These are the numbers that illustrate the trend of the shift in debt from comercial and banks to the state.
The "Flow of Funds" illuminates why the collapse of the greatest credit bubble in history has not yet translated into one of the greater economic collapses. Despite financial panic and the freezing up of credit markets, total non-financial credit expanded at a 6.3% annualized rate during the fourth quarter. While down from the third-quarter's 8.1% pace, I would argue that 6% plus credit expansion was about the minimum required to forestall systemic implosion. Importantly, this feat was achieved by the federal government expanding borrowings at a 37% annualized rate.
I am guessing that the drop in 1.6% of household debt would be a combination of people paying down mortgages that were not being replaced by new issued mortgages and debt being written off through bankruptcy.
Sure enough, household mortgage debt contracted at a 1.6% rate during the quarter, with household (non-mortgage) credit sinking at a 3.2% pace. Corporate debt growth, having expanded at a double-digit rate during the first half of 2007, slowed markedly to 1.2%. Yet, despite collapsing markets for private-sector credit, total (economy-wide) compensation for the 4th quarter was actually up 1.9% y-o-y to a record (annualized) $8.096 trillion. For the year, national income was up 1.5% to a record $12.453 trillion, with total compensation up 3.1% to $8.058 trillion.
"Asset backed securities" include the infamous CDO's.
Remarkably, domestic financial sector debt growth accelerated from Q3's 6.8% pace to a 7.2% rate of expansion. On a seasonally-adjusted and annualized rate (SAAR) basis, total financial sector borrowings jumped to $1.222 trillion during the quarter. This was in the face of the asset-backed securities (ABS) market contracting SAAR $616 billion. This critical contraction in private sector credit was, however, largely offset by combined growth in government-sponsored entities' (GSE) debt and mortgage-backed securities (MBS) growth of SAAR $569 billion. Bank commercial loans expanded SAAR $858 billion, while open market paper increased SAAR $341 billion.
Combined federal and quasi-federal securities outstanding ballooned an incredible $1.955 trillion in just one year. For comparison, Treasury and the agencies combined to increase debt securities $1.146 trillion during 2007, $514 billion in 2006 and $390 billion in 2005. This ramp up of government credit growth is outdoing even the historic surge in mortgage credit during the mortgage finance bubble years.
Bugger me and the stimulus package is still to be accounted for.
At the Federal Reserve, total assets expanded an unmatched $729 billion during the quarter to $2.270 trillion, with one-year growth of 139%. Washington should feel quite fortunate that the markets continue to accommodate such alarming debt expansion at such meager little interest rates. There is no mystery why the Chinese and our other creditors are increasingly disturbed by our government's borrowing habits.
I am not 100% sure what total household assets are.... I am guessing the total value of your house and contents, reflecting the falling house market????
During the fourth quarter, total household assets dropped a record $5.419 trillion, or 31% annualized, to $65.719 trillion. Wow! Financial asset values sank a record $4.537 trillion (to $40.814 trillion), and real estate dropped a record $871 billion (to $20.512 trillion). Little wonder auto purchases and retail spending went into a tailspin, as household net worth shrank a record $5.110 trillion during the quarter (to $51.477 trillion).
I am not a flat out panicked as I was this time last year, this guy seems to be in a similar place.
I suppose I'll for now reside in the camp that believes the system is perhaps not as acutely unstable today as many fear. The unfolding government finance bubble is - until it isn't - a major stabilizing force. Government finance by its nature will not exert sufficient stimulus to rejuvenate deflating asset markets, but it is nonetheless playing a major role in underpinning wages and incomes.
Up shit creek but almost still clinging on to a paddle.......
And this hints at the possible.......
But such extraordinary stabilization does not come without a heavy price. I am firmly in the camp that believes that Washington is now trapped in a massive inflation of government obligations - the latest round of historic credit inflation captured clearly throughout the Q4 2008 "Flow of Funds" data. The worst-case scenario unfolds when our creditors and the marketplace turn against these government obligations.