Federal Reserve Q2 2005 Z.1 “flow of funds” report.
Demonstrating unrelenting Credit Bubble Excess, Total Credit Market Debt (TCMD) expanded $721.6 billion, a 7.7% rate, during the quarter to $38.11 Trillion. This was up from the first quarter’s 7.1% growth rate and significantly higher than the year earlier 6.6%. Seasonally-adjusted and annualized (SAA) by the Fed, TCMD expanded $3.025 Trillion during the quarter, slightly below the first quarter’s record $3.051 Trillion. These numbers compare to 2004’s record $2.767 Trillion expansion, 2003’s $2.757 Trillion, 2002’s $2.238 Trillion, 2001’s $1.955 Trillion and 2,000's $1,686 Trillion. TCMD is up $2.986 Trillion during the past year, or 8.5%, with a 2-year gain of $5.523 Trillion, or 17%. Since the beginning of 2000, TCMD has surged $12.837 Trillion, or 51% and, since the start of 1998, $17.040 Trillion, or 81%. Since the beginning of 1998, TCMD as a percentage of GDP has increased from 256% to 308%.
After borrowing heavily during the first quarter, Federal debt was about unchanged during the quarter (up 5.5% ann. during the first half). But there was certainly no let-up in the private-sector borrowing binge. Total Non-federal debt expanded at an 8.9% rate, equaling the first quarter. Total Household Debt expanded at a 9.9% rate, up from the first quarter’s 9.6% and slightly ahead of the year ago 9.8%. Total Business borrowings increased at an 8.4% rate, up from the first quarter’s 7.2% to the strongest pace since Q2 2000. After expanding debt at a 12% pace during the first quarter, State & Local borrowings slowed to a 5.6% rate during the second quarter. Conversely, Financial Sector Debt expanded at a 9.5% rate during the first quarter, up from the first quarter’s 5.5%.
Financial Sector borrowings increased $1.125 Trillion SAA, the strongest rate of quarterly growth since Q3 2003. And it is worth nothing the marked change in the nature of this sector’s borrowings/Credit intermediation. For the entire year 2003, Financial Sector Credit market borrowings increased $1.029 Trillion, comprised of Agency MBS $330.5 billion; GSE debt $243.7 billion; ABS $239.3 billion; Finance Company debt $118.2 billion; REIT borrowings $31.9 billion; Commercial Banks' market debt $49.2 billion; and other $16.2 billion (Funding Corps contracted $1.4bn). During the second quarter, SAA borrowings were as follows: ABS issuance $507.6 billion; Funding Corps $378.2 billion; Agency MBS $122.1 billion; REITs $84.3 billion; Savings Institutions $82.4 billion; and Commercial Banks $41.5 billion; with GSE debt contracting $84.3 billion.
ABS increased $128.5 billion during the quarter, or 19.7% annualized (up 19.5% ann. during the first-half), to $2.734 Trillion. Over the past year, ABS has ballooned $437.4 billion, or 19%. This compares to growth during year-2000 of $168.6 billion, 2001 of $243.2 billion, 2002 of $195.1 billion, and 2003 of $239.5 billion. On a SAA basis, ABS holdings increased $508.2 billion during the second quarter. Examining ABS assets, Mortgage holdings surged $527.4 billion SAA during the quarter, or 104% of total ABS expansion. This ratio compares to (mortgages comprising) 39% of ABS expansion in 2000, 47% in 2001, 41% in 2002, 102% in 2003 and 142% during 2004. At this pace, it won’t be long until the ABS market is essentially all mortgage-related.
And as the ABS marketplace enjoys a historic boom, the GSEs stagnate and agency MBS growth slows significantly. During the second quarter, GSE debt contacted $20 billion (2.8% ann.) to $2.801 Trillion. GSE debt is down 1.5% over the past year. MBS expanded by only $20.7 billion during the quarter (2.3% ann.) to $3.568 Trillion, with a one-year gain of 1.3%. Over the past 10 quarters, ABS has increased $778 billion (40%), Agency MBS $409.6 billion (13%), and GSE debt $252 billion (9.9%). ABS has now more than doubled (103%) since the beginning of 2000.
