Essay: Flow of funds

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  • Subject area(s): Finance essays
  • Reading time: 2 minutes
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  • Published on: September 9, 2015
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  • Number of pages: 2
  • Flow of funds
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The Federal Reserve released the Flow of Funds numbers on September 18, 2014 for the second quarter of the year. The report has provided an opportunity for people to be able to inquire about the debt levels which are outstanding in the economy of the United States. Judging from the recent release of the Flow of Funds numbers, it is evident that deleveraging has not yet continued swiftly in the US as expected. Global financial deleveraging is regarded as a major driver of various market distortions and the monetary policy (Roxbourgh, pg 23). It is based on the fact that the US consumer behavior, the financial regulation and the developmental growth of the country have been affected. At present the US alongside other countries still continue to deleverage as a result of the global recession that brought about debt accumulation of 25 years though at a small pace. The debt accumulated was steered up by the financial sector and the households.
In accordance to the September 18, release of Flow of Funds, it is notable that the financial sectors as well as the households have significantly reduced their leverage rate. However, despite the decrease, they have not yet reached the GDP (Gross Domestic Product) trend that was previously set. The Federal Reserve Z1 released for the second quarter of the year indicates notable changes in the Flow of Funds data. The total net worth of nonprofits and households grew to $81.5 trillion from $ 1.4 trillion, indicating a major percentage growth on an annual basis. Household debts indicated a 3.6% increase of the annual rate, which can slightly be perceived as a negative attribute. Nonfinancial business debt increased its rate by 6.3%, which can be viewed as either positive or negative depending on the amount of investment that is tabled. The state as well as the local government debt increased by 1.2 % while the federal government debt increased by 2.5%. Both these debts increased at a slower rate than the rates of the first quarter of the year (Board of Governors of the Federal Reserve, Pg 21).
Everyone agrees that the US economy must never again be allowed to degenerate the same way it did during the financial meltdown. It brought significant effects not just to the national economy but also to the household economies. While this might be the case, the measures to ensure that the economy is not allowed to dangle dangerously in the red-zone appear to be elusive for policy makers in government, much to the astonishment of taxpayers.
The release of the Flow of Funds numbers clearly supports the thesis at hand, which states that deleveraging has not continued at a notable pace. It is evident that a major section of the economy with emphasis on the consumer and business sectors are in support of debt accumulation and consumption for the sake of the businesses. The businesses have been able to work on better balance sheets while the households??? balance sheets are not yet strong enough. With regards to the consumer, they are still deleveraging. It is quite in order to assume that with the release of the Flow of Funds on September 18, 2014 most businesses have resulted on stopping deleveraging due to their ability to repair their balance sheets.
The table below illustrates the Flow of Funds numbers for household net worth and growth of domestic nonfinancial debt:

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