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

[libspero]

get the popcorn ...

[?...!]

This is one of those metrics that would deeply alarm Greenspan with a 5-10% shift.

To see an all out collapse of this nature is staggering.

And although activity on the ground has stabilised somewhat, there remains a really and significant wall to growth in the form of contracting credit.

This is deflation.

[R K]

Thanks for posting 1929crash.

Thanks but

[libspero]

This seems US specific though.. presumably it is not safe to extrapolate globally?

[Injin]

Lies down, money up - hyperinflationary depression.

100% guaranteed.

[CokeSnortingTory]

I hope we'll all come through, and that this brittle, fascistic, legalistic, parasitic nonsense world we live in will have swept itself away, leaving something loose, friendly, comfortable and free.

I'm pretty sure that it won't be long before we're all working on strawberry farms.

[interestrateripoff]

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 ...

It's one huge black hole and it's sucking everything in, you can't defeat gravity and there is no escape velocity to get away from it.

The govt knew the problem but the aim was to make it someone else's problem in the future, that has been the plan from day one. Bush managed to make it someone else's problem and Blair exited just in time. Brown may still yet escape but he may be ejected by his own party rather achieving this goal by political astuteness.

I've long felt the only option is massive debt writedowns across the board at govt level and individual level, and if we do go down this route the West will have to sacrifice living standards which where not sustainable and we'll have to live within our means and not consume as much crap.

[interestrateripoff]

This seems US specific though.. presumably it is not safe to extrapolate globally?

Everything is interlinked, the US has been the driving force of the global economy. If they go down we all go down.

Too many countries have been living in debt bubble heaven, now we will have everyone living in debt burst hell.

[Stay Beautiful]

All out financial war is happening. In the blue corner The USSA and in the red corner, (ahem) Russia, China. Like you say, "serve up the popcorn!"

[Stay Beautiful]

This is the table that scores the bullseye:

Where is this table from?

[Pytyr]

Where is this table from?

Fed flow of funds report

[MOP]

http://www.marketoracle.co.uk/Article11447.html

[interestrateripoff]

Topic needs merging with the original thread here.

[nohpc]

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 ...

i think you mean prolong the inevitable. If you could prevent the inevitable it wouldn't be inevitable.

However, nothing in life is inevitable except death (and probably taxes).

i really want deflation to happen. It would really be a perfect scenario for me. I'm part of a one man show holding off on purchases I can afford because I want to see them deflate (and many things have).

I also want houses to become affordable so I can buy a mansion with a huge garden for less than 300 grand in a top area.

However, one thing I have learnt in life is that nothing is ever that easy. Whatever the hardest outcome is that is the way it will be for most people. The current repreive in the way of mortgages costing next to nothing is very nice but it can't last (otherwise I could techincally stop working now because the rental income from my flat in london covers the mortgage and my rental costs in leicester). Nothing in life worthwhile is ever easy.

Although maybe I have it wrong because to me deflation seems like a dream come true but the governments see it as an apopcolyptic event.

[domo]

What I think is interesting is both the public and private sector borrow from the same market, so you have to ask yourself - would the collapse in private borrowing had been so vast if the government hadn't crowded out the private bond market?

[kokyu]

At last, some proper evidence for deflation.

People in the US are paying down some of their debt at last. Shame their govt is taking out loans on their behalf instead though!

I await similar figures in the UK with interest.

However I think the source of the article is getting a bit confused about hyper inflation. There is more than enough money already in existence to cause it and there will continue to be so for a long time.

All it needs is an alignment of events that causes a significant % of the money already in existence, however much it is, to move into physical commodities at the same time. This would create the necessary general prices rises, followed by change in psychology regarding what money is, to tip us over the edge.

Unfortunately because so much money has been brought into existence over recent years only a relatively small % of the money supply would need to move for this to happen.

[MOP]

All out financial war is happening. In the blue corner The USSA and in the red corner, (ahem) Russia, China. Like you say, "serve up the popcorn!"

Make it a large one!

[Stay Beautiful]

Fed flow of funds report

Cheers.