The boom in Wall Street Finance is, not surprisingly, also conspicuous with the Wall Street securities firms. Broker/Dealer Financial Asset holdings expanded at SAA $565.8 billion pace, up from the first quarter $450.5 billion and quite a reversal from the year ago decline of $37.8 billion. For comparison, Broker/Dealer assets expanded $277.6 billion during 2003 and $231.9 billion during 2004. Assets expanded at a 20% rate during the quarter, with a growth rate of 24% over the past four quarters. Credit Market Instruments expanded $26.2 billion during the quarter to $466.2 billion, and Miscellaneous Asset jumped $85.3 billion to $1.134 Trillion. On the Liability Side, “Repos” increased $59.7 billion to $681.1 billion. Repo Liabilities were up 81% over the past year, financing fully 77% of total Broker/Dealer Asset growth.
(Wall Street) Funding Corporation (“Funding subsidiaries, nonbank financial holding companies, and custodial accounts for reinvested collateral of securities lending operations.”) assets ballooned SAA $652.4 billion during the quarter. For the quarter, Assets expanded 41% annualized to $1.490 Trillion. On the Asset side, “Open Market Paper” holdings rose SAA $310.1 billion and “Investment in Broker/Dealers” increased SAA $353.9 billion. On the Liability side, “Open Market Paper” increased SAA $346.2 billion and “Securities Loaned (net)” expanded SAA $297.9 billion. Funding Corp assets increased 19% over the past year, while expanding at a 30% rate during this year’s first-half.
Commercial Bank Assets expanded at a 9.4% rate during the quarter to $8.929 Trillion. This was down from the second quarter’s 11.1% rate but up from the year ago 7.8%. Bank Credit expanded at a 9.6% rate, led by booming Loan growth. Bank Loans expanded at a 12.6% rate, up from the second quarter’s 9.6%. On a SAA basis, Total Loans expanded $596.8 billion, up slightly from the first quarter and significantly higher than the year earlier $356.8 billion. Loans to corporations expanded at SAA $206.8 billion, up from the first quarter’s $110 billion and the year ago $64.9 billion. Bank Mortgage Assets expanded at a 15% rate to $2.790 Trillion. Bank Mortgage holdings have increased 14.5% over the past four quarters and 27.2% over the past two years.
Financing this enormous Bank Credit expansion? On the Liability side (the financial claims created in the process of Bank Credit expansion), Large Time Deposits expanded at a 14.8% rate to $1.222 Trillion. Large Time Deposits expanded 18% during the past year and 30.7% over the past two years. Total Deposit growth slowed to a 6.4% rate during the quarter (up 8.7% over the past year) to $5.222 Trillion. The Liability “Fed Funds and Repo” expanded at a 22.4% rate during the quarter to $1.081 Trillion (netted against “repo” assets). The Liability “Credit Market Instruments” expanded at an 8.1% rate to $792 billion, while “Miscellaneous” Liabilities increased at an 11.4% rate to $1.785 Trillion. Bank “Bond” Liability growth slowed to a 6.7% rate at $465 billion, reducing one-year growth to 15.5%.
Total system “Fed Funds & Repo (net)” expanded at a 29% rate during the quarter to $1.916 Trillion (up 22% y-o-y). REIT Liabilities increased at a 31% rate during the quarter to $507.9 billion (up 42% y-o-y). Finance Companies expanded at a 2.4% rate to $1.431 Trillion, with Credit Union assets growing at a 4.1% rate to $677 billion. Money Market Fund Assets declined at a 2% rate during the quarter to $1.832 Trillion, the slowest pace of contraction in several years.
Total Non-Federal (non-financial) Debt (NFFD) expanded $1.807 Trillion SAA during the second quarter, up from the first-quarter’s $1.754 Trillion and significantly higher than comparable 2004's $1.264 Trillion. For comparison, NFFD expanded $1.103 Trillion during 1999, $1.130 Trillion during 2000, $1.113 during 2001, $1.075 Trillion during 2002, $1.278 Trillion during 2003, and $1.541 Trillion during 2004. Household Sector borrowings increased at a SAA $1.037 Trillion, up from the first quarter’s $985.2 billion and the year ago $931.7 billion. Household debt continues to boom at historic extremes, and now business debt is expanding rapidly as well. Business borrowings jumped to $672 billion SAA, up from the first quarter’s $567 billion and the year ago $281.1 billion. For comparison, total Business borrowings increased $556.9 billion during 2000, $393.8 billion during 2001, $184.8 during 2002, $311.1 billion during 2003 and $419.2 billion during 2004.
