One Weird Chart That Explains the Great Recession

Everybody knows that “greedy bankers” were to blame for the Crash of 2008. The Democrats and their willing accomplices told us that years ago and they are sticking to their story.

But there is another suspect that ought to be right in the dock along with the bankers. Its mild-mannered name is “agency debt.” It’s the debt of federal agencies and government-sponsored enterprises (GSEs) that is not included in the National Debt. In other words, when you go to the U.S. Treasury’s Debt to the Penny page, and find that on September 27, 2015 the debt was $18,151,073,031,331.50 you wouldn’t find any agency debt in that number, nor in the $13,140,301,918,135.70 of Debt Held by the Public.

Who cares, anyway? Well, you might care if you went over to the Federal Reserve Board’s site and found that agency debt is tucked away in its Financial Accounts of the United States report in Table L.211 and found that that agency debt at the end of 2014 was about $6,920,000,000,000.

What is agency debt anyway? The Federal Reserve provides a helpful footnote to Table L.211:

Agency- and GSE-backed securities include: issues of federal budget agencies (line 2) such as those for the TVA; issues of government sponsored enterprises (line 3) such as Fannie Mae and FHLB; and agency- and GSE-backed mortgage pool securities issued by GNMA, Fannie Mae, Freddie Mac, and the Farmers Home Administration (line 4). Only the budget agency issues are considered officially to be part of the total debt of the federal government, which is shown in table L.106, line 20.

In other words, agency debt is the debt issued by Fannie Mae, Freddie Mac & Co. It is the helium gas cylinder that inflated the Great Real Estate Bubble.

Agency debt is now tucked away right in plain sight, and has its own Agency Debt page at, a wholly-owned subsidiary of Here is a chart of Agency Debt from 1945 to the present.

Wow. Agency debt goes starts at less than 1 percent of GDP in 1945 and then shoots up, year on year until it hits 50 percent of GDP in 2002. Can you spell credit bubble? What could wrong?

Here is an idea. Let’s chart the agency debt right on top of the Debt to the Penny national debt. A picture is worth a thousand words, and then you will be able to see the agency debt scaled right alongside the national debt.

The blue part is the regular national debt and the red part is the agency debt, in percent of GDP. So today the total federal debt, including both the U.S. Treasury and agency debt, is higher than at the end of World War II when we plunged the nation into debt to win the war against Hitler and Tojo.

OK, let’s go back to the “one weird chart” clickbait. Notice that the curve in the first five decades is exponential? That’s a classic boom, only the boom in agency debt (and in the underlying real-estate mortgages) went on for decades, until everybody got into the game and bought a home with a big fat mortgage. But then it all hit the wall in the 2000-2001 recession, only to be reinflated in the mid-2000s before the crash in 2008.

Notice the right side of the chart? That’s the part that I worry about. It shows that agency debt has been declining since the Crash of 2008. There is a term for this. It is called a credit contraction. Credit contractions are not happy times for debtors or politicians. Indeed, my nickel says that a major reason for the slow growth of the Obama years is the contraction in real estate debt relative to GDP.

Okay. The real estate bubble is over. The government program to make housing affordable has blown up and now we are sadder and wiser.

But who knows what other land mines are buried down there waiting to blow up? Nobody knew or cared about agency debt in the halcyon days when every thoughtful person thought that the government should help sub-prime borrowers buy homes without limit.

Here are several possibilities. There are the entitlements. There are the state and local pension funds. There are blue states like Illinois, New York, and California that can’t pay their debts.

And I shouldn’t wonder if green energy will blow up with a resounding bang one day.

Our liberal friends like to think that they are the smartest people in the room. But if they were really smart we wouldn’t have schools that don’t teach and government pensions that can’t be paid, and stupid agency debt bubbles that blow up to the headline “Real Estate Crash: Women and Minorities Hardest Hit.”

Christopher Chantrill @chrischantrill runs the go-to site on US government finances, Also see his American Manifesto and get his Road to the Middle Class.

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