Though the data are always a bit dated, the Fed’s Flow of Funds report is always of interest to me, as it paints fairly comprehensive pictures.  My favorite part of the release is Table B.100: Balance Sheet of Households and Nonprofit Organizations, in which much can be gleaned about the health of households in the United States.  Because the data are slightly stale, I usually don’t get around to reviewing this release until a few days after it prints.

In the most recent release, dated March 8 and running through 2011Q4, we learn that the peak-to-trough decline in residential real estate valuation is now about $6.75 trillion.  We peaked in 2006Q4 at $22.711190 trillion and just hit another trough – of $15.963550T – in 2011Q4.

After a cliff-dive, owners’ equity in real estate as a percentage of household real estate has continued its descent, albeit at a bit of a slower pace, and now stands at 38.4 percent.  It’s almost unfathomable that several decades ago this metric stood over 80 percent — people, not banks, owned their homes:

(Click through all for ginormous)

Again after a quick (and painful) cliff-dive, household net worth recovered a bit and has now stalled out a bit.  We’re currently at $58.455138T, after having peaked in 2007Q2 at $66.838725.5T, so there’s a lot of work to be done here.

After a vertical ascent during the recession/crisis, it appears American households are now shedding some of their Treasury securities (peak ownership was 2010Q3).  It will be interesting to see if this move pans out over the intermediate term, or whether it backfires if global growth slows dramatically and/or economic catastrophe befalls the Eurozone.

From another Fed report, on Consumer Credit, the parabolic rise of Student Loans should be noted.  This rise, which I’ve been Tweeting about each and every month, has been giving the monthly releases a healthier feel, but beneath the surface it’s all been about Student Loans.

Stripping Student Loans from Total Consumer Credit gives us a bit of a different picture than has generally been portrayed.  While there are signs of stabilization, that’s about all that can be said.  Without Student Loans, there’s little growth to speak of:

Catch up with me on Twitter: @TBPInvictus.

Category: Credit, Current Affairs, Data Analysis, Economy, Research

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

11 Responses to “A Quick (and Belated) Look at Flow of Funds”

  1. The Window Washer says:

    Thanks for making me lazy.

    Now if you’ll just throw in a couple more charts on revolving credit and something about business debt vs cap ex I’d never ever have to look at Z1 again.

    I stopped looking for the releases and just wait for your post, then if you don’t cover something I’m interested in I go look for it.

  2. Frilton Miedman says:

    I watch Kudlow for laughs, that’s it. (the idea that plutocracy, monopoly & bribery is a “free market”…pure comedy)

    Average Americans have seen enough Reaganomics, trickle-down and “job creating” tax schemes to last at least another century.

    Somewhere above, Marriner Eccles looks down with a sad expressions, wondering how exactly what he pinpointed as the cause of the Great Depression could only several decades later be used as a political campaign slogan – “trickle down”.

    Meanwhile, the Fed just cuts rates to nothing so we can just keep borrowing to offset the increasingly obvious mistake.

  3. socaljoe says:

    Can’t help wondering what household net worth looks like on a per capita, inflation adjusted basis, over the last 60 years. Has our real wealth peaked?

  4. sellstop says:

    Some good things to ponder there Barry.

    Homeowner equity: declining from the 50′s to the mid 60′s. Probably the WW2 vets buying homes. Not a bad thing. Then levels off till the early 80′s when Reagan jumpstarts the govt. debt/inflation/money printing….and then the 5th wave in the debt supercycle in the 2000′s.

    The “Net worth” chart is a reflection of inflation……………

    The Treasury chart is interesting. Declines during the stock market “bubble” till the early 2000′s, then a decline. And then a rapid return to treasury’s with the stock market/housing crash. I am surprised more haven’t moved out of bonds. Perhaps there is a long way to go with stocks if money move out of UST. Even if it is not rational it could be another “reflexiv” cycle. That seems to be the style of the markets these last few decades…..

