Thursday, September 17, 2009

Consumers and Businesses Rebuilding Balance Sheets

The Fed released the latest Flow of Funds statement, which contains a lot of interesting information (Calculated Risk put the "jump" in wealth in perspective). I'll focus my efforts on the shift we are seeing away from consumer and business borrowing (rebuilding their balance sheets) to that of government borrowing, which is more than picking up the slack. Per Bloomberg:

Consumer debt fell at a 1.7 percent annual pace, the fourth consecutive decline. Mortgage borrowing dropped at a 1.4 percent pace from April through June, while other forms of consumer credit fell at a 6.5 percent rate, the Fed’s report showed.

Total borrowing by consumers, businesses and government agencies increased at an annual rate of 4.9 percent last quarter, led by a 28 percent surge in federal government debt, even as household and business debt fell.

Source: Federal Reserve


  1. Jake,

    I really enjoy Flow of Funds data. Now more than ever. When things are this far out of whack financially, you have to have a macro perspective as well as a micro perspective - just ask Buffett who once said if you spend 20 minutes a year worrying about the economy, you've wasted your time. Apparently, Warren didn't get the memo about the new (e)CONomy. He sure got his piece of the bailout though!

    Anyway, look at the FOF net lending and net borrowing. As your chart shows, absent the Government, borrowing was hugely negative. But even more telling is that absent the Fed, lending was negative by over a TRILLION!

    So much for the TARP being used to lend to consumers and productive job creating business endeavors.

    The TARP was used to fill huge black holes in bank balance sheets - we new that going in. But the notion that banks would ever use the money to lend to tapped out households or to small businesses was a ruse. What's worse, now there is even less incentive for banks/creditors to restructure mortgage debts.

    I'd like to know how much of the TARP and AIG pass through bailouts are being used to speculate on existing paper assets. If people only understood the size and scope of this historic rif-off.

    The biggest swindle in history. The greatest story never told.

    Great blog!

  2. Another interesting story in the F-O-F data involves stock valuation. It you look at the balance sheet tables, you can get a series of market-to-book ratios for the US corporate sector. On a scatter graph, this correlates well with forward 10-year returns (as does, Schiller P/E, Q-ratio and most every other multi-decade valuation measure). At the levels of the last report, it was implying about a 10% annual return. It's undoubtedly gone down since then.

  3. Jake,
    I am a long time reader and occasional comment leaver. I wanted to ask your policy on using your graphs (from tonight, the growth of federal debt vs houshold and business)? I see you include a EconomPic label, and I would give full credit and a link back as well. Is is acceptable to "borrow" your graphs?
    Thanks for all the great work.

  4. If you want to give other people blanket approval to use your charts provided they are attributed properly, I'd suggest a Creative Commons Licence:

  5. feel free to use anything you like. a link back is all i ask for. thanks!