Thursday 8 June 2017

Fed Flow of Funds Z1 survey - margin compression vs corp releveraging

Some margin compression offset by corporate leveraging up.

If the Fed borrowing numbers are wrong then Q1 borrowing was: Household ($474bn), Government (Fed $524bn, State $108bn) Corporate ($833bn), so a total of  $1.94Tn - seasonally adjusted, annualised. Or about 10% of GDP, vs a dwindling GDP growth rate. Excluding business borrowing, (so just household and government borrowing, which is basically financing consumption and supporting final demand) it was still about $1.1Tn annualised, vs $19Tn GDP, or 5.8% of GDP.

Q1 GDP increased in nominal terms by $158bn, or $630bn annualised, so if total debt is growing $1.94Tn annualised that is a ratio of 3x debt growing faster than GDP. If you just use household and government debt its roughly 1.75x faster.

Obviously increases in interest rates will require greater debt creation to support final demand/ growth etc. until sch point the Fed triggers a recession. (Unless like Bernanke you believe there are no meaningful differences in savings rates across the economy). 

Foreigners also borrowed circa $500bn in Q1, clearly signalling a weak USD view.

I received this on the data relating to Federal borrowing when there is a debt ceiling standoff:

'These are the correct values. The Federal government numbers reflect extraordinary measures taken in March 2017 by the Department of the Treasury to avoid reaching the statutory debt ceiling. These measures include suspension of future investment in certain federal employee retirement programs and suspension of reinvestment to the Thrift Savings Plan G fund (among others). In the Financial Accounts of the United States, Federal government retirement plan obligations are included in the measure of Federal government debt. This methodology differs from the Treasury.

Additional resources:

Federal Debt in the Financial Accounts of the United States

The Federal Debt-Limit Standoff of 2013 in the Financial Accounts of the United States'

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