget, as in my exercise in the other thread. Currently the debt service is only around 5% of the budget, so it won't be a problem in the short or medium term. Further, government has the ability to issue its own currency, unlike households (and unlike some countries, lol).

[Beet]

Doesn't mean that Intragovernmental debt isn't debt! It surely is.

Not really. One part of the government 'owes' debt to another. Bleh. It's like your checking account owes money to your savings account. Since you, a single entity, are the owner of both accounts, it's meaningless. It's just an accounting entry. That's why claims that the US national debt level is exaggerated when they include intragovernmental debts.

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Well I agree with you on that point. The growth assumptions used by pension funds are the key are they are too high. This will indeed be a problem if they aren't reformed.

[Beet]

Yes, I have seen this prediction before, and I concede that it's a possibility. But I'm not entirely convinced that it will happen. First of all, it depends on the economy returning to expansion such that there is a dramatic acceleration in the velocity of money. If that were to be the case, the economy would be in a better position to absorb fiscal and monetary shocks such as an interest rate rise and budget cuts. Secondly, the Fed says it has other tools to drawn down the monetary base or slow the velocity of money - such as charging interest on reserves, raising the legal reserve ratio, that it can use if it does not want to raise the FFR. But as I said, in your scenario the economy would be booming and would be able to absorb rises in the FFR.

Finally, I think that in some of your comment there's a bit of the old saying 'generals always fight the last war'. In 2002, it was a strange recession because unlike every previous recession, there was no contraction of credit growth. We were actually in a long sustained cycle of credit expansion that started after the 1990-91 recession and continued right through the 'recession' of 2001. And the housing bubble was already visible, with housing prices having exceeded their late 1980s highs (the previous biggest post-WWII housing bubble) by around 2000. Today is different because we are coming off by far the biggest interruption of credit growth (and private sector credit contraction) since WWII. There has been a real private sector debt consolidation, unlike 2001-02 when credit growth continued to charge forward virtually uninterrupted. That said, I can't predict what will happen after a few years. The US economy does have some big structural issues to deal with, a lot of it stemming ironically from the dollar's role as a reserve, which has been both blessing and curse.

[Beet]

I would be inclined to agree with you if intragovernmental debt wasn't at least a portion of upcoming government liabilities. If you were look at the present value of future liabilities it would make intragovernmental debt look puny by comparison. So I think that intragovernmental debt is at least a reasonable compromise between my belief that a present value of all "mandatory" future liabilities should be computed and added vs. others positions that it should only be external tradable debt.

Yeah but what about upcoming government revenues? If you want to forecast upcoming liabilities, then you need to forecast upcoming revenues. Neither of which is present debt. It's not about a 'reasonable compromise', it's just about getting your definitions right. Sure, there are long term budgetary problems to deal with. But you can't use future projections to make statements about current trends, or debt levels. That's fundamentally incorrect.

[Beet]

I don't see why you shouldn't expect to see an eventual return to at least near mean growth rates? Monetary policy is my background, I'm 100% positive this will happen.

I'm not arguing that at all. Well we've already seen a return to near mean growth rates for one or two quarters in late 2009/early 2010, and arguably 2.5% is not too far off from near mean.

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This depends on an ever accelerating real return that banks think they can get out of lending new money out. First of all, keep in mind that a normal velocity of money at normal growth rates usually occurs when the return that banks can earn at the market on investment-grade instruments is about 5% higher than interest on reserves, which has been historically around 0%. Even now, it is only about 0.25%, whereas the inflation rate is running at about 4% CPI YoY, so the real interest rate on reserves is negative, and yet banks are still keeping the velocity of money at a relatively slow pace. So the Fed has a lot of room to raise this interest rate without even reaching a positive real interest rate on reserves. A 0.25% increase in the monetary base is not scary! Nor is a 5% increase.

Now let us take what your logic appears to assume: that no matter how high the Fed pays interest on reserves, the money supply will continue to grow as banks lend out the MB. The assumption you would need to make that sensible is that there would have to be unlimited opportunities in the economy to make 4%, 5%, 6%, 7% real return-- that will always be higher than the interest rate paid by the Fed. If that's the case, bring it on! The economy would be booming, unemployment would plummet to zero, and we would all quickly be rich. Perhaps nuclear cold fusion was discovered and a way was found to quickly mass produce huge amounts of energy from desalinated seawater. Hey, I'm okay with that.