[MOP]

Q1 2009 Flow of Funds:

Total Domestic Non-Financial Debt (NFD) expanded at a 4.1% seasonally-adjusted and annualized rate (SAAR) during the first quarter. This was down from Q4 2008’s 6.2% and was below Q1 2008’s 5.4%. Total system Credit (non-financial and financial) increased $371.8bn, or 2.8% annualized, to a record $52.904 TN – and was up $2.238 TN over the past year, or 4.4%. Talk of “Credit collapse†has been overdone.

During the first quarter, total Household Sector debt contracted at a 1.1% rate, with household mortgage borrowings unchanged during the quarter. Flat household mortgage debt growth compares to Q4’s negative 1.7%, Q3’s negative 2.4%, and Q2’s negative 0.3%. Home mortgage borrowings declined 1.6% over the past year. Total mortgage debt was down only $67.2bn y-o-y, or 0.5%. Total Business Borrowings declined at a 0.3% rate during the quarter, although Corporate debt expanded at a 2.0% pace during the quarter. Total Business borrowings were up 3.2% over the past year.

Rapidly expanding government debt more than offset the small first quarter declines in Household and Business borrowings. State & Local debt expanded at a 4.9% rate - a notable bounce back from Q4’s 0.4% contraction and the strongest growth since Q4 2007. Yet most of the Credit for Q1’s respectable NFD growth goes to our federal government, where borrowings surged at a 22.6% annualized pace.

Treasury debt outstanding increased a nominal $466bn during the quarter to $6.804 TN. Over the past year, Treasury debt expanded an unprecedented $1.505 TN, or 28.4%. But Washington’s giant Credit footprint is not confined to the Treasury issuance boom. GSE borrowings expanded SAAR $259bn during the quarter to a record $3.452 TN. In percentage terms, GSE debt expanded at a 7.6% rate during the quarter and was up 7.2% y-o-y. Agency MBS growth was even stronger, expanding SAAR $300bn during Q1 to surpass $5.0 TN ($5.052 TN) for the first time. Agency MBS expanded at a 6.5% rate during the quarter and was up 9.6% from a year earlier. During the past eight quarters, the GSEs have expanded 19.5% and agency MBS 27.5% - a massive and ongoing nationalization of mortgage Credit and interest-rate risk.

First quarter combined Treasury, GSE debt, and agency MBS growth surged to SAAR $2.0 TN. In nominal dollars, total combined Treasury, GSE and MBS expanded $612bn during the quarter, or 16.7% annualized, to $15.298 TN. These “federal†debt obligations ballooned an alarming $2.177 TN over the past year, or 16.6%. This was just below 100% of one-year total system Credit growth, highlighting the most conspicuous aspect of an expanding Government Finance Bubble.

Analyzing the financial sector these days is fraught with challenges. I feel for the staff at the Federal Reserve responsible for aggregating the data. And despite my years of dissecting the “flow of funds,†this quarter’s financial sector data has me stumped. Examining the “L†(level) pages, Total Financial Sector Credit market borrowings contracted a meager $72bn to $17.015 TN (up 3.7% y-o-y). Yet the “F†(flows) pages show a huge (SAAR $1.792 TN) decline for financial sector borrowings during the quarter. The “level†page has bank Financial Assets up almost $500bn during the quarter (almost $700bn increase in Misc. Assets), while the “flow†page has bank assets contracting. Hopefully we’ll have more clarity with Q2 data and revisions.

Securities Broker/Dealer Assets contracted a nominal $305bn during the quarter to $1.913 TN, bringing the one-year drop to $1.332 TN (although some of this has moved to bank and Federal Reserve balance sheets). And Open Market Paper (CP) fell $175bn during the quarter to $1.424 TN, with a one-year decline of $361bn (20.2%). And Fed Funds & Repo contracted $201bn during Q1 to $1.055 TN, with a notable one-year drop of $1.086 TN (50.7%). Federal Reserve assets declined $149bn during the quarter to $2.122 TN, although assets were up $1.190 TN, or 128%, over the past year.

