US corporate sector and financial engineering
Although plagued by the usual data inaccuracies (many of which seem to have been caused by a shortage of funds at the Federal Reserve), there was much that was of interest within the latest US flow of funds data. Perhaps the most important feature of the data was that it revealed a growing degree of weakness within income trends within the economy – both companies and households seem to be suffering in the low nominal growth environment. More positively, we did see signs of stronger credit demand within the household sector, which now seems notably less ‘austerity focused’ and more inclined to borrow and spend. We also find that the continued high level of cash disbursements by companies to their shareholders have been maintained even as the corporate sector has become more cash flow negative. In fact, it seems that huge capital inflows from outside the US are inflating volumes in the US corporate bond markets and in turn facilitating the ongoing surge in corporate bond insurance and equity buy-backs. The data also suggests that foreigners could be accounting for a quarter of property transactions. Unfortunately, the capital inflows aren’t exerting an inflationary influence on the real economy – something that would benefit the global economy – because fund flows have become stuck within the zaitech system. Elsewhere, we find that the Treasury seems to be not only changing the structure of its outstanding debts, but also to have been over-issuing Treasuries of late and building up a potential ‘war chest’ of deposit holdings as a result.