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Federal Reserve Report: Flow Of Funds Accounts Of The United States

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FEDERAL RESERVE statistical release: Flow of Funds Accounts of the United States

Flows and Outstandings

First Quarter 2009

June 11, 2009

http://images.moneyandmarkets.com/1388/fed...s_%20q12009.pdf

New, Hard Evidence of Continuing Debt Collapse!

money and markets

06-15-09

While most pundits are still grasping at anecdotal “green shoots†to celebrate the beginning of a “recovery,†the hard data just released by the Federal Reserve reveals a continuing collapse of unprecedented dimensions.

It’s all in the Fed’s Flow of Funds Report for the first quarter of 2009, which I’ve posted on our website with the key numbers in a red box for all those who would like to see the evidence.

Here are the highlights:

Credit disaster (page 11). First and foremost, the Fed’s numbers demonstrate, beyond a shadow of a doubt, that the credit market meltdown, which struck with full force after the Lehman Brothers failure last September, actually got a lot worse in the first quarter of this year.

This directly contradicts Washington’s thesis that the government’s TARP program and the Fed’s massive rescue efforts began to have an impact early in the year.

In reality, the credit market shutdown actually gained tremendous momentum in the first quarter. And although it’s natural to expect some temporary stabilization from the government’s massive interventions, the first quarter was SO bad, it’s impossible for me to imagine any scenario in which the crisis could be declared “over.â€

Here are the facts:

We witnessed one of the biggest collapses of all time in “open market paper†— mostly short-term credit provided to finance mortgages, auto loans, and other businesses. Instead of growing as it had in almost every prior quarter in history, it collapsed at the annual rate of $662.5 billion. (See line 2.)

Banks lending went into the toilet. Even in the fourth quarter, when the meltdown struck, banks were still growing their loan portfolios at an annual pace of $839.7 billion. But in the first quarter, they did far more than just cut back on new lending. They actually took in loan repayments (or called in existing loans) at a much faster pace than they extended new ones! They literally pulled out of the credit markets at the astonishing pace of $856.4 billion per year, their biggest cutback of all time (line 7).

Meanwhile, nonbank lenders (line 8) pulled out at the annual rate of $468 billion, also the worst on record.

Mortgage lenders (line 9) pulled out for a third straight month. (Their worst on record was in the prior quarter.)

And consumers (line 10) were shoved out of the market for credit at the annual pace of $90.7 billion, the worst on record.

The ONLY major player still borrowing money in big amounts was the United States Treasury Department (line 3), sopping up $1,442.8 billion of the credit available — and leaving LESS than nothing for the private sector as a whole.

Bottom line: The first quarter brought the greatest credit collapse of all time.

Excluding public sector borrowing (by the Treasury, government agencies, states, and municipalities), private sector credit was reduced at a mindboggling pace of $1,851.2 billion per year!

And even if you include all the government borrowing, the overall debt pyramid in America shrunk at an annual rate of $255.3 billion (line 1)!

Asset-backed securities (ABS) got hit even harder (page 34). This is the sector where you can find most of the new-fangled “structured†securities — the ones Washington had already identified as a major culprit in the credit disaster.

Did they make any headway in stopping the ABS collapse? None whatsoever! The total outstanding in this sector (line 3) fell at an annual pace of $623.4 billion in the first quarter, the WORST ON RECORD!

U.S. security brokers and dealers were smashed (page 36). Brokers were forced to reduce their total investments at the breakneck annual pace of $1,159.2 billion in the first quarter, after an even hastier retreat in the prior quarter (line 3)!

What’s even more revealing is that they were so pressed for cash, they had to dump their Treasury security holdings in massive amounts — at an annual pace of $424 billion (line 7)! Given the Treasury’s desperate need for financing from any source, that’s not a good sign!

Government agencies got killed (page 43). Households dumped their Ginnie Maes, Fannie Maes, Freddie Macs, and other government-agency or GSE securities like never before in history, unloading them at the go-to-hell annual clip of $1,395.7 billion (line 6).

And the rest of the world (mostly foreign investors), which had started unloading these securities in the third quarter of last year, continued to do so at a fevered pace (line 10).

Mortgages got chopped again (page 48). Home mortgages outstanding were slashed at an annual clip of $87.3 billion in the second quarter of last year, $324.2 billion in the third quarter, $271 billion in the fourth, and another $61 billion in the first quarter of this year (line 2).

A slowdown in the collapse? For now, perhaps. But the first quarter also brought the very first reduction in commercial mortgages, an early sign of bigger commercial real estate troubles ahead (line 4).