The fundamental reason why I'm not worried about this is that your assumption is that the economy is growing so strongly that the velocity of money not only starts growing at a healthy rate but is spinning out of control. This can always be fixed by contractionary fiscal and monetary policy. The Fed can raise the FFR, and that wouldn't be a problem because the economy would be able to absorb the shock. At the very least, society would be confronted with a clear choice between inflation and unemployment, 1982 style, and would make a choice one way or another.

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The point is that it's an incremental instrument. It's only supposed to affect the money multiplier, and thus gross lending on a marginal basis. But heck, it can be raised to 100%. Banks can legally be forbidden from lending out any reserves, which kills the whole process. I think it's crazy that anyone would be that worried about inflation that we're even talking about this when the money multiplier has been plummeting on its own account. Frankly saying that the sky is falling because the money multiplier is surging is like we're a bunch of hobos sitting under a bridge starving to death, and one hobo comes up and says, "I'm worried that we'll find a pot of gold, for them we'll all become too decadent and lazy!" Well yes, becoming decadent and lazy is one possibility eventually from hobos finding a pot of gold, but it's rather amusing that you are worrying about it now. I'd rather find the pot of gold, thank you.

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Here's the problem with your story again: As soon as the government is forced into a sharp fiscal adjustment that is sharp enough to actually hurt the economy, the rates of return available to private investors outside the government bond market will fall. And then investors will rush back into Treasuries, self-correcting the very problem that caused it in the first place. And the US will never be like France so long as we control our own currency.

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And as I said, raising the FFR would not be a problem in that scenario. You talk like raising the FFR would be the end of the world in and of itself. And note that not all rises in asset prices are as damaging as the housing bubble. Housing was particularly damaging because it involved speculative appreciation based on irrational exuberance by heavily leveraging by far the most valuable asset for US households, which ended up leveraging the central transmission system of capitalism (the banks) as well. Bubbles in things like dot-com stocks, gold, and other commodities aren't so serious. If those guys get wiped out, the impact on the economy is relatively negligible. You do bring up some interesting points however about the inability of monetary policy to target where the money goes in a centralized sort of way. That is where fiscal policy comes in...

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No, it's not loose monetary policy exploding government debt. The economy contraction is the reason why there is such a huge surge in government debt, owing to the collapse in revenues, automatic stabilizers, and other government responses to the economic crisis. There are also the legacy of unfunded Medicare Part D, two wars and huge tax cuts from 2001-2003. Without the Fed stepping in to rescue the economy in late 2008/early 2009, revenues would be even lower and the deficit (and hence the supply of government debt) may well have been even higher.

[Beet]

Yeah but what about upcoming government revenues? If you want to forecast upcoming liabilities, then you need to forecast upcoming revenues. Neither of which is present debt. It's not about a 'reasonable compromise', it's just about getting your definitions right. Sure, there are long term budgetary problems to deal with. But you can't use future projections to make statements about current trends, or debt levels. That's fundamentally incorrect.

Never said you can't forecast upcoming revenues.

A future promise like social security is a debt! And changing the system is restructuring that debt. To the degree that social security wont be able to self fund in the not so distant means unfunded liabilities.

Not really. As much as I dislike proposals to reduce social security benefits, they aren't the equivalent of sovereign default. Most young people today have varying expectations about what benefits they'll actually receive.

[Beet]

Not really. As much as I dislike proposals to reduce social security benefits, they aren't the equivalent of sovereign default. Most young people today have varying expectations about what benefits they'll actually receive.

I would agree that they aren't the same thing as a sovereign default. But they are currently marked in mandatory spending off budget. Unless you've come to the conclusion that the system is an easy one to fix politically speaking you should count them as liabilities.

I would personally argue that a company can more easily get rid of its pension with its marked liabilities than the US government can even restructure Social Security and the present value of future benefits are not considered liabilities? Doesn't make sense to me!

I think this is a semantical question. You've simply inserted into the discussion a factor beyond the scope of the discussion, as defined. If you goal is simply to throw at this thread "more things to worry about" then we can continually add things to the list. The risk of a natural disaster, global warming, rising health care costs etc. etc. etc. Sure, there are an endless number of things to worry about. But if you are talking about the current debt-to-GDP ratio and current household leverage trends, then projections of future net assets/liabilities fall outside the scope of the discussion.

Those are inherently unpredictable and can't be forecast with much reliability. The CBO is best equipped to do so and even it has made epic mistakes. In 2001, the CBO predicted the entire national debt would be paid off by 2010, based on similar 'projections'. Similarly in 1995 the CBO didn't think that the budget deficit would turn to surplus until 2002 at the most optimistic. The debate over the viability of Social Security will continue and there's definitely a possibility that benefits are cut, but the debate is still ongoing and I'd still say that health care costs are a more pressing stress on the budget at the moment.

