Ticking Time Bomb of Record High Corporate Debt

The Fed released its "Z1" report today on Household Net Worth and Domestic Nonfinancial Debt. Let's dive into debt.

Bloomberg reports U.S. Business Debt Exceeds Households' for First Time Since 1991.

With the record-long expansion in its 11th year, Fed policy makers have indicated in recent months that they’re watching the corporate debt situation closely. Chairman Jerome Powell said in October that “leverage among corporations and other forms of business, private businesses, is historically high. We’ve been monitoring it carefully and taking appropriate steps.”

Hello Fed, I have a Question

Uh.. Pardon me for asking, but could you please explain the "appropriate steps" that you have taken?

Thank You.

Financial Accounts of the US

With that pertinent question out of the way let's take another dive into the details of the Fed's Z1 report on the Financial Accounts of the United States.

Seven Key Details

1. ​The net worth of households and nonprofits rose to $113.8 trillion during the third quarter of 2019.

2. Domestic nonfinancial debt outstanding was $53.9 trillion at the end of the third quarter of 2019, of which household debt was $16.0 trillion, nonfinancial business debt was $16.0 trillion, and total government debt was $21.9 trillion.

3. Domestic nonfinancial debt expanded 6.3 percent at an annual rate in the third quarter of 2019, up from an annual rate of 3.1 percent in the previous quarter.

4. Household debt increased 3.3 percent at an annual rate in the third quarter of 2019. Consumer credit grew at an annual rate of 5.1 percent, while mortgage debt (excluding charge-offs) grew at an annual rate of 2.7 percent.

5. Nonfinancial business debt rose at an annual rate of 5.7 percent in the third quarter of 2019, up from a 4.4 percent annual rate in the previous quarter.

6. Federal government debt increased 10.4 percent at an annual rate in the third quarter of 2019, up from a 2.1 percent annual rate in the previous quarter.

7. State and local government debt expanded at an annual rate of 0.5 percent in the third quarter of 2019, after contracting at an annual rate of 2.5 percent in the previous quarter.

​I picked up that lead chart idea from Sven Henrich.

Here are a few Tweets to consider.

Fed Balance Sheet

Credit Card Defaults

Corporate Profits

Bond Buying

Everything is Fine

Where?

Everywhere.

The Fed clearly has everything under control.