Tuesday, June 15, 2010

Household Financial Assets vs Income

The Fed recently released the Z.1 for 1st Qtr 2010. Following are some observations on Income and Assets of the Household Sector.

Here is a snip from the L.100, Household Financial Assets. The 'high water mark' for household financial assets was back in 2007, prior the the 'Great Financial Crisis'. At that time, total financial assets $50.7T minus liabilities of $14.4T nets to $36.3T net financial assets for the household sector.

Fast forward to last quarter, using the same procedure results in a NFA position of $31.5T, so, even though some progress has been made by households in rebuilding their position from the immediate drop during the GFC, households are still about $5T below their high level of holdings of 3 years ago. There has been the equity market recovery but also, much de-leveraging is happening, as well as an apparent accumulation of Treasury Securities.

Now to look at incomes, below is a snip from the F.7 table. It shows that, in actuality, National Income has been battling back from the previous lows following the GFC, and (for now) is holding a level just below the all time highs.
This may be evidence of continued household 'retrenchment', as although national income seems to have recovered (probably in an inequitable fashion), our output is still well below potential, as households continue to pay down debt and save, perhaps seeking their previous higher levels of holdings of NFAs. It looks like they have about $5T to go.


Mike Norman said...

Good post, Matt. And as anyone who understands MMT knows, the Federal Government can supply those financial assets immediately by running higher deficits. However, by restraining its deficit spending the private sector must recover its NFA position more slowly in the only way that is possible: by cutting back on consumption. Of course that leads to lower levels of output and, hence, employment, which is exactly what has been happening.

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