September 14th, 2024 - Volume 10 (2024), Missive 210 (Saturday)
More pubic sector debt outstanding then private sector debt
The problem isn’t found at the Federal government’s feet
Debt isn’t a four letter word. Okay it is, but not that kind of four letter word
The Federal Reserve started publishing its quarterly flow of funds data back in the early 1980s in response to the public’s outcry for more transparency concerning the nation’s banking sector. This was a contentious time for the Fed as they were in the middle of chasing market rates higher in the misguided hopes of turning them lower. Fortunately for them, the efficiencies born out of the benchmarking and subsequent auctioning of U.S. debt, started just a few years earlier, were beginning to bear fruit across the economy and the output gap, which had been pressured to that point, finally starting reverting back to a more acceptable shape. As such, market rates soon started moving lower and the Fed was left off the hook. Nevertheless, the Fed was highly scrutinized during these prior years and providing the public with a financial plumbing status, called the Flow of Funds or Z.1 was just one way the quell an otherwise unruly auidence1. And although the heat has certainly died down since way back then, the Flow of Funds report has remained a staple of the Fed’s data warehouse ever since. Interestingly enough something happened last quarter that hasn’t happened in any of those 44 years prior of reporting. Ironically, it has to do with the very same government debt that got the Fed out of that jam so many years ago.
For the first time in recorded history of the Z.1, more public debt exist than private.
When totaling up the amount of debt outstanding in the U.S. economy, that coming from the public sectors is larger than than of the private sector. Between the Federal and State & Local levels, government debt equaled $33.76 trillion through QIV 2024 compared to the combined private sector’s $33.66 trillion. As a result, as of all outstanding debt, the public sector currently accounts for just over half or 50.06 percent, the first time more public debt outstanding has existed than private sector debt. The cause of this anomaly is really three fold. First, Federal debt levels are much higher than they once were, that’s not a surprise. However, it is the other two reasons that are not as forthcoming, which of course means
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