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June 14, 2005
Bank mortgage credit growth called ‘stunning', Tues., June 14, 2005, 6:56 AM
A couple days ago I received this info in the form of a reader comment. I did not approve it because it could have been a lot of misinformation, and I had no time to review the source data. So over morning coffee today I flipped through 126 pages of Fed data. All I can say is: why is the public not alerted to these facts?
Bill: Picked this up from another blog. Source for data is found at:
http://www.federalreserve.gov/releases/Z1/Current/
First quarter credit growth was stunning, and parabolic. It's amazing they would even think of pausing in raising rates...
Q1 2005 Z.1 "Flow of Funds:
The Credit Bubble remains in a period of spectacular blow-off excess. First quarter Non-financial Debt increased at a 10.0% seasonally-adjusted annualized (SAA) rate. This was up from the fourth quarter's 8.2%. One must go all the way back to 1986 (when 10-year Treasury yields averaged 7.66%) for a year of stronger Non-financial Debt growth (11.9%). It is also worth noting that the first quarter growth rate was almost double the ‘90s 5.37% average annual rate. First quarter Non-Financial Debt expanded a record $2.411 Trillion SAA. This compares to 2004's $1.918 Trillion, 2003's $1.668 Trillion, 2002's $1.321 Trillion, 2001's $1.115 Trillion and 2000's $836 billion. During the decade of the nineties, Non-financial Debt expanded on average $700 billion annually. Blow-off Credit creation excess is now more than three times this pace.
The Credit system is certainly firing on all cylinders. Federal Government borrowings expanded 13.8% SAA, Households 9.3%, Corporate 7.5%, and State & Local 16.2%. Non-federal debt expanded 9.1% annualized, the strongest quarterly growth since Q2 2000. Non-financial Debt was up 8.9% y-o-y. For the quarter, Total Credit Market Debt (non-financial and financial) expanded at a 6.9% pace to $37.31 Trillion (306% of GDP).
The growth of Financial Sector Credit Market borrowings slowed to a rate of 4.8%, as GSE asset growth turned negative. However, GSE stagnation was more than offset by a surge in Bank Credit expansion - bank asset growth predominantly financed by deposits, repos and other non-"Credit Market" borrowings.
Bank Credit expanded an amazing $1.054 Trillion seasonally-adjusted annualized during the quarter to $7.0 Trillion. This was a growth rate of 13.4%. One has to go all the way back to inflationary 1978 (13.6%) to find a year of stronger Bank Credit expansion. Bank Credit expanded at an 11.6% rate during the past six months. This is up from 2004's blistering 9.2% increase and compares to the average annual 7.2% expansion during the five-year period 2000-2004. Bank Credit expanded by an average 6.2% annually during the (supposedly "disinflationary") ‘90s and 8.5% during the (conspicuously inflationary) ‘80s. The first quarter's record nominal Bank Credit increase of $225.6 billion exceeds the $215 billion average annual growth during the decade of the ‘90s (and there has been no letup in bank Credit growth during the second quarter!).
Bank Loans expanded at a 9.5% rate during the quarter and were up 9.9% y-o-y. Bank Loan growth averaged 5.8% annually during the ‘90s. Bank Loans were up 17.5% during the most recent two-year period. Bank Mortgages expanded at a 14.5% rate during the quarter to $2.69 Trillion, with a 12-month gain of 15.4% and two-year rise of 28%. For comparison, Bank Mortgage loans expanded an annual average 6.9% during the ‘90s. Bank Mortgage holdings have increased $360 billion over the past year. This compares to the nineties annual average of $72.5 billion (2000-2004 average $220bn). Or, from a different angle, Bank Mortgage loans expanded $727 billion during the past 10 quarters, compared to an increase of $725 billion during the ten years of the nineties. Bank Credit has now doubled over a period of just less than 10 years."
For some time I have avoided any investment in the U.S. banks. Now I think it would not be overstating the case by saying I have avoided speculating in the U.S. banks.
As for the U.S. government, there might be a legitimate reason for the Fed raising rates "at a measured pace". The debts have grown so rapidly and to such a high level, if the Fed were to raise rates as fast and as far as needed, the U.S. government would be bankrupted.
This seriously is not a good situation.
The USD this morning hit a nine-month high against the currencies of Europe and Japan. On the basis of the figures presented in this Fed report, and the widely anticipated revaluation of the Yuan, why would the USD be so strong?
Could it be that other countries are in even worse shape financially? I don't think so.
When Brazil and Mexico ran into similar problems in the past, the debts held by the U.S. were so great it became a crisis for the U.S. So today with the U.S. in the same situation, I suppose it is a crisis for the rest of the world, and they are being forced to prop up the Dollar. They cannot do that for long.
There is only one strategy that is appropriate today: buy gold; short the USD.
Posted by Posted by Bill Cara on June 14, 2005 06:01:38 AM | Category: Economics
Hi Bill,
It looks like the Kondratieff winter is approaching. Any comments about the K-wave?
A google searched turned up this:
http://www.financialsense.com/transcriptions/Gordon.htm
Posted by: todd at June 14, 2005 11:21 AM [link]