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Page added on December 11, 2017
The Biggest Bubble Ever, In Three Charts
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.
66 Comments on "The Biggest Bubble Ever, In Three Charts"
Go Speed Racer on Tue, 12th Dec 2017 1:54 am
If you’re in debt up to your eyeballs,
and can’t pay your credit cards and
can’t pay the mortgage,
no problem,
just get some AR-15’s with bump stocks.
It’s the American Way.
Makati1 on Tue, 12th Dec 2017 2:12 am
Greg, Davy has no clue about the real world outside the US. He rants and spouts bullshit like it was the gospel truth. I see him as a deluded, probably drugged up, 1%er loser. Not a rational thought in any of his rants.
I do not understand why attacking me is so important to him. I live ~13,000 kilometers (~8,000 miles) from Missouri. What I think could not possibly be of any interest to him or a threat. Yet, I cannot post one comment, not mentioning him, without being attacked and put down. He really does have a mental problem and it seems to be getting worse.
Makati1 on Tue, 12th Dec 2017 2:20 am
Davy, you need help AND a real education. The Russians and Chinese are both setting up alternate banking systems for trade and internal use. You would know that if you weren’t so narrow minded and Amerocentric.
https://www.rt.com/business/180696-china-russia-union-pay/
The ATMs here have the ability to take Union Pay cards. Look at the ATM you visit and see if they have a Union Pay sticker. lol
Antius on Tue, 12th Dec 2017 3:49 am
Enough with the personal attacks people. It gets really tiresome for those actually interested in the subject.
Makati1 on Tue, 12th Dec 2017 4:29 am
Ant, what subject? Peak oil? That is history. Nothing to talk about except guess how many barrels are left or how much it will cost next week, year, in 2020. The site owner knows if he wants hits, he has to give us something to ‘discuss’. Ergo: Articles about climate change, the economy, world events, etc.
I try to post my comments about the subject/articles but then I get attacked by the same narrow minded, deluded idiots who think they have to defend their personal view of the world with putdowns and name calling, not referenced rebuttals.
Sometimes I ignore them and sometimes I reply. For me it is entertainment. I suggest you just ignore their comments and mine if it bothers you. Obviously the site owner doesn’t care, or even encourages it. It’s ALL about $$$.
Cloggie on Tue, 12th Dec 2017 4:46 am
I do not understand why attacking me is so important to him.
Mak, Davy sees you as a traitor of the US empire, not entirely without merrit.lol
Ant, what subject? Peak oil? That is history. Nothing to talk about except guess how many barrels are left or how much it will cost next week, year, in 2020.
Peak oil is dead as a topic. It has become irrelevant as the US oil industry came up with a bridge technology towards a 100% renewable energy base, everybody in the world will have in a few decades.
The real issues of our time are: geopolitial reconfiguration, financial instability, overpopulation, climate change, depletion of resources (such as sofas), water, social instability, etc., etc.
But we do NOT have an energy problem. With energy, the sky, neigh, the universe is the limit.
https://c1cleantechnicacom-wpengine.netdna-ssl.com/files/2016/08/solar-energy-potential.png
With the latest tenders for wind and solar of ca. 2 cent/kwh the energy issue has been resolved. Storage also is no problem at all. It is going to be power-to-gas. That is: electricity converted into hydrogen via electrolysis of water/steam at an efficiency of at least 82% and next possible converted into CH4, methanol, ammonia, you name it:
https://deepresource.wordpress.com/2017/12/11/high-temperature-electrolysis/
Cars, planes, trains will run on hydrogen/fuel/renewable electricity cells.
Better sell your shares in Shell-BP-Texaco now, unless they have a robust renewable energy strategy.
Davy on Tue, 12th Dec 2017 5:37 am
“And why do you feel the need to continue to hide your batshit insane links, behind a tiny url?”
All my links are Tiny. It makes you extremist spend the time to do research. This is another way to irritate you. You should go to the article and debate the article or do you have enough finance background? This condition in China speaks for itself. Are you denying this situation in China? It is a serious situation that most MSM sites you frequent will be loath to go into a detailed discovery over. BTW, mad kat goes to ZH every day for most of his news.
Davy on Tue, 12th Dec 2017 5:39 am
And furthermore extremist,
???
You are drifting off into irrelevance.
