Fed Flow of Funds Report - It's Official, We're Broke..er...er

The Federal Reserve released their flow of funds Q2 report last Friday. Over 160 pages of data, the report shows debt, wealth, GDP distribution.

According to the Huffington Post, we just got a whole lot poorer (you are shocked I'm sure!):

The net worth of households and non-profit organizations dropped $1.52 trillion during the period from April 1 to June 30 of this year, according to the report released Friday. The new figure, $53.50 trillion, represents a 2.8 percent decline from the previous quarter..

Asset International analyzed the benefit and retirement plan assets, this isn't too good either:

US corporate defined benefit and defined contribution plans had combined assets of $5.32 trillion as of June 30, a 6.8% drop from three months earlier.

As of June 30, while corporate DB plan assets amounted to $2.05 trillion, down 5.4% from the previous quarter, corporate DC plan assets came to $3.27 trillion, down 7.5%, as reported by Pensions & Investments. Meanwhile, total assets in state and local government retirement funds were $2.56 trillion, down 8.2%, while the federal government’s retirement funds totaled $1.311 trillion, down 1%.

Other thing to note, The Federal government debt increased at a 24.4% annual rate in Q2 2010.

Here is a headline that sounds great on the surface, Household (that's you and me) Debt is down -2.3%, annualized for Q2 2010.

Oops, but wait, there is something called charge off, or when creditors just give up on trying to collect and write you off and throw you into the unscrupulous collector lion's den.

According to the Wall Street Journal in actuality, Americans have only reduced their debt by 0.08%....voluntarily.

0.08% — The annual rate at which U.S. consumers have pared down their debts since mid-2008, not counting defaults.

So, what is causing the dramatic debt reduction? Charge-offs, foreclosures, defaults. Americans simply cannot pay their bills any longer.

The Wall Street Journal went through the calculations and bottom line, American's debt reduction is more a reflection of more and more people going completely under, broke as broke gets.

Below is the graph of the net charge off rate. That's when MasterCard of Visa ships your debt to the collectors and closes down your card due to non-payment.


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Wait a minute

If household net worth has declined so much, how much is due to lost home equity? And should not the banks/ the Fed mark to market? The net worth should be a real number, and decline shoud mirror actual value. So how much of the debt the Fed is carrying is actual value and how much is sham? Are we being lied to by this venerable institution?

Frank T.

very good question

I've been doing "admin" web stuff all week, so I'm really behind and this report is 167 pages long. You raise an excellent point though because accounting should be the same across groups and it would not surprise me at all to find out it is not.

I hope you look into it and write up what you find.

The Venereal Fed

Like the disease it is, the venereal FED cannot be trusted. But it does play the reality game fairly well, despite the Obama admin's recovery fantasy. Sorta like good cop, bad cop.
But you're absolutely correct, the primary reason net worth of households is dropping is the falling value of their real property, which still has a ways to fall, so you can expect household net worth to continue to trend downward.
This grim news doesn't hurt the global economic agenda, rather, it helps it by forcing homeowners (world wide) to feel the pain of the global asset bubble popping. The reasoning here is, if you don't like the bailout of false asset appreciation, fine, watch us stop and your property value falls even further.
The real difference is, households don't get to "hold" the inflated value of their asset bubble on their balance sheets until they "sell" like the too big to fail banks do. If the Financial Accounting Standards Board would change the rules for consumers like they did for the banks, we could all extend and pretend like the unholy alliance of government and Wall Street does.
But debt serfs don't get to pretend their homes are worth their 2004 peak so that they can pay themselves big bonuses with flush credit like the global elite did, flush with our bailout. That taxploitaion only gets to fund THEIR fantasy, not ours. Our fantasy was funded between 2000-2006 through the easy credit they provided to pump the bubble, now contracting into the natural consumer correction which the administration will NOT allow to occur in the global securities bubble.

two societies, two rules, two books

That's what's going on here. We have one set of rules for the uber rich and influential who might or might not be incorporated and another set for everyone else.

How do we get rid of this fallacy that somehow these companies "generate jobs" and that's why they get different rules.

For main st we have targeted

For main st we have targeted tax rates and credits based on onshore labor presence and onshore capital investments. For investors we provide favorable tax rates on investments in companies with onshore presence (capital investment, labor force and source of component materials).

