Federal Reserve Q1 2024 Z.1 “flow of funds” report.
Non-Financial Debt (NFD) expanded at a seasonally adjusted and annualized rate (SAAR) of $3.339 TN during Q1 to a record $74.587 TN. Q1 growth was down somewhat from Q4’s $3.429 TN - but up significantly from Q1 ‘23’s $2.639 TN. For perspective, prior to Covid year 2020, 2007 held the record for NFD growth at $2.530 TN.
Total Household debt growth jumped to SAAR $578 billion from Q4’s $450 billion, with Mortgages increasing to SAAR $280 billion. Total Business borrowings rose sharply to SAAR $834 billion (from Q4’s SAAR $136bn), with Corporate borrowing surging to SAAR $658 billion after Q4’s SAAR $16 billion contraction. It was the strongest quarter of Corporate Credit growth since Q2 2022. At SAAR $99 billion, Q1 posted the strongest State & Local Government borrowings back to Q2 2021. And at SAAR $312 billion, Rest of World boosted borrowings in the U.S. at the briskest pace since Q3 2022.
And while all sectors increased borrowings during the quarter, it was the Federal Government that continues to power system Credit excess. Federal borrowings expanded SAAR $1.828 TN (to a record $26.809 TN), down from Q4’s SAAR $2.878 TN - but up significantly from Q1 2023’s SAAR $1.195 TN. Treasury Securities increased nominal $582 billion. One-year Treasury growth of $2.527 TN (10.4%) matched record pre-Covid total system NFD growth. Over 16 quarters, Treasury Securities inflated a staggering $7.208 TN, or 37.9%. Since 2007, Treasuries have ballooned $20.757 TN, or 343%.
At $32.438 TN, Total Treasury Liabilities ended the quarter at a record 115% of GDP, up from 99% to end 2019 and 55% to conclude 2007.
GSE growth has slowed markedly. After expanding $1.115 TN in the four quarters ended Q1 2023, Agency Securities basically flatlined during Q1 at $11.974 TN. Combined Treasury and Agency Securities ended Q1 at a record $38.782 TN, or 137% of GDP. With FHLB contracting $42 billion, GSE Assets declined $26 billion during Q1 to $9.315 TN.
Corporate Bonds expanded nominal $230 billion to a record $15.827 TN, with the strongest two-quarter growth ($543bn) since Q2/Q3 2021. Non-Financial Bonds expanded $112 billion, the largest increase since Q1 2023. Domestic Financial (i.e., bank and broker) Bonds gained $76 billion to a record $4.787 TN. ABS expanded another $22.2 billion, with growth at a 9.5% pace over three quarters (to a record $1.391 TN). Broker/Dealers issued bonds at the strongest rate ($22bn) in two years. Finance Company bonds expanded $35 billion to a record $1.114 TN, with one-year growth of $106 billion, or 10.6%.
Total Debt Securities expanded nominal $885 billion (6% annualized) to a record $59.986 TN, with one-year growth of $3.093 TN. Debt Securities inflated $16.288 TN, or 37.3%, over 18 quarters. Total Debt Securities ended the quarter at 212% of GDP, versus previous cycle peaks 194% at Q1 2008 and 147% to end 1999.
Equities inflated $6.470 TN during the quarter to a record $84.040 TN, with two-quarter growth of $13.477 TN (matching the gain from the 2020 Covid recovery). Equities ballooned $15.255 TN, or 22.2%, over the past year and $33.270 TN, or 65.5%, over 18 quarters. Equities ended March at 297% of GDP. This compares to previous cycle peaks 188% during Q3 2007 and 210% to conclude 1999.
Total (Debt and Equities) Securities surged $7.355 TN to a record $144.026 TN, with one-year growth of $18.349 TN (14.6%). Total Securities ended the quarter at 510% of GDP, up from pre-Covid Q4 2019’s 454% and compared to previous cycle peaks 376% (Q3 2007) and 357% (Q1 2000). Total Securities ballooned $59.558 TN, or 52.5%, over the past 18 quarters.
Broker/Dealer Assets expanded $282 billion, or 23% annualized, during Q1 to a record $5.158 TN. Debt Securities holding surged $93.8 billion to a 14-year high $542 billion, with one-year growth of $121 billion, or 28.8%. The Broker/Dealer Loans asset expanded $36.2 billion (to a six-quarter high $688 billion), the strongest growth in 11 quarters. The repo market continues to be the chief source of funding for Broker/Dealer securities holdings. Repo Liabilities surged nominal $171 billion to a record $2.281 TN, with one-year growth of $262 billion, or 13.0%. It’s worth noting that five-quarter growth of $655 billion is the strongest since the 2006/07 Bubble period.
