Weekly Commentary: Q4 2024 Z.1 And The Start Of Deleveraging

2025-03-15 04:10:18 ET

Summary

• The thesis holds that a multi-decade super cycle Credit Bubble - over recent years succumbing to 'terminal phase excess' - has turned increasingly fragile.
• Treasury Securities increased $589 billion during Q4, with a one-year growth of $2.040 TN.
• Historic debt and securities inflation directly inflated the household balance sheet and perceived household wealth.
• The money market fund complex remains at the epicenter of the critical intermediation of massive issuance of increasingly risky government debt into perceived safe and liquid 'money'.

The thesis holds that a multi-decade super cycle Credit Bubble - over recent years succumbing to "terminal phase excess" - has turned increasingly fragile. Q4 2024 Z.1 data from the Federal Reserve corroborate the analysis.

Non-Financial Debt (NFD) expanded $3.467 TN during 2024, to a record $76.731 TN. Debt growth was down slightly from 2023's $3.594 TN - while still about 90% above the two-decade (2000-2019) annual average of $1.836 TN. NFD inflated $21.583 TN, or 39%, over the past 20 quarters. For comparison, NFD expanded $11.074 TN, or 25%, over the preceding 20 quarters (Q4 '14 to Q4 '19). Since 2008, NFD has inflated $40.851 TN, or 114%.

As has been the case throughout this late-super cycle phase, government finance dominates the Credit system.

Treasury Securities increased (nominal) $589 billion during Q4, with one-year growth of $2.040 TN. Over the past five years, Treasury Securities has inflated $12.316 TN, or 57.1%. Since 2007, Treasuries have ballooned $25.837 TN, or 321%. After ending 2007 at 55.5%, Treasury Securities as a percentage of GDP inflated to 96.4% to end 2024.

Agency Securities rose $111 billion to a record $12.249 TN, the strongest quarterly growth since the banking crisis Q1 2023. Agency Securities inflated $2.906 TN, or 31.1%, over 21 quarters. Why do the agencies continue such rapid expansion? Treasury and Agency Securities combined to expand $2.186 TN over the past year to a record $40.389 TN - or 136% of GDP - with historic five-year growth of $14.576 TN, or 58%.

Total Debt Securities rose $493 billion during the quarter to a record $62.004 TN, with one-year growth of $2.910 TN. Debt Securities ballooned $18.974 TN, or 44%, over 22 quarters. Debt Securities closed 2024 at 209% of GDP (ended '08 at 201%).

Equities rose $1.124 TN during Q4 to a record $92.852 TN, with one-year growth of $15.317 TN, or 19.8%. Equities inflated a historic $42.084 TN, or 83%, over 22 quarters. Equities ended the year at 312% of GDP, up from previous cycle peaks 187% (Q3 2007) and 210% (Q1 2000). Total (Debt and Equities) Securities surged $18.227 TN, or 13.3%, last year to a record $154.856 TN, with 22-quarter growth of $61.058 TN, or 65%. Total Securities ended the quarter at 521% of GDP, dwarfing previous cycles peaks of 375% (Q3 '07) and 357% (Q1 2000)....

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