Federal Reserve Q3 2020 Z.1 “flow of funds” report.
The numbers are so huge as to be numbing; nothing remotely normal about any of this. Total Non-Financial Debt (NFD) expanded $737 billion during Q3 to a record $60.113 TN. Through the first three quarters of 2020, NFD surged an unprecedented $5.740 TN, or 14.1% annualized. NFD was up $6.181 TN over the past year (11.5%) and $8.817 TN (16.7%) over two years. For perspective, NFD expanded on average $1.830 TN annually over the past decade. NFD has ballooned 71% since the end of 2008.
Washington continues to propel borrowing mayhem. Outstanding Treasury Securities jumped $530 billion during the quarter to a record $22.900 TN. Treasuries were up $3.882 TN over three quarters, with year-over-year growth of a staggering $4.329 TN, or 23.3%. Since the end of 2007, Treasuries outstanding have inflated $16.849 TN, or 278%. Q3 federal Expenditures were up 50% y-o-y, while Revenues were about flat. Borrowings accounted for about half of federal spending during the quarter. Noteworthy as well, at $429 billion the federal deficit for the first two months of the new fiscal year (post Q3) is running 25% ahead of the year ago level.
Yet Treasury is not the only profligate borrower residing within the beltway. GSE (government-sponsored enterprises) Securities jumped $123 billion during Q3 to a record $9.866 TN. GSE Securities increased $437 billion y-t-d, $523 billion y-o-y, and $845 billion over two years. That these thinly (I’m being generous) capitalized financial juggernauts continue to balloon ensures massive future taxpayer bailouts. I suppose there’s some pressure on the GSEs to crank out securities to be conveniently monetized by our overbearing central bank.
Corporate Bonds increased $97 billion during the quarter to a record $14.973 TN, with a one-year increase of $1.016 TN (7.3%). Corporate bonds are on pace for the strongest annual expansion since 2007’s record $1.398 TN.
Total Debt Securities rose $734 billion during the quarter to $52.619 TN, with record one-year growth of $5.851 TN. At 249%, Q3 Total Debt Securities-to-GDP compares to 213% at the end 2008; 158% to end the nineties; 126% to close the eighties; and 74% to conclude the seventies. Total (Debt and Equities) Securities rose $5.206 TN during Q3 to a record $109.687 TN – with a one-year gain of $11.834 TN, or 12.1%. Total Securities have inflated $63.504 TN, or 138%, since the end of 2008. At 518%, Q3 Total Securities-to-GDP compares to 373% at the end of 2007; 351% to end the nineties; 194% to close the eighties; and 117% to conclude the seventies.
With housing finance the cheapest ever, no surprise that mortgage Credit is now expanding at the strongest pace since 2007. Overall mortgage Credit increased $227 billion during Q3 to a record $16.562 TN. This was up from Q3 ‘19 growth of $193 billion and the largest gain since Q3 2007. Household Mortgage borrowings increased $165 billion (vs. Q3 ‘19’s $98bn) to a record $11.507 TN, also the fastest expansion (5.8% annualized) since Q3 2007.
The Household Balance Sheet remains fundamental to Bubble Analysis. Bolstered by gains in both Financial Assets and Real Estate, Household Assets surged $4.080 TN, or 12.0% annualized, during Q3 to a record $140.310 TN. Household Assets have now almost doubled from year-end 2008’s $76 TN. After declining $6.814 TN during Q1, Household Assets enjoyed an unparalleled six-month gain of $12.418 TN.
With Household Liabilities rising $262 billion (largest gain since Q2 ’07!) to a record $16.790 TN, Household Net Worth jumped $3.817 TN during the quarter to a record $123.520 TN. Net Worth was up $8.768 TN, or 7.6%, y-o-y, with a three-year gain of $20.541 TN, or 20%. At 584%, Household Net Worth-to-GDP compares to previous cycle peaks 493% during Q1 2007 and 447% during Q1 2000.
