Federal Reserve Q4 2021 Z.1 “flow of funds” report.
With so many major developments, it would have been reasonable to let analysis of the Fed’s Q4 2021 Z.1 report slip. But such an important quarter needed to be documented. With Q1 2022 a historic Bubble inflection point, it’s worth delving into Credit and Flow of Funds data at the Pinnacle of Bubble Excess. To be sure, Powerful Inflationary Dynamics Permeate virtually all aspects of Q4 data – the Fed, Treasury and Agency Debt, Mortgage Credit, Banking system Assets, Deposits, the Broker Dealers, the Securities markets, the Household Balance Sheet, and Rest of World.
Non-Financial Debt (NFD) expanded at an 8.24% annualized pace during Q4. Outside of the two massive pandemic stimulus quarters (Q1 and Q2 2020), it was the strongest pace of Credit growth since Q3 2008. Household Mortgages expanded at 8.0%, the strongest rate since Q2 2007. The Credit system is firing on all cylinders, consistent with a highly inflationary backdrop. Consumer Credit grew at a 6.9% rate, and Business borrowings expanded at a 6.7% pace.
For 2021, NFD expanded 6.17%. Excluding 2020’s booming 12.34%, it was the strongest annual Credit growth since 2007’s 8.17%. Last year’s 7.57% expansion in Household Mortgages was the biggest percentage gain since 2006’s 11.19%.
On a seasonally-adjusted and annualized basis (SAAR), NFD surged during Q4 a blistering $5.253 TN – with Treasury debt expanding SAAR $2.663 TN, Total Household borrowings SAAR $1.402 TN, Business Borrowings SAAR $1.216 TN and Foreign borrowings SAAR $509 billion. For 2021, NFD expanded $3.783 TN, second only to 2020’s $6.733 TN. Prior to 2020, the record for annual NFD growth was 2007’s $2.534 TN. For perspective, NFD averaged $1.847 TN annually during the decade 2010 to 2019.
Federal Reserve Assets inflated an additional $273 billion during Q4 to a record $8.887 TN. Fed Assets expanded $1.231 TN for the year, with stunning growth of $4.877 TN over the past 10 quarters (122%). The Fed’s Treasury holdings ended the year up $778 billion to a record $6.032 TN. Treasury holdings have increased $3.666 TN, or 155%, since Q3 2019. Agency Securities holdings jumped $512 billion last year to a record $2.676 TN, having expanded $1.145 TN since Q3 2019.
Treasury borrowings expanded SAAR $2.663 TN during Q4. Outstanding Treasury Securities expanded nominal $1.035 TN during Q4 to a record $25.285 TN. It’s worth adding that Q4 federal government expenditures (SAAR $5.959 TN) were 24% higher than pre-pandemic Q4 2019. For 2021, Treasury Securities rose $1.684 TN, with 10 quarter growth of an unprecedented $7.470 TN, or 41.9%. Since 2007, Treasuries Securities inflated $19.234 TN, or 318%. Treasury Securities ended the year at 122% of GDP, up from 55% to close 2007.
Agency Securities expanded $130 billion during the quarter to a record $10.666 TN, with one- and two-year growth of $579 billion and $1.237 TN. Combined Treasury and Agency Securities expanded $2.263 TN last year – an outrageous $8.873 TN over 10 quarters - to 150% of GDP.
Household Mortgages expanded SAAR $900 billion during Q4, compared to the $226 billion annual average for the decade 2010 to 2019. Total Mortgage borrowings expanded a nominal $378 billion during Q4, the strongest quarter since Q3 2006. Total Mortgages surged $1.203 TN (strongest since 2006), or 7.2%, to a record $17.980 TN. Home Mortgages rose $879 billion during 2021, the largest increase since 2006’s $1.082 TN. Commercial Mortgages gained $184 billion in 2021, the strongest since 2007’s $265 billion.
Total Debt Securities (TDS) expanded nominal $1.275 TN during Q4 to a record $56.188 TN (largest increase since Q2 2020). TDS jumped $3.078 TN y-o-y and $10.443 TN (22.8%) over 10 quarters. Total Debt Securities ended the year at 234% of GDP, up from 201% to end 2007 and 158% to close out 1999. Total Equities surpassed $80 TN ($80.184 TN) for the first time during Q4, expanding $4.710 TN for the quarter and $14.800 TN (22.6%) for the year.
