• 657 days Will The ECB Continue To Hike Rates?
  • 658 days Forbes: Aramco Remains Largest Company In The Middle East
  • 659 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 1,059 days Could Crypto Overtake Traditional Investment?
  • 1,064 days Americans Still Quitting Jobs At Record Pace
  • 1,066 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 1,069 days Is The Dollar Too Strong?
  • 1,069 days Big Tech Disappoints Investors on Earnings Calls
  • 1,070 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 1,072 days China Is Quietly Trying To Distance Itself From Russia
  • 1,072 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 1,076 days Crypto Investors Won Big In 2021
  • 1,076 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 1,077 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 1,079 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 1,080 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 1,083 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 1,084 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 1,084 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 1,086 days Are NFTs About To Take Over Gaming?
  1. Home
  2. Markets
  3. Other

Households Run Record Deficit In Q1

Thank goodness for household borrowing and spending. Bless them, they spent $322.0 billion more, at an annual rate, than they earned in the first quarter. As shown in the chart below, this was a post-WWII record household deficit in dollar terms. If households, in the aggregate, are incurring a deficit, it implies they are making up the difference by either borrowing from other sectors, the foreign and/or domestic business sectors, or selling assets to other sectors. Of course, we know it is predominantly the foreign sector, in particular, the foreign central bank sector, that is enabling households to keep running these record deficits. But let's not cast aspersions on households for their borrowing and spending. This is exactly what the low interest rates are encouraging them to do. The Fed has held short-term interest rates below the consumer inflation rate, thus assuring households a negative inflation-adjusted return on money market accounts before taxes. After taxes, the return is even more negative. Home prices nationally rose, conservatively, by 11% last year while a one-year adjustable rate mortgage can be obtained at about 4-1/4%. Who needs hedge funds when an individual can buy an asset that is appreciating annually 675 basis points above its cost of financing. And the after-tax return is even better on this particular type of asset. No, so long as the Fed keeps interest rates low relative to inflation households will continue to borrow and spend. But watch out below when interest rates finally rise above inflation.

 

Back to homepage

Leave a comment

Leave a comment