We tell S.E. Asia we have plenty of food and fresh water how about you. And we insist on "fair and balanced trade" instead of this so-called free trade nonsense that is killing us.

And take heart and always remember, it's not how many toys you own, it's how many toys you own in relation to how many your neighbor owns. If your trailer is bigger than his, he's still the "trailer trash".

FC vs IC

This is really a matter of Finance Capitalism vs. Industrial Capitalism. Basically Banks vs. every other business type. Global banks have WAY too much power and the so called jobs they create are nothing more than trading slots for highly paid bookies who legally screw municipalities, states and even sovereign countries, as we now see with central banks swapping private toxic securities debt (asset bubble "wealth") for public debt--to be the legacy of our children's futures.

The only way you really change the rules is to take over the banks. But people don't want "socialized finance" (neither do I -- not because I don't want it, but because that's not what this is). So leave the existing private banks alone. They come in all sizes and certain smaller ones are prudent and do not leverage their capital base into synthetic, derivative, hyper-junk securities.

If our United States re-structure their economies so that tax revenues are deposited into new, taxpaeyer-owned State banks (like North Dakota) then we make new rules for new banks. Actually we follow the old rules that worked since 1930's with new banks (Glass Steagall). Then we help underwrite loans for smaller private banks who are doing the right thing. This is a huge departure from what is going on right now, which is where you have the prudent middle class bailing out the mega-bank failures at the top tier of wealth, as well as the entitlement class which Obama wants to dispense "social justice" to with your remaining bailout dollars.

I mispelled it first time around, but I call it "taxploitation".
State banks will not engage in taxploitation, but rather deposit a hefty dividend in the State Treasury through sound fiscal management, extension of tax-revenue backed credit, and a complete divorce from Wall Street and the FDIC - they are bankrupt, we don't need them, and under this new paradigm, if every State does it, and States stop bonding out to the global debt swindle, they can all go to China and Maylasia and wreak havoc there.

And Ben Bernanke and the traitorous FED can follow them there. We don't need a global banking cartel printing our money and controlling interest rates. That's how we got into this mess, by letting the Rothschild banking dynasty gain control of America's checkbook and bank account back in 1913.

Yeah, I'm dreaming, but new realities begin with small dreams. Look at North Dakota. One State that represents a microcosm of the fiscal health of a 1949 America. I don't see the Globalists flaming North Dakota out. Then one more state, then one more.

The Tea Party Patriots will eventually see the light. Their mission statement is right on track for it.

industrial capitalism

Excellent points and I need (maybe you are of a mind?) and that's a huge thing wrong, the Banksters making up ??? 62% (it's in this report, the breakdown, the latest) of GDP finance capitalism is, while we offshore outsourcing our industrial base...

the entire thing is like "no duh" why we have labor arbitrage, record poverty, low growth, wage repression and the rest of it.


I think GDP may be "relative" in the developed nations but it probably should stand for "God Da**ed Paper" in the U.S. And I'm not talking about the pulp mill industry either. I shiver over what counts as "Product" these days.

I don't think the Liberals have confidence in the American labor-force to compete globally, which is why they capitulate to the competitiveness-destroying Labor Unions for votes. But reality brings pain, and pain re-aligns us for the great corrections that are coming.


"compete globally"

come on, the U.S. policy on a host of issues guarantees American "cannot compete globally" and that's the point, who can "compete" against 23 cents an hour and an entire different PPP plus a host of government subsidies?

Labor, is a double edge sword in my view, but truly one of the last hold outs keeping any middle class benefits (as many have noted via the Federal Employees Union!)

I'm very aware of the "dark side" on this issue, education and don't even get me going on STEM labor, guest worker Visas and so on, which get a back seat to "other" agendas ...
still, it's really not labor that's the problem here, the problem is U.S. government policies, completely corrupted by corporate lobbyists.

I mean what is "free trade" here about China? Anyone bother to read the China PNTR? You can get even a few pages into it and just be shocked at how it guarantees the U.S. will go down on trade..

as we see in a matter of no time. China has us wiped out in a matter of 3 years really, after that trade agreement came into effect.