## December 9th, 2007

### (no subject)

Consumer credit data from http://www.federalreserve.gov/releases/g19/hist/cc_hist_mh.txt
M2 money supply from http://www.federalreserve.gov/releases/h6/hist/h6hist1.txt
Per capita yearly income from http://www.census.gov/hhes/www/income/histinc/p01ar.html

What does this chart mean? The value plotted is the value of the money supply M2, which is money in checking and savings accounts, money market accounts, and CD's of less than 100k, divided by consumer debt unsecured by real estate. It's an indication of coverage: it's the amount available in liquid assets to repay the loans taken.

Example: around Jul 1, 1960, there were about 180.7m people living in the USA. Consumer debt was \$58.8b, M2 was \$304b. For every dollar borrowed, there was about five dollars sitting in the bank. The average person held about \$325 in credit debt.

Example: around Jul 1, 1970, there were about 205m people living in the USA. Consumer debt was \$129.9b, M2 was 599b. For every dollar borrowed, there was about 4.6 dollars sitting in the bank. The average person held about \$633 in credit debt. (average per capita yearly income was about \$3177, making credit debt about 20% of income)

Example: around Jul 1, 1980, there were about 227m people living in the USA. Consumer debt was 345.8b, M2 was \$1.5t. For every dollar borrowed, there was about 4.3 dollars sitting in the bank. The average person held about \$1523 in credit debt. (average per capita yearly income was about \$7800, still making credit debt about 20% of income)

These values were trending slowly, with some variation, until about 1990. Around Jul 1, 1990, there were about 249.5m people living in the USA. Consumer debt grew to \$803b, and M2 grew to \$3.2t. For every dollar borrowed, there was about four dollars sitting in the bank. It took 30 years for this value to change from 5 to 4. The average person held about \$3,218 in credit debt. (average per capita income was about \$14,387, making credit debt rise to about 22% of income)

Between 1992 and 1996, this ratio plunged to 3, where it has roughly stayed the same for the last 10 years.

In 2000, there were about 280m people living in the USA. Consumer credit debt grew to \$1.55t, M2 was 4.78t. The average person held about \$5,535 in credit debt. (average per capita income was \$22,346, which means credit debt has risen to 25% of income)

As of 2005, there are about 293.8m people living in the USA. Consumer credit debt has grown to 2.24t, M2 has grown to 6.55t. The average person holds \$7,624 in credit debt. Average per capita income is \$25,036, which means credit debt has risen to 30% of income.

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What matters more- money in the bank, or income? It's clear to me that "something happened" between 1992 and 1996, which changed the trends. One could blame the trends on savings, which has declined relative to debt and income. Though: savings has not changed relative to indebtedness after that period, but incomes have: we make less for an equivalent amount of debt. It suggests, perhaps, that incomes "should" have kept up in the period and that a 20% level of debt should mean per-capita income would be more reasonable at \$38,120, an increase of 52% on 2005 levels. Based on historical norms, I think one interpretation of these graphs is that people, on average, are underpaid.