Household holdings of Financial Assets surged $3.398 TN during Q3 to a record $98.713 TN. Financial Holdings were up $25.890 TN, or 36%, over five years. At 467%, Q3’s ratio of Financial Assets-to-GDP was up from 328% at the Q1 2009 cycle low - and compares to cycle peaks 377% during Q3 2007 and 356% for Q1 2000.
Household Total Equities (Equities and Mutual Funds) jumped $2.431 TN during the quarter to a record $32.426 TN, with an unprecedented six-month gain of $7.775 TN (more than reversing Q1’s $6.6 TN drop). At 153%, Q3 Total Equities holdings-to-GDP compares to a cycle low 53% during Q1 2009 - and previous cycle peaks 104% during Q2 2007 and 117% for Q1 2000.
Household Real Estate holdings jumped $430 billion during Q3 to a record $34.867 TN. At $1.596 TN, the y-o-y increase in Real Estate holdings is the largest since 2006. And at 165%, Real Estate-to-GDP compares to Q2 2012’s cycle low 125% and the previous cycle peak 190% during Q3 2006.
With Washington and market-based finance dominating system Credit expansion, the banking system was relegated to second class bit player for the quarter. Bank Assets expanded $130 billion during Q3 to a record $22.903 TN. Bank Loans actually contracted $171 billion during the quarter (though Mortgage loans increased $24bn) to $12.160 TN. The Bank Asset “Reserves at the Fed” contracted $43.8 billion during Q3 to $2.743 TN - but with an unprecedented year-over-year rise of $1.316 TN.
What has the banking system been doing with much of this central bank (play) “money”? Bank Debt Securities holdings jumped another $280 billion during the quarter to a record $5.509 TN, with an unprecedented one-year gain of $868 billion (18.7%). For comparison, 2019 posted an annual record $347 billion jump in Debt Securities holdings – after averaging $153 billion annually over the previous 20 years. Over the past four quarters, Bank holdings of Treasuries increased $326 billion, Agency Securities $458 billion, and Corporate bonds $43 billion.
On the Bank Liability side, Total Deposits rose another $180 billion to a record $18.217 TN, with an unparalleled one-year gain of $3.018 TN (19.9%). Total Bank Deposits ended the quarter at 86% of GDP, up from 62% to end 2008. Total system Checking and Time Deposits jumped $4.779 TN, or 27.5%, year-over-year to $22.132 TN. For perspective, Total Deposits expanded on average $534 billion annually over the previous 25 years. Contracting $228 billion during Q3 to $4.408 TN, Money Market Fund Assets were nonetheless up $966 billion, or 28.0%, year-over-year.
Federal Reserve Assets expanded $39 billion during Q3 to a record $7.403 TN – or 35% of GDP. Fed Assets inflated $3.024 TN in three quarters and $3.393 TN, or 85%, over five quarters. Fed Assets ended June 2008 at $951 billion, or 6% of GDP. As such, Federal Reserve Assets have inflated 678% in just over 12 years. Quarter-end Fed holdings included $5.056 TN of Treasuries and $2.198 TN of Agency/MBS Securities.
Rest of World (ROW) holdings of U.S. Financial Assets jumped $1.731 TN during Q3 to a record $37.117 TN, or 175% of GDP. ROW holdings ended 2009 at $14.362 TN, or 92% of GDP, and the nineties at $5.621 TN, or 58% of GDP. Holdings of U.S. Debt Securities rose only $45 billion during Q3 to a record $12.768 TN, with a one-year gain of $673 billion. Corporate Bond holdings jumped $94 billion during the quarter to a record $4.302 TN, with a notable one-year expansion of $392 billion. Benefitting from rising stock prices, ROW Total Equities holdings surged $931 billion during the quarter to a record $9.969 TN (one-year gain $1.483 TN). Also buoyed by inflating values, ROW U.S. Direct Foreign Investment surged $731 billion to a record $9.799 TN.
Nothing short of an incredible three quarters of U.S. “money” and Credit growth. Next week China.