Q2 Flow Of Funds Report: Consumer Still Levered Even After Market Rally Adds $2 Trillion In "Net Worth" Paper Profits
Debt of the domestic nonfinancial sectors is estimated to have expanded at a seasonally adjusted
annual rate of 5 percent in the second quarter of 2009, about ¾ percentage point faster than in the previous
quarter. Private debt contracted in the second quarter while government debt expanded.
Household debt contracted at an annual rate of 1¾ percent in the second quarter, marking the fourth
consecutive quarter of contraction. In the second quarter, home mortgage debt decreased at an annual
rate of 1½ percent, while consumer credit decreased at an annual rate of 6½ percent.
Nonfinancial business debt contracted at an annual rate of 1¾ percent in the second quarter, the
largest quarterly decline since 1993. The decline was concentrated in commercial paper, loans, and
commercial mortgage borrowing.
State and local government debt expanded at an annual rate of 8¼ percent in the second quarter, 3½
percentage points faster than in the previous quarter.
Federal government debt increased at an annual rate of 28¼ percent in the second quarter, up a bit from the
first-quarter pace but still lower than the nearly 40 percent pace of growth posted in the second half of
At the end of the second quarter of 2009, the level of domestic nonfinancial debt outstanding was
$34.4 trillion; household debt was $13.7 trillion, nonfinancial business debt was $11.2 trillion, and total
government debt was $9.5 trillion.
Household net worth—the difference between the value of assets and liabilities—was an estimated
$53.1 trillion at the end of the second quarter of 2009, $2.0 trillion dollars more than in the preceding quarter and the first increase since 2007:Q3.
Below is the chart comparing total household mortgage and consumer debt:
And here is the reason why a historic and unprecedented market squeeze can be read as adding $2 trillion dollars in Household Net Worth. The question, however, of what happens when paper profits are converted into actual ones, will be answered eventually, hopefully with the valuable liquidity providers present at the table.