Every quarter, the Federal Reserve releases its Flow of Funds report. This always makes for good reading if you’re a numbers/economic wonk. But it’s especially important now because it tells us a great deal about the depth and breadth of the economic downturn.
For starters, the report showed household wealth plunged $5.1 trillion between Q3 and Q4 of last year. That drop is the most on record (the data goes back to 1952) and it left the net worth of households at $51.5 trillion, the lowest in four years. The decline in the housing market also left owners’ equity as a share of total household real estate holdings at just 43%, a record low.
Some other details: Household debt shrunk at a 2% annual rate, the first decline ever, driven by a 1.6% fall in home mortgage debt and a record 3.2% decline in consumer non-mortgage borrowing. Business debt increased at an anemic 1.7% pace, the slowest since Q4 2003, and state and local debt rose just 1.2%. Federal government debt exploded at a 37% rate.
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hello Mike – I’ve been following your recommendations for many months and wanted to register a response to your latest alert.
In addition to your own and Martin’s forecasts over the last year I have been following Gary Shilling – who has correctly predicted much of what has unfolded – including that 30 year t-bills would reach his long term target of 3%. His latest newsletter puts forth his highly contrarian view as to why the Fed stimulus and increased debt will NOT necessarily lead to explosive yields. I would be very interested to hear your own thoughts and response to his subtle analysis.
thanks for your time and efforts through all this.
Earl Davis
Mike, I just read the email titled, Eureka! The Banking Industry’s Problems Are Solved! The only question I have for all these talks of stimulus and the banking industry is how do we get rid of our student loans? It appears to be the only debt that isn’t written off or paid by the US government under the economic stimulus plan. Bankruptcy laws don’t allow student loans to be discharged. There isn’t a way to invest in this paper.
What are your thoughts?
Dan
Bernanke is on 60 min tonight and we all know the cheerleading will be present, that 37% growth in gov debt was/is necessary. Ron Paul is authoring a bill to audit the Fed Reserve, plz sign his petition on his site. Watch out, the sucker rally is almost over.
Daniel, Student loans are non-dischargeable. If you have been paying them consistently see a good bankruptcy lawyer they know the loopholes.