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Q1 Flow Of Fund Indicates Ongoing Private Sector Credit Contraction, Consumer Wealth Growth Due Purely To Equities
The Federal Reserve has released the most recent Flow Of Funds Statement (Z.1). Plenty of data in there and we will provide a more in depth analysis later, but here are the highlights. Total household Net Worth increased by $1.1 trillion from $53.4 trillion at Q4 2009, to $54.6 trillion at March 31, 2010. However, of this incrase, the vast bulk was purely on "paper" - $0.8 was due to an increase in direct and indirect holdings of equity instruments. Credit market instruments also increased in net worth but only slightly, accounting for the balance of the increase. Decreasing components were tangible assets, which declined by $67 billion, and physical deposits, which declined by $104 billion. As the bulk of the equity instruments gains have been paper based, it is safe to say that consumer net worth as of June 30, will be materially lower than this most recent report indicates. We will therefore likely see a material decline on household net worth when it is released in early September. As for credit in the system, thank god for the government. The US government added $0.4 trillion in total debt outstanding, even as credit at the domestic financial sector declined by $0.6 trillion: the fourth sequential decline in the domestic financial sector. Consumer credit, after posting a sixth sequential decline, dropped by $10 billion, as did Home Mortgage debt ($100 billion). The private to public debt transfer continues. Total credit (domestic financial and non financial) as well as foreign, declined by $300 billion quarter over quarter. The deflationary deleveraging continues.
Total household net worth by component:
QoQ change in household net worth:
Total debt outstanding by holder:
QoQ change in total debt outstanding by holder:
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Total credit market debt page 67/125 is where the action is, and always has been.
The only way you get out of the death spiral is to get back to $4-5T of new credt expansion annualized and continue to grow it exponentially but....
the horse is dead and beating it further is not going to make him run faster.
It's over, but the Lemmings will continue to believe they can get out if not, the system would collapse this second.
"thank god for the government."
Correct. Without the government the system would have been over ran a year ago. Eventually they will get ran over as well. Temporary postponement of the final result, but thanking the government is like thanking a doctor for removing your brain if you had brain cancer.
Too bad ZH doesn't have a paging feature. I was going to alert you about the release, but here you are, responding first. Denninger has been waiting for this report as well; he has been chafing at the bit to update his chart.
Btw, for others who may wish to peruse the report, page 67 refers to the PDF reader. The actual physical page number is 60, section L.1 Credit Market Debt Outstanding. The key numbers to look for are the declining household sector (line 3) and the ballooning federal sector (line 8), and the 800 lb gorilla, GSEs (line 18).
As Mako notes, even with that level of intervention, total credit outstanding continues to decline.
The biggest failing(s) of Keynesian theory is assuming that total aggregate demand was the be-all & end-all ie there isn't any difference between public & private credit/investment/consumption.
That is totally, utterly & completely wrong, as we can see from this report. Private demand creates velocity, because "animal spirits" are chasing returns. When government provides the spending, everyone kicks back to watch the show, which is exactly what we are seeing with unemployment, bail-outs, temporary jobs, and whatever else the central planners dream up.
Hence, the recent epiphany by one Jeffrey Sachs. We must allow the malinvestment from the previous bubble cycle to be destroyed so that capital can be re-deployed in new areas of - market determined - growth.
I broke it down a few postings back or you can go here.
http://worlddarkestdays.blogspot.com/
"the horse is dead and beating it further is not going to make him run faster. "
Reminds me of the old story: a savy young farmer chose to buy an old horse from an old farmer and pre-paid $100. Upon collecting the horse, the young farmer learned the horse had died. The young farmer demanded his money back, but the farmer stated he already spent it, it was gone. The younger farmer developed a plan and went on to start a raffle where he offered a chance to win a horse with the purchase of a $1 ticket. He sold well over a hundred tickets and finally drew a winner. Upon collecting the horse, the winner discoverd the horse was dead. The savy young farmer then refunded the winners $1 ticket.
