The Great Recession, Debt Growth, and Economic Policy

Look no further than the latest Flow of Funds data from the Federal Reserve Board to get a snapshot of what’s happened in the U.S. economy during the new millennium.

Because “credit is the mother’s milk of the economy” let’s focus on debt growth by each sector.

…credit is the mother’s milk of growth; without credit the economy cannot flourish. And credit cannot flow freely without a well-functioning financial system. – Mark Zandi

Reagan Keynesian Recovery
But, first,  take a look at the credit binge during the Reagan expansion of the 1980’s.  Double digit debt growth from 1982, when the economy began to emerge from a deep recession to 1986.  Almost all sectors experienced rapid credit growth during this period.

Not to downplay the supply-side structural reform under Reagan, which we always support,  but it sure looks like his economy was a classic debt-fueled Keynesian expansion. The data are undeniable.