[Beet]

Not really. As much as I dislike proposals to reduce social security benefits, they aren't the equivalent of sovereign default. Most young people today have varying expectations about what benefits they'll actually receive.

I would agree that they aren't the same thing as a sovereign default. But they are currently marked in mandatory spending off budget. Unless you've come to the conclusion that the system is an easy one to fix politically speaking you should count them as liabilities.

I would personally argue that a company can more easily get rid of its pension with its marked liabilities than the US government can even restructure Social Security and the present value of future benefits are not considered liabilities? Doesn't make sense to me!

I think this is a semantical question. You've simply inserted into the discussion a factor beyond the scope of the discussion, as defined. If you goal is simply to throw at this thread "more things to worry about" then we can continually add things to the list. The risk of a natural disaster, global warming, rising health care costs etc. etc. etc. Sure, there are an endless number of things to worry about. But if you are talking about the current debt-to-GDP ratio and current household leverage trends, then projections of future net assets/liabilities fall outside the scope of the discussion.

Those are inherently unpredictable and can't be forecast with much reliability. The CBO is best equipped to do so and even it has made epic mistakes. In 2001, the CBO predicted the entire national debt would be paid off by 2010, based on similar 'projections'. Similarly in 1995 the CBO didn't think that the budget deficit would turn to surplus until 2002 at the most optimistic. The debate over the viability of Social Security will continue and there's definitely a possibility that benefits are cut, but the debate is still ongoing and I'd still say that health care costs are a more pressing stress on the budget at the moment.

That wasn't my intention. I'm just pointing out that the current 350% total credit market debt to gdp understates the risk and implicit leverage in the market. I think that counting intragovernmental debt and at least half of the unfunded pension liabilities between federal, state, local, and corporate is a fair compromise on what a more accurate picture of the current debt picture in the US looks like.

I disagree. I already pointed out why counting intragovernmental debt is a bad idea. And as I pointed out, the net value of liabilities depends on future projections, and in any case aren't debt that is yet booked, any more than future projected income is booked. That's like saying a government worker with a permanent job counts the net present value of his or her future earnings in their present assets. Counting future projected cash flows (positive or negative) in this period's assets or liabilities is Enron accounting to me.

Edit: Upon further thought, I will concede to you that some portion of state, local and corporate unfunded pension liabilities should be included, because it seems that these are indeed used by credit ratings agencies and are incorporated in new international accounting standards.

[Beet]

No it doesn't it depends on an ever increasing nominal rate of return available to be lent to.

And your evidence for this???

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Yes, historically the rate has often been higher than 5% at an annual basis...

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Yes, that is the point.

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Well, sure. At 25 basis points, you would only expect banks to hold reserves against an opportunity cost of less than that at the overnight rate. But I don't see how this contributes to your argument.

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First of all, I strongly disagree that if you raised the overnight lending rate to 5-5.5%, this would not cause a relative contraction of credit. There is a lot of lending going on right now where the risk-adjusted return is well below that level. If the Fed were to announce such a hike tomorrow you would see a terrific drop in credit over the next 6-9 months, relative to what it would have been without such a raise. That applies to the interest on reserves as well as the Federal Funds rate.

The interest on reserves is not funded by 'printing money', it is funded by what the Fed earns on its assets. As long as the Fed earns a positive return on its assets, it will not have to print money to pay this interest. The amount of 'capitalization' is negligible. The MB has not grown as a result of this payment, it has grown largely out of the Fed's deliberately purchasing of assets to grow the MB deliberately. By selling these assets, its impact on the MB would overwhelm any affect of even a sharp rise in the reserve interest rate.

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Actually that is exactly how I understood it. Is it possible you have misunderstood my response?

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I think this is the key. Debt will only be available at 5% if a 5% real return is available somewhere. But absolute quantity of these opportunities is limited, and furthermore, the more opportunities there are at a certain level of return, and the higher that level of return, all it means is the more investment opportunities there are in the economy. This would only happen if the economy were booming in the first place, and good investment opportunities were abounding everywhere. Generally that's a very good thing.

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Again, you're positing an unlimited amount of debt being available at an unlimited interest rate.
 Where are all these great investments paying out super high rates of return for no risk? Tell me what they are.

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At each level of interest, there are a fixed number of worthwhile investment for your standard risk-averse actor. The higher the interest, the fewer the investments, and the lower the interest, the more investments. But it is not infinite in either direction.

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Well bubbles will collapse whether or not there is an interest rate hike or not. If you think there is an economy-threatening bubble, then it does not matter what the FFR does, because we have a problem, in that case regardless.