Trade credit is dying (page 51, second table). If you’re in business and you don’t have cash on hand to buy inventories, supplies, or other materials, beware! Large and small corporations all over the country have been slashing trade credit at an accelerating pace (line 3).

In the first quarter of last year, this aspect of the credit crisis was still in its early stages; trade credit outstanding was shrinking at an annual pace of just $15 billion. But by the second quarter, this new disaster burst onto the scene at gale force, with trade credit getting docked at the rate of $151.2 billion per year. And most recently, in the first quarter of 2009, it was slashed at the shocking pace of $277.2 billion per year.

And I repeat:

With ALL of these figures, we’re not talking about a decline in new credit being provided, which would be bad enough. We’re talking about a collapse that’s so deep and pervasive, it actually wipes out 100 percent of the new credit and brings about a net reduction in the credit outstanding — a veritable dismantling of America’s once-immutable debt pyramid!

For the long-term health of our country, less debt is not a bad thing. But for 2009 and the years ahead, it’s likely to be traumatic, delivering …

The Most Wealth Losses of All Time

Who is suffering the biggest and most pervasive losses? U.S. households and nonprofit organizations (page 105)!

The losses have been across the board — in real estate, stocks, mutual funds, family businesses, life insurance policies, and pension funds.

In U.S. households alone, the losses have been massive: $1.39 trillion in the third and fourth quarters of 2007 (not shown on page 105) … a gigantic $10.89 trillion in 2008 … $1.33 trillion in the first quarter of 2009 … $13.87 trillion in all, by far the worst of all time.

And these losses have equally massive consequences for 2009 and 2010:

Deep cutbacks in consumer spending ahead, plus a virtual disappearance of conspicuous consumption …

More massive sales declines at most of America’s giant manufacturers, retail firms, transportation companies, restaurants, and more, plus …

Big losses replacing profits at most U.S. corporations!

Rescues That Make the Crisis Worse

The U.S. government has taken radical, unprecedented steps to counter this credit collapse. And for the moment, it HAS been able to avert a financial meltdown.

But no government, even one run amuck with spending and money printing, can replace $13.87 trillion in losses by households.

Consider just two of the government’s most egregious escapades:

On January 7, Fed Chairman Bernanke was so desperate to revive U.S. mortgage markets that he embarked on a new, radical program to buy up mortgage-backed securities. So far, he has pumped over a half trillion dollars of fresh federal money into that market. But it has barely made a dent; despite all his efforts, mortgage rates have zoomed higher anyway, snuffing out a mini-boom in mortgage refinancing.

Four months later, on May 17, the Fed was so desperate to revive other credit markets, it even caved in to industry appeals to finance recreational vehicles, speedboats, and snowmobiles, according to Saturday’s New York Times. But that has barely made a dent in those industries. And the expansion of direct Fed financing to these esoteric areas is not possible without greatly damaging the credibility — and credit — of the U.S. government. Result: Higher interest rates.

Can Mr. Bernanke take even MORE radical steps? Can he trek where no other modern-day central banker has ever gone before?

Not without shooting himself in the foot! It still won’t be enough to avert a continuation of the debt crisis. Indeed, all it can accomplish is to kindle inflation fears, drive interest rates even higher, and actually sabotage any revival in the credit markets.

Look. The nearly $14 trillion in financial losses suffered by U.S. households has inevitable consequences. And massive, nonstop borrowings by the U.S. Treasury in the months ahead — driving interest rates still higher — can only make them worse.

My urgent warning: If you fall for Wall Street’s siren song that “the crisis is over,†you could be in for a fatal surprise.

Don’t believe them. Follow the numbers I have highlighted here. Then, reach your own, independent conclusions.

http://www.moneyandmarkets.com/new-hard-ev...-collapse-34202

Not very "Green Shooty". ;)

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Yep. All that debt, call it what you will, is still there accruing interest.

How on earth is that a good thing?

Greenspan, Paulson, Bernanke, Geithner,& our very own King...these pariah's need to be brought out in the open and exposed as the real masterminds of our financial ruination.

Edited by cashinmattress

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I like this cartoon and this is as good a place to put it for a bump as any.... :)

:lol::lol::lol:

:ph34r:

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Joking aside, those figures are beyond (my) comprehension.

Is it a conspiracy (the largest theft in history) or c0ck-up (the unfortunate result of having bush, blair, bernake, et al in power at the same time in history)?

Whatever, it's happened.....

