Weekly Commentary: Extraordinary Q2 2020 Z.1 Flow Of Funds

The numbers are just monstrous. The Fed’s own data illuminate the historic monetary disorder that today runs wild. The Federal Reserve’s balance sheet. Treasuries. Debt and Equities securities. The banking system. The Household balance sheet. Rest of world holdings. In short, finance has completely run amuck, with the data corroborating the super cycle “end game” thesis.

Total Non-Financial Debt (NFD) increased $3.522 trillion during Q2, more than doubling Q1’s record $1.449 trillion gain. This pushed first-half NFD growth to an incredible $4.971 trillion. For perspective, NFD expanded $2.439 trillion in 2019 and averaged $1.826 trillion annually over the past decade. Q2 growth actually surpassed 2004’s annual record $2.912 trillion NFD expansion.

At $59.304 trillion, Non-Financial Debt surged to a record 304% of GDP. NFD-to-GDP ended 1999 at 184%, 2007 at 227%, and 2019 at 250%. “Off the charts,” as they say.

Unprecedented deficit spending saw Treasury Securities jump $2.852 trillion during the quarter to a record $22.371 trillion. Treasuries were up $3.352 trillion for the first half. Over the past year, Treasuries jumped $4.556 trillion, or 25.6%. This dwarfs the previous annual record (2010’s $1.645 trillion). After ending 2007 at $6.051 trillion, outstanding Treasury Securities ballooned $16.320 trillion, or 270%. Treasuries ended Q2 at 115% of GDP. This is up from 44% to end the nineties; 41% to conclude 2007; and 69% to close out 2010.

Agency Securities declined $25 billion during Q2 to $9.746 trillion. Agency Securities were up $481 billion over the past year and $786 billion for two years. Having increased an incredible $5.037 trillion over the past four quarters, combined Treasuries and GSE Securities ended Q2 at $32.117 trillion, or 165% of GDP.

Total Debt Securities jumped $3.364 trillion during Q2 to a record $51.690 trillion. Over the past year, Debt Securities jumped $5.959 trillion (more than double 2007’s record $2.669 trillion increase). As a percentage of GDP, Debt Securities surged to 265%. For comparison, Debt Securities ended 2007 at 200% of GDP; the nineties at 157%; the eighties at 126%; and the seventies at 74%.

Total Equities surged $9.121 trillion during the quarter to $51.956 trillion, with a one-year increase of $884 billion (1.7%). Equities as a percentage of GDP rose to a record 267%. This compares to cycle peaks 181% at the end of Q3 2007 and 202% to conclude Q1 2000.

Total (Debt and Equities) Securities increased an unprecedented $12.485 trillion during Q2 to a record $103.646 trillion. This growth more than doubled Q1 2019’s record $5.970 trillion gain. For comparison, Q4 2009’s $3.449 trillion gain was the largest quarterly increase prior to 2019. Total Securities ended Q2 at a record 532% of GDP, compared to cycle peaks 379% during Q3 2007 and 359% to end Q1 2000. Total Securities ended the eighties at 194% and the seventies at 117%.

The Household balance sheet always offers fruitful bubble analysis. Unprecedented growth in the Fed’s balance sheet, debt and securities translated into record Household perceived wealth. Household Assets jumped $7.637 trillion during Q2 to a record $135.435 trillion. And with Liabilities only increasing about $29 million, Household Net Worth inflated a quarterly record $7.607 trillion – to an all-time high $118.955 trillion. Net Worth was up $5.0 trillion over the past year. Net Worth ended the quarter at a record 610% of GDP. This compares to previous cycle peaks 492% (Q1 2007) and 446% (Q1 2000).

Household holdings of Financial Assets increased $7.0 trillion during the quarter (up $3.758 trillion y-o-y) to $94.548 trillion (record 485% of GDP). For comparison, Financial Assets ended 2007 at $54.557 trillion (372% of GDP) and 1999 at $34.656 trillion (350% of GDP). Real Estate holdings ended Q2 at a record $34.406 trillion, with a y-o-y gain of $1.493 trillion. At 177% of GDP, Real Estate holdings as a percentage of GDP reached the highest level since Q4 2007.

Banking system (“Private Depository Institutions”) Assets jumped $859 billion (almost 16% annualized) during the quarter to a record $22.780 trillion – a gain second only to Q1’s $1.869 trillion. Loans increased (a measly) $24 billion, or 0.8% annualized (with mortgages up $36bn). The Asset “Reserves at the Fed” jumped another $313 billion to a record $2.787 trillion. The Asset “Fed Funds and Repos” rose $204 billion to a record $863 billion. Debt Securities holdings surged a record $359 billion to an all-time high $5.241 trillion. Treasuries gained $207 billion, surpassing $1 trillion ($1.102 trillion) for the first time, and Agency/GSE MBS rose $110 billion to a record $2.934 trillion.

Over the past year, Bank Assets surged $3.268 trillion, or 16.7% (more than doubling 2008’s annual…

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