Poking around in FRED while thinking about money created by banks and by government, I came up with the following graph, which I found to be pretty eye-popping:
Federal Debt Held by the Public as a Percentage of Total Credit Market Debt Owed
That’s a pretty profound secular shift. But far from delivering any obvious conclusions for me, it raises several questions.
• First, what’s included in TCMDO? (Is there a glossary of these measures available somewhere? I haven’t been able to find one.) I assume government bills and bonds are included — including those held by the Fed. I assume it does not include bonds held by the Social Security trust fund — nonpublic debt. (Or does it?)
• Since financial industry debt is “different,” what does the graph look like if we exclude that?
Federal Debt Held by the Public as a Percentage of (Total Credit Market Debt Owed – Financial Sector Debt Owed)
• Should we adjust for credit-market instruments held by the Fed?
• Are there more illuminating measures to display in this graph?
• What does this say about the stock of “safe assets” in the economy?
• How does this relate to JKH and Steve Waldman’s notions of government money (created through deficit spending) as “leverage” — in Michael Sankowski’s words: “JKH points out (S-I) is like the denominator in leverage. When (S-I) [govt deficit spending plus/minus trade imbalance] gets too small compared to S or I, then the private sector steps in with private creation of S. But these claims aren’t always as credible as government NFA. Plus, private sector S can sometimes be marked to market in ways which makes valuation difficult.”
Sorry to be so inconclusive. As always I’m hoping to be educated by finer minds than mine.
Cross-posted at Asymptosis.