Total Mortgage Debt (TMD) expanded $1.270 Trillion SAA during the quarter, second only to Q3 2004. This compares to the first quarter’s $1.170 Trillion and is significantly higher than the year ago $1.039 Trillion. Total Mortgage Debt expanded at a 12.1% pace during the quarter to $11.11 Trillion, up from the first quarter’s 9.6% rate. Over the past four quarters, TMD expanded a record $1.247 Trillion, or 12.6%. For perspective, TMD expanded $555 billion during 2000, $673.8 billion during 2001, $835.3 billion during 2002, $1.014 Trillion during 2003, and $1.183 Trillion during 2004. TMD has increased to 90% of GDP, up from 64% to begin 1998. Household Mortgage Debt also expanded at a 12.1% rate during the quarter, ending June at $8.528 Trillion. Household Mortgage Debt is up 12.9% over the past year, 27% over two years and 41% over three years. Household Mortgage Debt is up an historic 105% from just seven years ago. Home Mortgage Debt is on pace to expand $950 billion this year, which compares to the nineties’ average of $231 billion.
With Mortgage Finance Bubble excesses fueling an annual Current Account Deficit approaching $800 billion, there is no mystery surrounding the $973.3 billion seasonally-adjusted annualized (SAA) Rest of World (ROW) Acquisition of US Financial Assets. And let’s remind ourselves that this household debt-binge-created “liquidity” largely represents what some refer to as a “global savings glut.” On a SAA basis, ROW acquired $294 billion of U.S. Time Deposits, $160 billion of Checkable Deposits & Currency, and $79.6 billion of Security Repurchase Agreements. Holdings of Credit Market Instruments increased $750.1 billion SAA, including $136.9 billion of Treasuries, $167.9 billion of Agency Debt, and $346.2 billion of Corporate Bonds (which include ABS). (Misc. Other Assets declined $432.6bn SAA). It is worth noting that ROW purchased more Treasury and Agency debt securities than were issued (net) during the second quarter. ROW holdings of US Financial Assets were up $1.48 Trillion over the past year (16.6%) to $10.416 Trillion, with a two-year gain of $2.607 Trillion (33%). Over the past year, holdings of Credit Market Instruments were up $744 billion (17.2%), with a two-year gain of $1.382 Trillion (38%). Holdings of “Repos” were up $74.2 billion over the past year to $625.3 billion, with a two-year gain of 72%. Foreign Direct Investment was up $136.2 billion over the past year to $1.763 Trillion, with a two-year gain of 15%.
Not only is the ongoing U.S. Credit Bubble stoking The Global Liquidity Glut; it is also swelling the U.S. Household Balance Sheet. Household (including non-profits) Assets jumped $1.207 Trillion during the quarter, or 8.1% annualized, to a record $60.976 Trillion. Household Liabilities rose at a 9.8% pace to $11.142 Trillion. And the more aggressive we borrow, the greater the resulting asset inflation. Household Net Worth – referred to yesterday as our actual “savings and impressive at that!” by Larry Kudlow – jumped $940.3 billion during the quarter (7.7%) to a record $49.834 Trillion. Over the past year, Household Net Worth has inflated $4.284 Trillion, or 9.4% - representing about 35% of GDP for the period. This has been the upshot of Assets inflating $5.367 Trillion (9.7%), offset by Liabilities increasing $1.084 Trillion (10.8%). Real Estate holdings were up $708 billion (14.6% ann.) during the quarter and $2.673 Trillion (14.6%) over the past four quarters. For comparison, Real Estate holdings increased $1.462 Trillion during 2003. Household holdings of Financial Assets increased $438 billion during the quarter (4.8%) to $37.03 Trillion, with a one-year gain of $2.462 Trillion (7.1%).