Edited so you'd know I said c0ck-up and not fvck-up....

Edited by Dubai

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Joking aside, those figures are beyond (my) comprehension.

Is it a conspiracy (the largest theft in history) or c0ck-up (the unfortunate result of having bush, blair, bernake, et al in power at the same time in history)?

Whatever, it's happened.....

Edited so you'd know I said c0ck-up and not fvck-up....

The numbers are no longer comprehensible. Take this for example:

Richard Fisher, president of the Dallas Federal Reserve Bank, said: "Senior officials of the Chinese government grilled me about whether or not we are going to monetise the actions of our legislature."

"I must have been asked about that a hundred times in China. I was asked at every single meeting about our purchases of Treasuries. That seemed to be the principal preoccupation of those that were invested with their surpluses mostly in the United States," he told the Wall Street Journal.

The Oxford-educated Mr Fisher, an outspoken free-marketer and believer in the Schumpeterian process of "creative destruction", has been running a fervent campaign to alert Americans to the "very big hole" in unfunded pension and health-care liabilities built up by a careless political class over the years.

"We at the Dallas Fed believe the total is over $99 trillion," he said in February.

"This situation is of your own creation. When you berate your representatives or senators or presidents for the mess we are in, you are really berating yourself. You elect them," he said.

His warning comes amid growing fears that America could lose its AAA sovereign rating.

China warns Federal Reserve over 'printing money'

http://www.telegraph.co.uk/finance/finance...ting-money.html

$99 trillion . :rolleyes:

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The numbers are no longer comprehensible. Take this for example:

$99 trillion . :rolleyes:

Does not compute....

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Yep. All that debt, call it what you will, is still there accruing interest.

How on earth is that a good thing?

Because it makes you a perpetual slave.

The debt levels are just insane.

But if you remember debt is wealth you feel a lot better.

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Thanks for posting this, incredible information. Wow my calculations of how much QE would be needed were based on no credit growth or very minor credit destruction. But this is major credit destruction.

I might have to upgrade my estimate that the US needs sustained QE of nearing 4 trillion$ a year to get out of the deflationary death spiral.

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Thanks for posting this, incredible information. Wow my calculations of how much QE would be needed were based on no credit growth or very minor credit destruction. But this is major credit destruction.

I might have to upgrade my estimate that the US needs sustained QE of nearing 4 trillion$ a year to get out of the deflationary death spiral.

Have you factored in Medicare / welfare etc... for the babyboomers. Greenspan had the US needed to borrow $1tr in 2010 to try and cover this little gem and that was based on a functioning economy, I would hazard a guess that figure is now nearer at least $2tr if not higher.

Would that be $6tr a year??

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Have you factored in Medicare / welfare etc... for the babyboomers. Greenspan had the US needed to borrow $1tr in 2010 to try and cover this little gem and that was based on a functioning economy, I would hazard a guess that figure is now nearer at least $2tr if not higher.

Would that be $6tr a year??

It might be a good way to pump the QE money into the economy. Spend an extra trillion on those programs. The functioning economy is the alarming part, if the economy is breaking down, then it will have to be reformed before money can be properly pumped in.

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As predicted, no matter how much you encourage people to borrow to buy things, once sentiment has turned to SAVE, no amount of pumping, interest rate dropping, printing is going to get it going again.

banks need to be culled.... there are too many lenders out there.

course, if they use Starships to beam down 1m dollars to every American home, then my argumant falls flat, ill admit that. but that comes with a destroyed economy and starvation.

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As predicted, no matter how much you encourage people to borrow to buy things, once sentiment has turned to SAVE, no amount of pumping, interest rate dropping, printing is going to get it going again.

banks need to be culled.... there are too many lenders out there.

course, if they use Starships to beam down 1m dollars to every American home, then my argumant falls flat, ill admit that. but that comes with a destroyed economy and starvation.

I would argue allowing the banks to fail and allowing debt deflation to take hold will have the same results.

What a choice to have to make.

The ultimate catch 22.

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I would argue allowing the banks to fail and allowing debt deflation to take hold will have the same results.

What a choice to have to make.

The ultimate catch 22.

I doubt it. Allowing Lehmans to fail caused problems, they were handled, but they are gone already. HBOS was bailed, the problems remain.

Its clearly not a shortage of money thats a problem, just look at Gilt sales....they fly through as if the world was awash with the stuff.

Edited by Bloo Loo

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I doubt it. Allowing Lehmans to fail caused problems, they were handled, but they are gone already. HBOS was bailed, the problems remain.

