Tuesday, December 15, 2009

Flow of Funds Shows Further Stabilization

On December 10, the Federal Reserve released the Flow of Funds report. This is one of the best documents for understanding the US economy. It simply shows how money is flowing through the economy. It is 120+ pages of pure econo - geek heaven.

First, let's look at households balance sheets. In the charts below, the overall trend is clear: starting with the second quarter of 2008 we say a deterioration of households overall balance sheet. However, for the last two quarters we have seen stabilization. As always, click on all charts for a larger image

Overall net worth has increased for the last two quarters. This is the result of

An increase in the value of total assets and

With the exception of the third quarter of 2008, as decrease in overall liabilities.

On the asset side, we see that

Real estate values have increased. This adds further evidence to the argument that the real estate market has bottomed. In addition,

Total financial assets have also increased.

So -- we have things moving in the right direction. Overall liabilities are down and assets are up. In addition, we are seeing an increase in several asset classes rather than one.