Flow of Funds Implies Dramatic Cut in US Lending
CreditSights has an interesting analysis of the latest US Flow of Funds data that implies a dramatic reduction in lending to consumers and businesses in the next several years.
- Household debt contracted at an annual rate of 2 percent in the fourth quarter but actually rose as a percentage of GDP, from 73% to 73.6%. Household net worth was $5.1 trillion less than in the previous period.
- Nonfinancial business debt rose at an annual rate of 1.75 percent in the fourth quarter to just above 50% as a percentage of GDP. The market value of corporate assets declined by $470 billion during the 4Q08 to $28.3 trillion as holdings of real estate fell by $446 billion.
- Federal government debt surged at an annual rate of 37 percent in the fourth quarter, similar to the third-quarter pace. In 2008, federal government debt rose more than 24 percent, after a 5 percent increase in 2007.
The end game in this scenario is most likely going to be a dramatic reduction in lending across both the consumer and the corporate universe that plays out over the next several years.
“Quarter-on-quarter nuances and revisions aside, the Flow of Funds data provides one of the clearest pictures of aggregate long term borrowing trends available and it points to a reality of borrowing being at historically high levels and in clear need of a corrective downtrend to a more sustainable path.”
For the full analysis see Flow of Funds becomes Outflow of Funds.
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
