I was puzzled by a chart reproduced from a report from McKinsey Global Institute in Mish Shedlock’s recent post on debt and deleveraging. The chart is in the section “US Household Debt Ratios”. It’s Exhibit 7 late in the MGI report. Here’s what puzzled me. Why is the trend line they draw the correct one? Why pick 2000 as the end point? What about the dot-com bubble?
The line drawn is, essentially, from trough (in 1955) to peak (in 1998). It seems to me there are other trend lines that could be drawn, for example, trough to trough using the 1955, 1975, and 1984 troughs or peak to peak using the 1965, 1980, and 1986 peaks. Either one of those would suggest a return to trend much closer to Mish’s “overshoot” than to MGI’s suggested point.
Some overshoot seems likely. However, with more of our disposable income held by fewer people, it does kind of make sense that those people could tolerate more debt since the basics required for subsistence take up a smaller percentage of income.
Steve
My magic eyeball regressors differ from what was published. New variables appear and influence behavior, which is your point.