Yeah, fraud in = fraud out.
This goes like this..
THE DEAD DONKEY
Young Chuck moved to Texas and bought a donkey from a farmer for $100.00.
The farmer agreed to deliver the donkey the next day.
The next day he drove up and said, ‘Sorry son, but I have some bad
news, the donkey died.’
Chuck replied, ‘Well, then just give me my money back.’
The farmer said, ‘Can’t do that. I went and spent it already.’
Chuck said, ‘OK, then, just bring me the dead donkey.’
The farmer asked, ‘what ya gonna do with him?
Chuck said, ‘I’m going to raffle him off.’
The farmer said ‘You can’t raffle off a dead donkey!’
Chuck said, ‘Sure I can watch me. I just won’t tell anybody he’s dead.’
A month later, the farmer met up with Chuck and asked, ‘What happened
with that dead donkey?’
Chuck said, ‘I raffled him off. I sold 500 tickets at two dollars
apiece and made a profit of $898.00.’
The farmer said, ‘Didn’t anyone complain?’
Chuck said, ‘Just the guy who won. So I gave him his two dollars back.’
Chuck now works for Goldman Sachs.
The stock and bond market illusions are all they have left. Everything else is permanently busted and they know it.
Looks like the FX markets sem be another illusion of their control. ECP intervention had little ability to control the Euro slide, but Bernanke seems to have been able to give the Euro some traction.
speaking of illusions why is the market ignoring the tanking of gs?
Because GS' short position on GS ensures more liquity to prop up the futures market? With zero days of trading loses for GS, I would assume it matters not if stocks go up or down as GS seems to have the right position for every move.
OT: Proposed 3% cellphone tax and online newspaper tax to support Print Newspaper?
http://www.rasmussenreports.com/public_content/business/general_business...
What the fuck planet do we live on where we are even considering something this ridiculous. Print newspapers are dead and their only purpose lately has been to promote propoganda and to be used as a political tool to herd the masses. This is outrageous.
We are greatly indebted to the many journalists, newspaper publishers and editors ... YES ONLY ZH!
http://www.ftc.gov/opp/workshops/news/jun15/docs/new-staff-discussion.pdf
You know, I really appreciate the (I hope!) balanced commentary on the numbers that come out. It seems like the mainstream media just takes the announced number and tries to spin it positive, and to make it look like they know what they're talking about. But there's more to the story than just the raw data that came out... it has to be compared and contrasted with other data in order to form a conclusion. That's something you don't find on the TeeVee.
Thanks, Tyler & co.
You are assuming the mainstream media has any understanding of what these numbers mean. You might want to re-think that.
http://twentypercent.tv/2010/06/10/taleb-the-u-s-economy-isnt-getting-better-its-getting-worse/
Money as debt was a great idea, until it wasn't .
Couldn't the economy be restarted if everyone started borrowing to buy equity?
Why doesn't the government create a Fannie Mae-like organization to help every American citizen experience the joys of equity ownership?
They sure had no problem doing that with the housing market. Why not the equity markets? They're sure chronically undervalued anyways.
I'm in, provided there is a loophole so I can strategically default on equities that tank. Why should I have to pay for bad investments?
They already did this ... with certain caveats.
If you were "well connected" and (re)classified as a "bank holding company" then you had access to the trough called TARP.
A giant squid comes to mind ...
Reminds me of the dot-com boom when middle class families looked at their portfolios and 401k market-price totals, and discovered that they had become "rich." Only a very few cashed out anywhere near the top but most rode it to the bottom, and for them, all that money essentially never existed. Much of the "wealth effect" that boosted the real economy came from these folks buying things on credit, as though the new debt was somehow covered by paper profits. But that unrealized profit effectively never was; only the debt was real.
That's exactly right, I believe. We are so fooled into thinking that the stock market is just another bank that guarantees a long term return of about 8-10% per year. What a crock. The big boys just need our money so they can play their swap and derivative games with each other. When they're done, they'll give you back your original investment, if there's any left.