Its clearly not a shortage of money thats a problem, just look at Gilt sales....they fly through as if the world was awash with the stuff.

AIG?

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banks need to be culled.... there are too many lenders out there.

I think you are right, too many bankers making too much money chasing too little real profit. They kept the game going through speculation but as always it horrifically crashed.

course, if they use Starships to beam down 1m dollars to every American home, then my argumant falls flat, ill admit that. but that comes with a destroyed economy and starvation.

True that is basically my argument, but the elites seem very unwilling even to throw a few thousand to the average person.

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AIG?

well Ok, lets look at AIG.

IIRC, all divisions were making profits....except the one that made all the losses.

they could have broke it up, the CDS department would have been a major defaulter...but WHO would have taken hits. from what I see, most CDS is a gamble used by hedge funds and so on, and they say....its all laid off, so if a bit fails, an individual firm would only take a small hit.

course, if Noel is wrong about that, then AIG failing would have collapsed a few hundred hedge funds....again..not in the real economy.

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well Ok, lets look at AIG.

IIRC, all divisions were making profits....except the one that made all the losses.

they could have broke it up, the CDS department would have been a major defaulter...but WHO would have taken hits. from what I see, most CDS is a gamble used by hedge funds and so on, and they say....its all laid off, so if a bit fails, an individual firm would only take a small hit.

course, if Noel is wrong about that, then AIG failing would have collapsed a few hundred hedge funds....again..not in the real economy.

The banks printed their own money and then leveraged up on it. Now the banks want the taxpayer to turn these forgeries into real money.

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I am not sure if this was his intent, but recent analysis of the Flow of Funds Report by Martin Weiss eloquently makes the case for deflation.

In New, Hard Evidence of Continuing Debt Collapse! Martin Weiss Writes ...

While most pundits are still grasping at anecdotal “green shoots†to celebrate the beginning of a “recovery,†the hard data just released by the Federal Reserve reveals a continuing collapse of unprecedented dimensions.

It’s all in the Fed’s Flow of Funds Report for the first quarter of 2009, which I’ve posted on our website with the key numbers in a red box for all those who would like to see the evidence.

First and foremost, the Fed’s numbers demonstrate, beyond a shadow of a doubt, that the credit market meltdown, which struck with full force after the Lehman Brothers failure last September, actually got a lot worse in the first quarter of this year.

To say this situation is unprecedented does not do justice to the word.

Hyperinflation, or even strong inflation predictions in the near term look rather silly in the face of this data unless one is only looking at the printing and not the destruction in credit.

OK treasury yields have been soaring, but that is belief in green shoots, a rebound from ridiculous levels, and massive supply of treasuries. And in case you did not notice, government bond yields have been soaring the world over, not just in the US.

Bear in mind my definition of deflation includes marked to market values of bank credit. It's very difficult to get a handle on Marked to Market anything as the Fed is still fighting rules that would mandate it. However, we do know there is still a mountain of things hidden off balance sheets in SIVs (Citigroup alone has $800 billion and what that is really worth is anyone's guess). Furthermore massive credit card losses are on the way as unemployment rises, and of course we cannot forget the upcoming crisis in Alt-A and Pay Option ARM mortgages.

Think consumers are about to go on a spending spree after a massive $13.87 trillion collapse in net worth? Think banks are going to start lending with this employment picture and household debt? I don't and boomer demographics makes the situation even worse. Don't forget the bleak employment picture. There is no source of jobs.

Those who get hyperinflation out of this picture must be reading the playbook in Bizarro World because it sure is not the playbook here.

Mike "Mish" Shedlock

Full report with scary charts at:

http://globaleconomicanalysis.blogspot.com

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It's very rare to see an economist actually practice economics.

This is the kind of macro-level emergence, that many people who have spent decades actually practicing economics, have feared.

Credit destruction via the re-appraisal of the risk/price spectrum from a historic low.

It is impossible to eradicate the new risk with creating ever more risk elsewhere.

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Bumpity bump.. the best ones always fall off the quickest.

This looks like the US credit market.. any ideas how the UK compares?

Edited by libspero

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Is anybody really surprised ?

There is a massive black hole and the mass QE and low interest rates are not solving anything ..

The next leg down is upon us ... the frustrating thing is that the Government knew from the start what the REAL scale of the problem was; their interference in the market is doing nothing more than preventing the inevitable.

You can`t create an artificial floor in the market with no foundations; except with a massive supply money which in itself creates its own demon ...

get the popcorn ...

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