An alternative to popular faith

        Readers of this blog and of the summary are familiar with the fact that all six depressions in U.S. history immediately were preceded by extreme reductions in federal deficits (aka “surpluses”):

1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.

        You also are familiar with the following graph showing that the last nine recessions began with reductions in federal debt growth and were cured with increases in federal debt growth.
Fed debt private investors 50-09

Note how debt growth declines before recessions and increases to cure recessions

In 1996, the prelude to Free Money, titled “The Ultimate America” predicted future recessions would follow decreases in debt growth. Since then it happened again, twice.

        Six depressions and nine recessions — a total of fifteen out of fifteen times at which federal debt growth declined and the economy fell — is an amazing, almost unheard of, correlation in a complex science like economics.
        Even more startling, the first edition of Free Money was published in 1996, and it predicted future recessions would be precipitated by decreases in debt growth. This would be akin to finding it has rained all day in Chicago every June 1st, following sunshine all day every May 30th, for the past fifteen years, and accurately predicting it would happen, again — twice more.
        A sharp-eyed reader, who may be associated with the Concord Coalition, (the group claiming federal debt must be reduced, but which never provides evidence) pointed out two recessions, in 1981 and in 1991, where federal debt growth seemed to move up in advance.
        While even thirteen out of fifteen is a remarkable correlation in a science that seldom sees such correlations, the reader’s concern was understandable.
        As you can see on close inspection, federal debt growth did decline in advance of the 1981 recession – not terribly significant, but a decline nonetheless. (The 1981 recession should be considered a continuation of the recession twelve months earlier — caused by the Iranian Revolution which took place in 1979, with its increased oil prices — from which we didn’t fully recover.)

Debt growth declines in advance of 1981 recession

        With regard to the 1991 recession, we come up against the definition of the word “recession.” The media arbitrarily say a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters, which means you can’t identify a recession until it is more than six months along . Look at the following graph:

        GDP growth (blue line) turned down in 1989, while debt growth was falling. Why did the government say the recession began in 1991? Hard to say. Perhaps it was due to the very slight bump at the end of 1989.
        This graph indicates the increase in federal debt growth was beginning to cure the 1989 recession, and the momentum of continuing increased debt growth finally cured the recession in 1991.
        A strong correlation between federal debt growth and GDP growth seems to exist.

Rodger Malcolm Mitchell
P.S. You might try this experiment. Ask Diane Lim Rogers (, the Concord Coalition economist, for evidence to support her claim the debt is too large. I predict she either will not answer you, or she will tell you the debt is too large and “everyone knows” it should be reduced. “Everyone knows” is what passes for evidence at Concord.