    And the consumer loans minus the student loan charts are distressing. Why do we get optimistic when we see people taking on more debt? Answer: because we are a consumer/service economy and we have all been trained over the last 30 years that debt is the answer to the growth problem. Growth, whether we acually need it or not. It has only been growth in the money supply….. Inflation…. But that is the carrot on the stick that we seem to respnd to despite our recent travails…………….
    But the student loan thing may not be all bad if we can just figure out something for these re-educated workers to do. I suppose they will be really good at the cash register at McDonalds…

    Where is that Merlot????

    gh

  5. DeDude says:

    I seem to remember that part of the 4.5 fold increase in the student loan metrics is because it only reflects government student loans, and Obama took away some of the predatory private loans by making more government loans rather than government loan guarantees. So that drastic increase in the government student loan metric has a flip side with reduction in private bank loans to students.

  6. dead hobo says:

    Invictus,

    Here’s something less objective, but important to me.

    Yesterday on a shopping trip I noticed empty parking lots and FULL stores. My take-away was that retail would look good in the April report and people are coping with high oil prices by using less oil via ride sharing.

    Taking it further, the recovery is progressing and the US equity markets will probably follow until a liquidity crisis occurs. I wondering about s&P 1550 well before end of year. Also, I’m back in the markets after a few weeks out due to Greek and European uncertainties. (The funds I was in went sideways during that time so I didn’t lose much in foregone gains.) All are US equity oriented funds with a 30 day holding period. I’m applying a buying program of about 15% per buy every few days and will continue until about 80%+ invested unless things get suddenly shaky (unlikely).

  7. dead hobo says:

    Addendum:

    HFT controls equity prices and markets. Game theory suggests that sideways will be the new ‘overbought’ correction when computers are trying to profit from each other. I strongly suspect real corrections will be caused by liquidity events and will max out at 5% to 10% unless a world ending event occurs, at which point central banks will start adding green to keep the banks open. Flash crashes running a couple of days for a few percent will be the new normal with respect to sudden index falls. I’m half looking for something like this as a sell in May event.

  8. ironman says:

    Invictus – nicely done!

    There’s more going on with the extremely rapid growth of student loans than most might realize – given the changes that have occurred with them in recent years, they really have become the equivalent of taxes, but instead of the “rich”, they’re aimed at the lower-to-middle class. It’s not an accident that they’ve taken off!

  9. InterestedObserver says:

    I tend to look at data such as net worth, and wonder why the sensible and rational log scaling isn’t employed in the data. Linear scaling is so misleading/obscuring for this type of data.

    If you view it in log coordinates, the dot.com and housing credit bubbles are clear off trend periods and right now we’re basically on trend from the ~1987 to ’94 period. One could speculate on the underlying causes in the trend shifts (1950-’67, 1968-86, then 1987-94 which is rejoined in 2008), but it sort of looks like steady expansion in the post war period, then acceleration with the consumer/other electronics boom, then recovery of steady expansion. Growth in the 1950-67 and ’87-94 plus 2008 onward segments are parallel with the offset due to ’68-’86. Dates are rather rough. Since this is a total view, income inequality and so on are missed, but it seems more appropriate than the linear view.

    Invictus: Log is an option at the Fed site, as it is at the St. Louis Fed. Perhaps next time.

  10. InterestedObserver says:

    Thanks for the reply Invictus.

    It’s a numeric wash for small range plots. However, when the dynamic range is large and the natural state is one in which changes are compounded over time, log is a more natural choice of scaling, at least to my eyes and brain. I’m sure most folks here have worked through the mathematical rationale, especially for getting a macro views of things.

  11. AHodge says:

    Nice
    the student loan and consumer debt alone worth it-colleges a growth area
    % home owned from the 50s is a funding ramp includes FHA and Fannie etc not a bad thing early
    i remember being astonished in the 90s it was still at 60%,
    but that was mostly price gains, before they were massively refied and borrowed away