Davy on Tue, 12th Dec 2017 5:41 am
“Greg, Davy has no clue about the real world outside the US. He rants and spouts bullshit like it was the gospel truth.”
Translation:
grehg, thanks for coming to my rescue by flanking me. Davy is kicking my ass.
Davy on Tue, 12th Dec 2017 5:44 am
“The Russians and Chinese are both setting up alternate banking systems for trade and internal use. You would know that if you weren’t so narrow minded and Amerocentric.”
No doubt mad kat but get back to me with the dollar volumes of the alternative. You speak about it like it is going to replace the current system. IMA, a current system that is only partially dollar denominated. There is also Europe and Japans contribution which is quite large. What China and Russia are doing is wonderful and smart but no replacement for the current system
Davy on Tue, 12th Dec 2017 5:52 am
“I try to post my comments about the subject/articles but then I get attacked by the same narrow minded, deluded idiots who think they have to defend their personal view of the world with putdowns and name calling, not referenced rebuttals.”
Try again mad kat. You came in swinging yesterday and started it off. It seems when your support system grehg is around you get combative. When he is offline then you try to ignore me. Mad kat why not stay on topic and respectful in the beginning. When you are gone this board is not polarized. That is a fact. You are an extremist magnet. You should show Antius respect and not blow him off. Antius actually gives us very good information that is not peddled agenda like you and your extremist buddies vomit.
Davy on Tue, 12th Dec 2017 6:03 am
“But we do NOT have an energy problem. With energy, the sky, neigh, the universe is the limit.”
Wrong, techno optimist, we have peak oil dynamics that never sleep. We have the energy trap of renewables that will never scale up for technical and human reasons. This scale up will never happen on time. Renewables are not affordable considering the scale and when the economy is hammered into a recession or depression their ability to scale up will be worse yet. The physics of a significantly renewable system are still theoretical and untested. Storage strategies and grid complexity are a huge challenge and one that we show daily are beyond the current status quo’s ability. Much of this problem is human behavior. It is also the economy because the economy cannot be maintained if significant disruption occurs with demand management, conservation and disruptive new technologies confronts it. We are in a catch 22 energetic trap with solutions. The solutions are only mitigation and adaptation strategies to declining net energy quantity and quality. We can use renewables to plug the gap with fossil fuels and NUK for a time. It is a good thing with we have renewables because they can and will make a difference but to a point. A 100% renewable world is fantasy and you constantly peddle this agenda and an agenda of European hegemony.
Antius on Tue, 12th Dec 2017 6:13 am
Cloggie wrote: ‘Peak oil is dead as a topic. It has become irrelevant as the US oil industry came up with a bridge technology towards a 100% renewable energy base, everybody in the world will have in a few decades.’
I beg to differ. What bridge technology exactly? There is nothing on the market that provides the same performance as a gasoline ICE at a comparable price. EV sales are disappointing in spite of heavy subsidies in many markets. Government proposed bans on ICEs will die a death when those countries start suffering severe financial difficulties.
World conventional oil production has been on a plateau since 2005 and has been showing clear signs of decline since 2011. This is the only oil that anyone makes any money from.
http://www.artberman.com/wp-content/uploads/Chart_World-Con-Uncon-1.jpg
The decline in conventional oil is outside of OPEC. The Middle East is now the only region with any capacity to raise extraction rates, although the list of countries able to do this is shrinking even here.
http://www.artberman.com/wp-content/uploads/Chart_Con-OPEC-Non-OPEC-Conv.jpg
Unconventional oil (tar sands and tight oil) have never been profitable and have been sustained only by the huge splurge of money flowing into bonds and equities as a result of quantitative easing. The end of that process will occur when debt loads become unsustainable, which is only a matter of time. A recession (probably no later than next year) will push oil prices down to the $40 mark and kill off tight oil as an industry. At that point, we will see the all-time peak in global liquids production, as the dollar is now too devalued for the fed to risk a fresh round of QE.
print baby print on Tue, 19th Dec 2017 2:25 am
It will be poof indeed
GregT on Tue, 19th Dec 2017 2:51 am
Very good post Antius. Could not have said it better myself.
Boat on Tue, 19th Dec 2017 4:37 am
Oil is oil no matter how you play games with the names. Demand has remained strong with low enough prices no recession will happen next year. Nat gas consumers are also enjoying low prices thanks to robust production.