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February 6, 2009

The Chart That Changed the World -- Wrong?

Is the Chart That Changed the World (tm) wrong? There is a new report out from CSFB arguing that the famous chart showing debt/GDP in the U.S. over the last 100 years is incorrect.

Here is the original debt/GDP chart:

Here is the revised version, according to CSFB, one that untangles data “spliced” together through two different periods that CSFB argues shouldn’t have been.

My take is that the original chart is far from financial physics, but this is not a takedown either. For starters, the second de-spliced graph doesn’t show a return to normalcy with respect to debt levels, unless you want to argue that consumers were under-levered for decades and now they’re closer to where they should be. Further, flow-of-funds data shows debt loads at historically high levels, both at corporates and consumers. That said, the point made in the report with respect to the cost of servicing the debt isn’t unfair, as rates are obviously at historically low levels. On the other hand, spreads for new debt are very high, and ability to finance to still highly difficlt.

No time to tear into this more, but feel free to weigh in via comments.

[CSFB via Clusterstock]

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