Money Market Fund (MMF) Assets expanded $81 billion to a record $6.441 TN, with one-year growth of $748 billion, or 13.1%. Treasury holdings surged $294 billion during the quarter, as MMF liquidated $284 billion of repo positions (winding down Fed reverse repo). Money Fund Assets inflated an unprecedented $2.438 TN, or 51.2%, over 17 quarters, in one of history’s great monetary inflations.
Federal Reserve Assets declined nominal $320 billion to $6.473 TN, with a one-year contraction of $1.274 TN. Treasury holding declined $227 billion to $4.176 TN, while Agencies shrank $92 billion to $2.029 TN. Total Liabilities fell $291 billion to $7.482 TN. The Fed’s Securities Repo Liability dropped $414 billion to $977 billion (down $1.766 TN y-o-y). The Liability “Bank Reserves” jumped $211 billion to $3.346 TN
With the Fed winding down its Repo operation, the Total Federal Funds and Security Repurchase Agreements Assets declined $198 billion during Q1 to $6.709 TN. Money Market Fund repo holdings contracted $284 billion to $2.382 TN (down $854bn y-o-y). Meanwhile, Broker/Dealer repo borrowings jumped $171 billion for the quarter and $262 billion y-o-y. ROW repo Liabilities were little changed for the quarter, but up a notable $461 billion over five quarters to $1.622 TN. Excluding the Fed’s position, the repo market expanded $198 billion during the quarter to a record $4.981 TN, with five-quarter growth of $1.306 TN, or 36%.
The banking system balance sheet also exemplifies the dominance of securities finance. Bank (Private Depository Institutions) Assets expanded $232 billion, or 3.5% annualized, during Q1 to a record $26.387 TN, with one-year growth of $262 billion, or 1.0%. Loans actually contracted $35 billion for the quarter to $14.447 TN (up $308bn, or 2.2%, y-o-y). Mortgages increased $30 billion, or 1.8% annualized, to a record $6.772 TN, while Consumer Credit contracted $58 billion, or 8.4% annualized, to $2.706 TN. Meanwhile, Debt Securities holdings rose $113 billion, or 7.5% annualized, led by a $100 billion increase in Treasurys (to $1.615 TN) and $46 billion jump in Corporate bonds (to $954bn). Total Debt Securities holdings ballooned $1.490 TN, or 31.8%, over 17 quarters.
The Household Balance Sheet remains fundamental to Bubble Analysis. Household Assets inflated $5.182 TN during the quarter to a record $181.429 TN. And with Liabilities up $65 billion, Household Net Worth surged $5.117 TN to a record $160.844 TN. Net Worth inflated $12.946 TN, or 8.8%, y-o-y; $24.457 TN, or 17.9%, over three years; and $50 TN, or 45.1%, over four years.
For the quarter, Real Estate holdings rose $907 billion to a record $49.997 TN, with three-year growth of $12.027 TN, or 31.7%. Financial Asset holdings inflated $4.178 TN during Q1 to a record $122.516 TN, with Total Equities (Equities and Mutual Funds) surging $3.261 TN. Total Equities ended March at 162% of GDP, up from pre-Covid (Q4 ’19) 143% and previous cycle peaks 104% (Q3 2007) and 116% (Q1 2000). Household Net Worth ended Q1 at 569% of GDP, up from pre-Covid 537% and previous cycle peaks 488% (Q1 2007) and 444% (Q1 2000).
Household holdings of liquid assets (Treasuries, Agencies, Deposits and Money Funds) rose another $123 billion during Q1 to a record $21.859 TN. These liquid assets inflated $897 billion (4.3%) over the past year; $3.441 TN (18.7%) over three years; and $5.398 TN (32.8%) over four years.
Rest of World (ROW) holdings of U.S. financial assets inflated $2.777 TN during Q1 to a record $50.897 TN. Debt Securities increased $129 billion to a record $14.006 TN, with Treasuries rising $80 billion (to $8.136 TN) and Corporate Bonds gaining $60 billion (to $4.209 TN). Debt Securities were up $1.054 TN over the four quarters (Treasuries $578bn, Agencies $122bn, Corporate $398bn). Holdings of Total U.S. Equities jumped $1.240 TN to a record $15.744 TN. Repo Liabilities added $3bn to a record $1.622 TN, with one-year growth of $350 billion, or 27.5%. ROW holdings jumped $7.647 TN, or 17.7%, over the past year and $14.934 TN, or 41.5%, over 15 quarters.