The Biggest Bubble Ever, In Three Charts

Authored by John Rubino via,

Each quarter, Credit Bubble Bulletin’s Doug Noland posts a “flow of funds” report that analyzes the debt and securities markets data released by the Fed in its Z.1 Report. It’s always shocking to see the numbers we’re dealing with, but even more so lately as history’s biggest financial bubble starts to dwarf its predecessors.

Here’s some of the scarier data in chart form, with Noland’s commentary:

To the naked eye, percentage debt growth figures for the most part don’t appear alarming. But there’s several unusual factors to keep in mind. First, the outstanding stock of debt has grown so enormous that huge Credit expansions (such as Q3’s) don’t register as large percentage gains. Second, overall system debt growth continues to be restrained by historically low interest-rates and market yields. Debt simply is not being compounded as it would in a normal rate environment. And third, it’s a global Bubble and a large proportion of global Credit growth is occurring in China, Asia and the emerging markets. U.S. securities markets continue to be a big target of international flows.


With global Bubble Dynamics a dominant characteristic of this cycle, it’s appropriate to place Rest of World (ROW) data near the top of Flow of Funds analysis. ROW holdings of U.S. Financial Assets jumped $724 billion (nominal) during the quarter to a record $26.347 TN. This puts growth over the most recent three quarters at a staggering $2.124 TN (16% annualized). What part of these flows has been associated with ongoing rapid expansion of global central bank Credit? It’s worth recalling that ROW holdings ended 2007 at $14.705 TN and 1999 at $5.639 TN. As a percentage of GDP, ROW holdings of U.S. Financial Assets ended 1999 at 57%, 2007 at 100%, and Q3 2017 at a record 135%.



Meanwhile, the Fed’s Domestic Financial Sectors category expanded assets SAAR $2.841 TN during Q3 to a record $95.213 TN. In nominal dollars, the Financial Sector boosted assets a notable $5.085 TN over the past three quarters, almost 8% annualized growth. Notably, the sector’s holdings of Debt Securities surged a nominal $775 billion in three quarters to a record $25.425 TN. Pension Funds were a huge buyer of Treasuries during the quarter (SAAR $1.075 TN). Over the past three quarters, the Financial Sector boosted holdings of Corporate & Foreign Bonds by nominal $427 billion to $8.026 TN. More very big numbers.


One doesn’t have to look much beyond the booming Rest of World and Domestic Financial Sector to explain ongoing over-liquefied securities markets. The numbers confirm a historic financial Bubble.


Total Equities Securities jumped $1.229 TN during the quarter to a record $43.969 TN, with a one-year gain of $5.923 TN (16.4%). Equities jumped to a record 224% of GDP, compared to 181% at the end of Q3 2007 and 202% to end 1999. Debt Securities gained $171 billion during Q3 to a record $42.385 TN, with a one-year gain of $1.080 TN. At 217% of GDP, Debt Securities remain just below the record 223% recorded in 2013.



This puts Total (Debt & Equities) Securities up $1.400 TN during the quarter to a record $86.080 TN. Total Securities inflated $7.003 TN, or 9.1%, over the past year. Total Securities experienced cycle tops of $55.261 TN during Q3 2007 and $36.017 TN to end March 2000. Total Securities ended Q3 2017 at a record 441% of GDP. This outshines the previous cycle peaks of 379% for Q3 2007 and 359% at Q1 2000. One more way to look at post-crisis securities market inflation: Total Securities ended Q3 $30.819 TN, or 56%, higher than the previous cycle peak in Q3 2007.



There’s no doubt that financial sector leveraging and foreign flows (especially through the purchase of U.S. securities) continue to play an integral role in the U.S. Bubble. Inflating asset prices and resulting bubbling U.S. Household Net Worth are instrumental in fueling the overall U.S. Bubble Economy.


As we think ahead to 2018, the question becomes how vulnerable U.S. securities markets are to waning QE and reduced central bank Credit expansion. Inflating a Bubble creates vulnerability to any slowdown in underlying Credit and attendant financial flows. And it’s the final parabolic speculative blow-off that seals a Bubble’s fate. It ensures market dependency to unusually large and inevitably unsustainable flows. The Fed’s latest Z.1 report does a nice job of illuminating the historic scope of the U.S. securities Bubble. U.S. securities markets have been on the receiving end of extraordinary international flows, while inflating securities and asset prices have spurred rapid financial sector expansion.

Note that in the two “% of GDP” charts today’s numbers are compared to the previous two bubble peaks when things had gotten so far out of hand that the following year saw massive financial crises. So the fact that we’ve blown through those two previous records portends interesting times ahead.

To sum up Noland’s analysis, the US, along with the rest of the world, has entered full Ponzi, where credit has to continue to rise at unprecedented rates to keep the system from imploding. But the more credit we take on, the more fragile the system becomes. A sudden decline in equities or bonds, geopolitical tensions escalating, cryptocurrencies threatening fiat currencies, you name it, can crack the façade of normality that rising asset prices create.


Memedada SubjectivObject Mon, 12/11/2017 - 12:28 Permalink

So far each "crisis" (for whom?) have been used to consolidate power in fewer hands even further. The next one seems to be designed (with all the division of the plebs going on and the ready to plug and play totalitarian police/intelligence apparatus in place) as the final one. The rhetoric and world view of the indoctrinated in US mirrors that of well-groomed subjects of a totalitarian state. The financial "crisis" will be just that - the end of politics as theatre and no attempt to hide who is in power. If you have a problem with that see you in the nearest FEMA-camp.

In reply to by SubjectivObject

adr Mon, 12/11/2017 - 11:08 Permalink

Yeah, no shit. After being involved in business for three record bubbles in 20 years, I can see a bubble in a glass of chocolate milk from outer space.Funny how real business conditions on the ground have been getting worse every year, yet the stock market keeps hitting record after record. Three major corporate players in my industry have folded in the past two years, even more on on death's door.I ask this question, "If participation in the activities my business provides goods for has dropped 35% since 2008, how can supposed sales and profits for that sector increase 58% in the same time period?"The NRF briefs claim revenue has increased 58%. If you have 35% fewer customers buying your products, how is this possible?

Ajax-1 adr Mon, 12/11/2017 - 11:19 Permalink

I have 2 explanations.1. Your comptetitors sales have increased while your sales have droppped. Let's look at the 4 P's: your customers don't like your product, don't like your service, your price is too high or you are not promoting and advertising your product effectively.or....2. The macro data is completely fraudulent and contrived in support of a political narrative.

In reply to by adr

economessed Mon, 12/11/2017 - 11:12 Permalink

It's all just 1's and 0's in accounting ledgers.  True wealth has not increased.  More debt is not equal to more wealth.  High equity prices do not equal more wealth.  These are all illusions. Print all the money you want on your computer, Central Banks of the world.  You're the puking unicorn of awesomeness.

menchivist Mon, 12/11/2017 - 12:11 Permalink

If this information is accurate then by theery the next market crash will definitely be worse compared to the won in 2008 2009. I think this is what Shepwave was rephering to in their updates for this weeek.  So far they have been precise in market predictions.

Hkan Mon, 12/11/2017 - 13:29 Permalink

Find it strange central banks not having any ace up the sleeve or maybe any cards at all collectively just running this world over the cliff. What do they have in common...collective simultanious financial suicide....seems as its coordinated.  They pick up the phone calling eachother see how faar down the drain they are?