On the knife’s edge

In belatedly going over the Q4 2013 Z1 report, I was a little surprised to see that total credit market debt picked up a bit, increasing $909 billion in the fourth quarter alone. At 1.57 percent, that’s still not enough to keep pace with the historical quarterly advance of 2.36 percent, so it’s still disinflation mode, but it is the third-highest quarterly credit growth seen since credit disinflation began in Q1-2008.

However, the Household sector remains flat and the State and Local Government sector has been deflating the last three quarters in a row and seven of the last eight. This means that the private economy is still contracting because State and Local is restricted by tax revenues. Nearly all the credit growth is taking place in the Corporate and Federal sectors.

In fact, of the $7,718.7 in credit growth since Z1 peaked and began deflating in Q1 2009, $7,078.7 is Federal borrowing. In other words, the private economy is right on the knife edge of debt-deflation and has been so for the last five years despite the vast inflationary efforts by the Obama administration and the Federal Reserve.

As for the credit demand gap, at $29.4 trillion, it has now reached nearly 50 percent of Z1. That is why money printing to fill the gap is simply not an option and any attempt to do so will necessarily go right to hyperinflation and failure.