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Fisher Dynamics in Household Debt: The Case of the U.S. 1929-2011


  • Joshua Mason and Arjun Jayadev


We examine the importance of what we term ‘Fisher dynamics’- the mechanical e?ects of changes in interest rates, growth rates and in?ation rates on debt levels independent of borrowing -for the evolution of household debt in the U.S. over a long time horizon (1929- 2011). Adapting a standard decomposition of public debt to household sector debt, we show that these factors have been important in explaining rising debt levels, especially in the past thirty years. We identify and describe three broad regimes in the growth of household debt and several shorter episodes, distinguished by the distinct roles played Fisher dynamics and borrowing behavior in the evolution of household debt. We then provide some counterfactual trajectories of debt burdens that suggest how important ?nancial changes beginning around 1980 have been in contributing to household debt, independent of any changes in household behavior. Speci?cally, if average rates of growth, in?ation and interest remained the same after 1980 as before 1980, household debt burdens in 2011 would have been roughly the same as they were in the early 1950s, despite the sharp increase in borrowing in the early 2000s. We then discuss the di?culties involved in deleveraging. Under scenarios involving even substantial reductions in household expenditure, returning to debt levels of the 1980s could take decades. If lower private leverage is a condition of acceptable growth,then in the absence of a substantial fall in interest rates relative to growth rates, large-scale debt forgiveness of some form may be unavoidable.

Suggested Citation

  • Joshua Mason and Arjun Jayadev, "undated". "Fisher Dynamics in Household Debt: The Case of the U.S. 1929-2011," Working Papers 13, University of Massachusetts Boston, Economics Department.
  • Handle: RePEc:mab:wpaper:13

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    References listed on IDEAS

    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-578, May.
    2. George J. Hall & Thomas J. Sargent, 2011. "Interest Rate Risk and Other Determinants of Post-WWII US Government Debt/GDP Dynamics," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(3), pages 192-214, July.
    3. Cynamon Barry Z. & Fazzari Steven M., 2008. "Household Debt in the Consumer Age: Source of Growth--Risk of Collapse," Capitalism and Society, De Gruyter, vol. 3(2), pages 1-32, October.
    4. Martha L. Olney, 1999. "Avoiding Default: The Role of Credit in the Consumption Collapse of 1930," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 319-335.
    5. Jeffry Frieden, 2006. "Will global capitalism fall again?," Essays and Lectures 16, Bruegel.
    6. Carmen M. Reinhart & M. Belen Sbrancia1, 2015. "The liquidation of government debt," Economic Policy, CEPR;CES;MSH, vol. 30(82), pages 291-333.
    7. Chryssi Giannitsarou & Andrew Scott, 2008. "Inflation Implications of Rising Government Debt," NBER Chapters,in: NBER International Seminar on Macroeconomics 2006, pages 393-442 National Bureau of Economic Research, Inc.
    8. Julio Escolano, 2010. "A Practical Guide to Public Debt Dynamics, Fiscal Sustainability, and Cyclical Adjustment of Budgetary Aggregates," IMF Technical Notes and Manuals 10/02, International Monetary Fund.
    9. Stephen Cecchetti & Madhusudan Mohanty & Fabrizio Zampolli, 2010. "The future of public debt: prospects and implications," BIS Working Papers 300, Bank for International Settlements.
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    Blog mentions

    As found by, the blog aggregator for Economics research:
    1. Persnickety followups on inequality and demand
      by Steve Randy Waldman in Interfluidity on 2013-02-13 05:08:43
    2. Followup on Inequality & Demand
      by Guest Author in The Big Picture on 2013-02-16 22:00:30

    More about this item


    Debt; Crisis; Leverage; Deleveraging; Interest; Inflation; Fisher;

    JEL classification:

    • D19 - Microeconomics - - Household Behavior - - - Other
    • G0 - Financial Economics - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
    • H69 - Public Economics - - National Budget, Deficit, and Debt - - - Other


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