Couple quick points on flow of funds

The aggregate private domestic financial balance continues to look non-threatening from a business cycle stability perspective. The balance is least-noisily measured (i.e. inferred) from the sum of (ok, difference between) the current account and fiscal balances. As the top right chart shows, this has recently improved, accommodated by a larger government fiscal deficit (not shown).

All else equal, larger fiscal deficits are short-run* stabilizing, although all else is never equal and all this stuff is simultaneously determined. But having been determined, it is not bad at all, from a stability perspective. The sum of the household and corporate financial balances looks pretty similar to the aggregate domestic private, unsurprisingly, as these are the two largest domestic sectors.  And each of these two major sectors taken in isolation, lower row of charts, also look ok. So good.


Financial balances are meant to be the difference between net asset accumulation and net borrowing, the latter of which is pictured below.  Household sector borrowing remains restrained by historical standards and corporate borrowing is about average. This is a rather odd time for the powers that be to discover that they need to get credit growth going. Credit growth is already going.  But not alarmingly so. And the policy side of this is a separate discussion, one I am sure you do not want me to get into here.  In the big picture the financial flow side of things continues to look benign.


* The short-run could last a while. At some risk of wandering beyond my competence, I would say that the stabilizing effect remains in place so long as the fiscal deficit itself does and so long as government assets remain risk free. As I mentioned here, the former is the larger issue, in my view. Of course, the Trump fiscal “stimulus” has not yet begun.  The move in the fiscal deficit during Q3 itself is largely noise. The broader point is that the fiscal deficit has exceeded the current account deficit for a while now. That implies — and accommodates — a positive, stabilizing private sector financial balance.