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Weekly Commentary: Extraordinary Q1 2020 Z.1 Flow Of Funds

Doug Noland profile picture
Doug Noland


  • The Fed slashed rates at an emergency meeting on March 3rd - and then began aggressively expanding its holdings/balance sheet (creating market liquidity). Even from a "flow of funds" perspective, it was one extraordinary quarter.
  • Washington didn't merely fail to resolve the GSE issue during the "longest expansion on record." These institutions were once again exploited to juice the markets and economy.
  • Reviewing the Q1 Z1 report, I was thinking this is how things look as a system self destructs. Q2 will be worse.

Financial crisis erupted in March. The Fed slashed rates at an emergency meeting on March 3rd - and then began aggressively expanding its holdings/balance sheet (creating market liquidity). Even from a "flow of funds" perspective, it was one extraordinary quarter.

Total Non-Financial Debt (NFD) surged a nominal $1.597 trillion during the first quarter ($6.379 trillion seasonally-adjusted and annualized!) to $54.325 trillion. This was the strongest quarter of NFD growth on record (blowing past Q1 2004's $1.234 trillion). Indeed, Q1 growth surpassed full-year NFD expansions for the years 2009, 2010, 2011 and 2013. This pushed one-year growth to $3.271 trillion (6.2%), significantly exceeding 2007's record $2.521 trillion expansion. NFD increased $20.857 trillion, or 59%, since the end of 2008. NFD as a percentage of GDP rose to a record 260%. This compares to previous cycle peaks of 226% (Q4 '07) and 183% (Q4 '99).

Financial Sector borrowings jumped $963 billion during Q1, surpassing the previous record $656 billion from Q3 '07. This pushed one-year Financial Debt growth to $1.247 trillion (7.6%), the strongest expansion since 2007's $2.065 trillion.

Total Credit (Non-Financial, Financial and Foreign) surged nominal $2.391 trillion for the quarter to $77.861 trillion, surpassing the previous record from Q1 '04 ($1.512 trillion). One-year growth of $4.790 trillion was the strongest since 2007. Total Credit jumped to 362% of GDP, the high going back to 2010.

Federal Liabilities (excluding massive "contingent"/off balance sheet liabilities) jumped to $22.0 trillion during Q1. At 102%, Federal Liabilities surpassed 100% of GDP for the first time in at least six decades. For perspective, Federal Liabilities ended the seventies at 50% of GDP; the eighties at 63%; the nineties at 59%; and 2010 at 85%. I would not be surprised to see this ratio approach 150% over the next three to five years.

Outstanding Treasury Securities

This article was written by

Doug Noland profile picture
I'm at about 30 years persevering as a “professional bear.” My lucky break came in late-1989, when I was hired by Gordon Ringoen to be the trader for his short-biased hedge fund in San Francisco. Working as a short-side trader, analyst and portfolio manager during the great nineties bull market – for one of the most brilliant individuals I’ve met – was an exciting, demanding and, in the end, a grueling and absolutely invaluable learning experience. Later in the nineties, I had stints at Fleckenstein Capital and East Shore Partners. In January 1999, I began my 16 year run with PrudentBear (that concluded at the end of 2014), working as strategist and portfolio manager with David Tice in Dallas until the bear funds were sold in December 2008. In the early-nineties, I became an impassioned reader of The Richebacher Letter. The great Dr. Richebacher opened my eyes to Austrian economics and solidified my lifetime passion for economics and macro analysis. I had the good fortune to assist Dr. Richebacher with his publication from 1996 through 2001. Prior to my work in investments, I worked as a treasury analyst at Toyota’s U.S. headquarters. It was working at Toyota during the Japanese Bubble period and the 1987 stock market crash where I first recognized my love for macro analysis. Fresh out of college I worked as a Price Waterhouse CPA. I graduated summa cum laude from the University of Oregon (Accounting and Finance majors, 1984) and later received an MBA from Indiana University (1989). By late in the nineties, I was convinced that momentous developments were unfolding in finance, the markets and policymaking that were going unrecognized by conventional analysis and the media. I was inspired to start my blog, which became the Credit Bubble Bulletin, by the desire to shed light on these developments. I believe there is great value in contemporaneous analysis, and I’ll point to Benjamin Anderson’s brilliant writings in the “Chase Economic Bulletin” during the Roaring Twenties and Great Depression era. Ben Bernanke has referred to understanding the forces leading up to the Great Depression as the “Holy Grail of Economics.” I believe “The Grail” will instead be discovered through knowledge and understanding of the current extraordinary global Bubble period.

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Comments (6)

mdfuller_OR profile picture
I love these and especially your dated entries so I can pick choose with limited time - thanks!
Excellent financial coverage news, thanks.
summitsix profile picture
I agree Q2 will be worse, and foolhardy, all to save face for an election. It will be a spectacle.
thank you Sir. I learned a great deal and will recommenced your site to everyone. God bless you
AEGISBMD profile picture
All I can say is WOW! Reminds me of the old joke about flushing twice....now it's about economy and debt.

Great job Doug.
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