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Well sure, a meteor could strike the earth tomorrow.

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Now you're talking about capital flight. I said from the beginning that is the real risk. But the main way to protect against that is to keep a low current account deficit, because the balance of payments equations are what ultimately define our net dependencies to foreign countries.

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Errr... what are you talking about? Why would a contraction in the supply of treasuries drive down its price? Supply and demand, man ...

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Again, you're talking about capital flight. But I'm beginning to suspect that you are throwing up smoke here, because I can't really see where this anecdote and your previous argument really fits into the discussion.

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Well of course. In times of economic hardship, you have easy monetary policy to try and stimulate things. If the FFR had been high for the past couple years and the Fed had not grown the monetary base, you could see unemployment at 16-20% instead of the current 9%.

[Beet]

Edit: Upon further thought, I will concede to you that some portion of state, local and corporate unfunded pension liabilities should be included, because it seems that these are indeed used by credit ratings agencies and are incorporated in new international accounting standards.

That's the whole point. I'm doing the same thing with social security that they are doing with an unfunded pension liability.

Well the difference between corporate pension funds and things like social security is their legal status. Corporate pension funds are a legally signed contract that the corporation can't get out of, except in bankruptcy court. Government programs like social security, on the other hand, are existing statutes that Congress may change at any time in a completely legal manner. Further, the debt owed is in the same currency the government has the power to issue. State and local pension funds are somewhere in the middle. I don't understand well enough their legal status to decide which side they go on. But if it's something that the legislature and Governor can legally change without declaring bankruptcy (as it sounds is the case from you bringing up Christie's actions) then it shouldn't be considered debt.

Edit: Another problem you run into when comparing future liabilities to present GDP, is that you're pardon the expression comparing apples to oranges. Future liabilities will come due when GDP is different than today- probably higher. So a debt to GDP ratio that includes future liabilities makes no sense. You would have to take future GDP into the denominator as well.

Thirdly, besides legally revising benefit levels, we're forgetting the power to tax:
From the CBO:
'The term "unfunded liability" has been used to refer to a gap between the government's projected financial commitment under a particular program and the revenues that are expected to be available to fund that commitment. But no government obligation can be truly considered "unfunded" because of the U.S. government's sovereign power to tax--which is the ultimate resource to meet its obligations. [Congressional Budget Office, September 2004]'

[Beet]

@Huge mass of commentary at the top. Only two points.

1, If the Fed buys Treasuries on the open market, and holds them to maturity, after maturity if the Fed does not buy a new Treasury to replace its existing holding but merely takes repayment from the government, then it is not increasing the amount of money in the economy overall, even if it holds onto the interest payments. Those interest payments would have eventually been paid to the private institution. Instead it is being paid to the Fed. The only difference is who pockets the difference.

2, You are assuming your argument. There is always a limited number of risk-adjusted investment opportunities at every real interest rate. Investors can go search for yield in the debt market as much as they want, but they won't find it if it's not out there. If the inflation rate is high, say 7%, then investors may find more opportunities at a 9% nominal rate, but this assumes that inflation gets to 7% in the first place. The whole point of raising the reserve rate is to prevent that from happening.

Even if there is an asset bubble and investors are hoping to see very high returns from the bubble, marginal investors will still weigh the price of acquiring the asset to the opportunity cost. The higher banks can earn risk-free on reserves, the less they will pile into a risky asset bubble. Margin requirements can also be raised in the event of an asset bubble to tamp down on speculation. But there aren't many assets in the economy that can suck in the vast amounts of money that we're talking about. Housing was just about the biggest one. Determined governments have never failed to kill a bubble. The problem is dealing with the aftermath, depending on the nature of the bubble.

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Dude, I know your story. You just haven't proved it. I disagree that raising the reserve rate will unleash "disaster" on the markets. Even if it did, it's not the Fed's only tool, as I pointed out long ago.

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So basically you're worried that the economy will recover, and then it will slip back into recession. Who the cares? Even if you were right on every single thing, I'm not worried, because all you're saying is that the next upswing will be followed by a downswing. Right now I'm worried about more pressing matters, such as the 14 mio Americans unemployed, poverty, and headwinds from the European crisis.

[Beet]

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General fighting the last war. A housing bubble isn't coming back (at least for a long time).

[Beet]

2) And there is the clincher!!! You would be absolutely right if the RIR was ***Real***(inflation adjusted), but its not. That is what I covered in the first sentence a while back "No it doesn't it depends on an ever increasing nominal rate of return available to be lent to". The RIR is a nominal interest rate. So that means that as inflation rises new interest rates will be tolerated by the borrower.

