Thursday, March 8, 2012

Wealth, Debt, and the Fed

The Federal Reserve released their quarterly Flow of Funds report today, which for a data nerd like me is just about as good as it gets. Unfortunately, not too much to report in terms of change, but I will highlight a few things that I've touched on in the past.

I've shown the data within the first chart a few times. The data is pulled from table D.3. of the report and it shows the cumulative change in outstanding debt by a few private sectors, as well as the federal government. As the private sector deleverages, the public sector has leveraged up in an almost perfect mirror image. The fact that the public sector has leveraged up, has (in my opinion) prevented a debt deflation cycle. My thought is we won't be out of the bag until the private sector is able to leverage back up (like it or not). The good news is we're close.

The next chart from table B.100.e outlines where the average U.S. citizen sits in terms of wealth, shown below in real per capita terms (which puts some perspective on Andrew Schiffs complaint that he can't live a middle class lifestyle on $350,000 / year when the average person is worth about half that). The obvious issue is that we're still only slightly above 2001 wealth levels, having suffered a decline in 2011, despite the unprecedented help by the Fed that has pushed up (or at a minimum supported) asset levels. Also interesting to note that the overall level of real assets per person is only slightly above 2008 levels, while wealth is a bit higher due to the deleveraging done by the average consumer. I would note the other issue of wealth disparity being at or near all time highs likely means that median real per capita wealth is substantially lower.

Source: Federal Reserve


  1. I am a little confused by your assertion that we are close to the end of the private sector deleveraging cycle. I am not here to dispute that consumer credit looks like it should soon cross the threshold, but clearly the greatest deleveraging has been happening in the "financial" category. Until that begins to show signs of stabilization, I doubt the consumer will be able to pick up the slack.

    Maybe I missed something, I don't know much about this data beyond the charts I am looking at here.

  2. My assumption we are near the end is based on the rate of change within the financial sectors deleveraging. Similar to the consumer, the financial sector (mainly securitized sector including GSE's) is almost there.