So with recent bank Credit stagnation and contractions experienced by the Wall Street firms, the commercial paper market, and the Fed - some analysts see support for the Credit collapse viewpoint. But this ignores the massive ongoing issuance of Treasuries, GSE debt and agency MBS – not to mention a more recent booms in corporate and muni debt issuance. Again, keep in mind that Non-financial debt did expand at a 4.1% rate during the quarter, a pace of Credit expansion that I expect is being exceeded during the current quarter.

National Income declined a modest $48bn (annualized) during the first quarter to a $12.255 TN pace. This was a slower contraction than Q4’s $189bn (annualized), with National Income declining 1.6% y-o-y. Total Compensation was up 0.2% y-o-y to $8.024 TN. From my analytical perspective, the massive - almost $2.2 TN - “federal†Credit boom has for now stabilized system-wide Compensation and Income. Yet the sustainability and consequences of the Government Finance Bubble create – at best - great uncertainty. I’ll stick with the analysis that two Trillion-plus of government Credit creation is necessary to hold Bubble Economy implosion at bay – and that this amount of Washington-based finance comes with its own set of serious issues (including exacerbating global financial and economic distortions).

It is a primary theme of current Credit Bubble analysis that the unfolding Government Finance Bubble-driven global reflation will be of an altogether different nature than previous Fed/Wall Street-induced reflations. For one, the major reflationary monetary mechanism has shifted from Wall Street finance (securities firms’ balance sheets and securitizations, “repo†finance, hedge funds, etc. - to various avenues of government finance. As such, we are expecting a lasting shift in the flow of finance away from the asset markets, with important ramifications for household wealth and spending. The Flow of Funds provides confirmation of this analysis.

Household Balance Sheet data make for dreadful analysis. Despite incredible government stimulus, Household sector Assets declined a further $1.444 Trillion during the quarter. This brought the one-year drop to an unrivaled $10.075 Trillion (13.5%). At $64.517 TN, Household Assets have returned to year-end 2005 levels. Over the past year, Financial Assets declined $7.869 TN (16.3%) to $40.296 TN and Real Estate dropped $2.279 TN (10.3%) to $19.819 TN. Household Liabilities contracted at a 3.2% rate during the quarter to $14.141 TN, with a one-year drop of 2.1% ($301bn). As such, Household Net Worth contracted $1.330 TN, or at a 10.3% rate, during Q1 to $50.376 TN. Household Net Worth dropped $9.774 TN over the past four quarters, or 16.2%, deflating back to about the Q3 2005 level.

There are also indications of potential trouble from Rest of World (ROW) flow analysis. ROW holdings declined for Agency/GSE-backed securities, Open Market Paper, U.S. Time Deposits, Inter-bank Assets, Corporate Bonds, and Loans to Corporate Business. Meanwhile, Treasury holdings expanded SAAR $636bn during the quarter to $3.341 TN. Our foreign Creditors may be content to recycle dollar flows back into Treasuries, but they are thus far in no mood to return to financing our business or household sectors. This may prove a major factor contributing to an altered flow of finance throughout the U.S. economy. It can also be read as a warning that the crucial process of dollar recycling rests increasingly on market perceptions of the soundness of one single market – U.S. Treasuries.

Financial reform received keen focus this week. Everyone agrees the previous regulatory framework failed profoundly in restraining excesses throughout mortgage and Wall Street finance. So I would like to know which regulator in the new regime is going to protect the system from similar excesses throughout government finance. Same problem as before: No one will step up and reign in a Bubble. There’s always an excuse – masterful justifications and rationalizations. And, of course, the intellectual frameworks operating in Washington and elsewhere would adamantly insist that now is the absolute worst time to reign in government borrowing.

So disciplining Washington will be left to the marketplace. On the one hand, the markets were content to accommodate Wall Street’s self-destruction for far too long. On the other, the markets were burned and would seemly now be heedful of “Ponzi Finance†dynamics.

http://www.prudentbear.com/index.php/credi...ew?art_id=10242