The RIR is designed to slow the inflation. But as soon as you let it drop inflation will shoot up fast. You then re raise it and inflation stops getting worse. You lower it again and inflation shoots up even worse this time. If you become reliant on it then the RIR has to ratchet up because any time you drop it you just raised the effect of inflation on interest rates and anytime you raise it the amount of new loans being issued slows down as MB builds. The next time a smaller cuts in the RIR leads to another flood and the RIR has to be raised even higher the following time to cut off the lending. It is a disaster of policy.

Except MB is always building. It's not a disaster of a policy at all. First of all,

(1) it isn't even a policy, it's just a hypothetical policy. And second of all,
(2) you're not even talking about the hypothetical policy directly, you're talking about a hypothetical reversal of a hypothetical future policy
(3) in the event of a future hypothetical recovery.
(4) And you're theory isn't even right. The Fed has a ton of tools to control the money supply, which have already been discussed. These include tools which far outweigh the slight rises in the MB from the hypothetically higher reserve rate. Furthermore,
(5) banks won't lend money, no matter how large the MB is, if the economy is not growing somehow, and there is some sense of a worthwhile investment area to buy debt from. Whether or not the growth is from an asset bubble is irrelevant, because asset bubbles are problematic no matter what monetary policy is. They originate from structural problems in the economy, not the level of the MB. Also, it should be noted that even during the housing bubble, banks did not engage in direct asset speculation. The leverage was fueled by the search for a relatively low amount of yield that could be extracted from CDO's. A reserve rate higher than the rate paid out by CDO's could have drawn capital away from the CDO market.
(6) even without all of the logical leaps, factual errors and theoretical problems in your argument, it still isn't very interesting because all it says is that eventually there will be another credit cycle with an upswing and a downswing.
(7) You haven't been on topic for practically any of your posts, so I've long since given up trying to keep topicality. I've been entertaining your fantasies....

[Beet]

You guys are making excellent arguments for direct redistribution instead of loose money.

He's constructed a fantasy world in which the economy is doing a LOT better than it is now, and then deriving a trivial result from it using extremely speculative theory, to be generous. The entire exercise is pretty bizarre; (1) why would you think about potential challenges in the event that the economy gets much better? That's like an unemployed sitting around thinking about whats his problems would be if he had a job. (2) why would you derive such a trivial result? That's like worrying that if he had a job, the unemployed person would eventually tire of it and perhaps be laid off or quit. (3) why draw such incoherent conclusions? That's like insisting that he will get into a car accident even though he knows about breaks, the steering wheel, traffic signs, etc.

[Beet]

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Except in that case they wouldn't be real yields, they would only be nominal yields. It wouldn't pinch the government if it was inflation driven because revenues would be driven higher by inflation as well. And it would be in an expansionary context, which practically by definition means it isn't a reason to worry. The reason why capital flight is the only real risk is because it's the only scenario where interest rates are forced up in a contractionary environment, and outside the control of the government. Your 'inflation' is a boogeyman, and a particularly crazy one at that, given the problems that we're facing today.

[Beet]

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Well then the entire discussion is moot, b/c as soon as RIR starts to cause problems (which I don't think it will), the other tools can be used instead.

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That was only an almost insignificant portion of the economy, actually.

[Beet]

I'll just say that since the RIR makes matters worse, if it actually gets used a decent amount I'm not counting on the rest of the tools to make things better. The end of the RIR will come when the Fed realizes they cannon just keep on raising to pay banks to not lend.

So even if the Fed raises the reserve requirement to 100% money will still flood out because the RIR has exploded the MB? The broader monetary aggregates are many times the size of the MB. Even if the Fed increased the interest on reserves by 20-fold to 5%, it would still take 14 years to double the MB. And the Fed could reserve that simply by selling the assets it built up over 2008-09.

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The topic was household debt service ratios. We haven't maintained topicality since the very first posts-- neither of us.

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It might be an issue; it might not. The quality of the evidence you've presented here is not all that convincing.

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I started looking at this issue a couple years ago as well. I'm not trying to be an 'expert', I was trying to follow your argument but it was really incredulous from multiple sides. You're literally trying to say that this tiny increase in the MB is going to cause uncontrollable inflation when there's absolutely no evidence for that and plenty of very obvious evidence against it, which I've tried to point out. And even if one accepts all of your conclusions I still don't see anything really significant about their implications, except that the Fed will use one tool instead of another.

[Beet]

Fair enough. You've had your say and I've had mine. We'll just leave it at that.