By MN Gordon
Milestones in the Pursuit of Insolvency
A new milestone on the American populaces’ collective pursuit of insolvency was reached this week. According to a report published on Tuesday by the Federal Reserve Bank of New York, total U.S. household debt jumped to a new record high of $12.84 trillion during the second quarter. This included an increase of $552 billion from a year ago.
US consumer debt is making new all time highs – while this post GFC surge is actually relatively tame, corporate and government debt have in the meantime exploded into the blue yonder. Nevertheless, this means consumers are also highly vulnerable to the coming crisis (which will look different from the last one, but will be perceived as just as, if not more devastating). [PT] – click to enlarge.
Moreover, this marked the second consecutive record high on a quarterly reported basis for U.S. household debt. Indeed, this is a momentous achievement. From our vantage point, it is significant for several reasons.
One, it shows U.S. household debt has returned to its upward trend which had previously gone uninterrupted from the close of World War II until the onset of the Financial Crisis in late 2008. Second, it demonstrates that, like the S&P 500, new all-time highs are being attained with the seeming precision of a quartz clock. Is this just a coincidence?
More than likely, it’s no coincidence at all. More than likely, the mass quantities of central bank liquidity that have been injected into the financial system over the last decade have provided the plentiful gushers of cheap credit that have pushed up both stock prices and household debt levels. But remember, the easy stock market gains can quickly recede while the increased debt must first drown the borrowers before it can be expunged.
To understand where the liquidity has come from, look no further than thetotal combined assetsof the Federal Reserve, European Central Bank, and the Bank of Japan. They were around $4 trillion a decade ago. Today, they’re over $13.8 trillion. And if you include the People’s Bank of China’s assets, combined major central bank assets jump to nearly $19 trillion.
Central bank balance sheet expansion: even though assets held by the Fed have remained stable since QE3 ended in 2014, the giant debt monetization programs pursued by the ECB and the BoJ have pushed the total up rapidly. Note that this is reflected in money supply growth in these currency areas as well – it is not just central bank balance sheets that have expanded. A major goal was to lower market interest rates, which does of course require more money being made available to the economy, even if it was done in unorthodox fashion in this case. From a theoretical standpoint it should be noted that the effect of direct central bank money supply expansion and the usual way of expanding the money supply by inflating commercial bank credit has made very little difference. The channels by which …read more
Source:: Acting Man
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