Total Equities were up $29.416 TN, or 58%, over 10 quarters. Total Equities ended the year at a record 334% of GDP, up from previous cycle peaks 188% (Q3 2007) and 210% (March 2000). Total (Debt & Equities) Securities expanded $17.879 TN last year to a record $136.372 TN, or 568% of GDP. This compares to previous cycle peaks 387% (Q3 ’07) and 368% (Q1 ’00). It’s worth adding that the total value of ETFs surged $610 billion (37% annualized) to a record $7.191 TN, with 2021 growth of $1.741 TN, or 32%. Equities ETFs inflated $529 billion (53% annualized) during the quarter to a record $4.522 TN, with one-year growth of $1.339 TN, or 42%.
The Household Balance Sheet exemplifies historic systematic monetary inflation. Household Assets inflated another $5.684 TN during Q4 to a record $168.642 TN. Household Liabilities gained $387 billion (8.6% pace) to a record $18.353 TN. Household Net Worth (Assets less Liabilities) surged $5.297 TN during the quarter to a record $150.290 TN. Net Worth surpassed $100 TN for the first time in 2017. Household Net Worth inflated a record $18.946 TN in 2021, with three-year growth of $44.771 TN, or 42%. For comparison, Net Worth expanded on average $5.447 TN annually over the decade 2010 to 2019. Household Net Worth ended the year at a record 626% of GDP, compared to previous cycle peaks 491% (Q1 ’07) and 445% (Q1 ’00).
Bank (“Private Depository Institutions”) Assets jumped $478 billion (7.6% annualized) during Q4 to a record $25.606 TN. Bank Assets expanded $2.160 TN (9.2%) over the past year and $5.550 TN (27.7%) in two years – for the most rapid expansion of Bank Assets since the early-seventies. Bank Loans expanded nominal $425 billion during Q4, second only to Q1 2020’s $561 billion. Bank Mortgage loans grew $108 billion during the quarter, the biggest gain since Q2 2016. Consumer Loans increased $95.7 billion, second only to Q1 2010’s anomalous $312 billion.
The Bank Asset “Reserves at the Fed” dropped $215 billion during the quarter to $3.644 TN, while Treasuries jumped $190 billion to a record $1.646 TN. Treasury holdings surged $443 billion, or 36.8%, during 2021 (two-year gain $767bn). Bank Agency/MBS holdings rose $56 billion during the quarter and $512 billion for the year – to a record $3.888 TN. Agency holdings inflated $1.253 TN over the past two years, or 47.6%.
On the Bank Liability side, Total (Checking and Savings) Deposits jumped $573 billion (11.2% annualized) during the quarter to a record $20.986 TN. Total Deposits were up $2.124 TN in four quarters and $5.453 TN, or 35.1%, over two years.
Broker/Dealer Assets expanded $112 billion during the quarter (10.2% annualized) to a record $4.504 TN. Assets were up $306 billion, or 7.3%, over four quarters and $560 billion, or 14.2%, in two years. The Broker/Dealer asset Loans rose $24.9 billion to a record $841 billion. Loans were up $179 billion, or 27%, over the past year and $412 billion, or 95.8%, over two years. Miscellaneous Assets gained another $115 billion to $1.504 TN, with one-year growth of $383 billion, or 34.2%.
The Z.1 category “Federal Funds and Security Repurchase Agreements” jumped $689 billion (57% annualized) during Q4 to a record $5.833 TN. The Fed’s “repo” Liability rose $278 billion for the quarter to a record $2.183 TN, with one-year growth of $1.967 TN. Money Market Funds’ “Repo” Asset increased $231 billion during the quarter to a record $2.496 TN (one-year growth $1.427 TN).
In some of the more enigmatic data, Rest of World (ROW) holdings of U.S. Financial Assets surged a nominal $2.504 TN (23% annualized) during the quarter to a record $46.984 TN. ROW holdings were up $7.141 TN (17.9%) over four quarters and $12.062 TN (34.5%) over two years. The value of ROW Equities holdings inflated $1.000 TN during the quarter to a record $14.531 TN, with one-year growth of $3.053 TN (26.6%) and two-year growth of $5.436 TN (59.8%). Debt Securities holdings increased $161 billion during the quarter to a record $13.576 TN, with one-year expansion of $705 billion (5.5%) and two-year growth of $1.505 TN (12.5%). Amazingly, ROW Assets have almost tripled since the end of 2008. I’m already looking forward to the Q1 2022 Z.1 report.