Full text of Introduction to Flow of Funds, 1980
The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Introduction to Flow of Funds Board of Governors of the Federal Reserve System Introduction to Flow of Funds Board of Governors of the Federal Reserve System June 1980 Copies may be obtained from Publications Services, Board of Governors of the Federal Reserve System, Washington, D.C. 20551, and remittance should be made payable to the order of the Board of Governors of the Federal Reserve System in a form collectable at par in U.S. currency. (Stamps and coupons are not accepted.) Per copy price, $1.50; 10 copies or more to one ad dress, $1.25 each. Library of Congress Catalog Number: 80-600-127 Contents Preface 1 Section 1: Concept of Accounts 2 Section 2: Organization of Accounts 24 Section 3: Relation to National Income and Product Accounts 27 Section 4: Definition of Sectors and Transaction Categories 32 Section 5: Publications of Flow of Funds Data 48 Section 6: Data Sources 49 Bibliography 52 Text Tables 1 2 3 4 5 6 7 8 Summary of flow of funds accounts for the year 1978 Financial assets and liabilities, December 31, 1978 Private claims on U.S. government institutions Gross saving and investment, comparison of two systems, 1972 Saving and physical investment in flow of funds accounts, 1972 Sector structure Financial transaction categories Sources of financial data for flow of funds accounts 3 7 21 27 30 32 39 50 Appendix Tables Summary of flow of funds accounts for the year 1978 Financial assets and liabilities, December 31, 1978 Funds raised in credit markets Credit market supply of funds Credit market debt outstanding Claims against credit market debt Household sector saving and investment Household sector assets and liabilities Nonfinancial business sector saving and investment and assets and liabilities S. 1 S.2 S.4 S.5 S.6 S.7 S.8 S.9 S.10 Preface Flow of funds accounting is a national statistical system that has been under development by the Federal Reserve since 1947 and that has been pub lished in several forms. Descriptions and definitions of the successive forms of accounts have appeared in the Federal Reserve Bulletin and in separate pub lications.1 In the following pages that descriptive material is pulled together and brought up to date with the current form of the accounts. Section 1 of this publication describes broadly the purposes of the flow of funds system and the aggregative view of recent decades that emerges from the data in their present form. Section 2 gives the conceptual framework of the system, while sec tions 3 and 4 present a detailed description of statis tical relationships and definitions. The structure of the system described in section 4 is of the form published in late 1979 and differs in some respects from earlier presentations. The structure will inevi tably continue to change to keep up with the evolu tion of financial practices, and after 1980 some of the descriptions may no longer fit the current form of presentation. 1. For earlier publications, see the bibliography. This is not a statistical publication, although a few tables in the appendix underlie the historical material in section 1. Nor does it describe specific statistical sources and derivation procedures used in compiling the accounts. The data are published and made available in several forms as described in section 5. A separate publication on the derivation methods is mentioned in section 6, which discusses briefly the problems of adapting data sources to the account structure.2 This publication is at a general level and is in tended merely to indicate the purposes of the sys tem and what it encompasses. The bibliography in cludes several review papers that go into further detail on uses of financial accounts for judgmental and econometric analysis and that include their own extensive bibliographies on macroeconomic work in financial analysis. This publication is an introduc tion to that work as well as to the flow of funds ac counts themselves. 2. All requests for data and for information about the accounts should be addressed to Flow of Funds Section, Division of Research and Statistics, Board of Governors of the Federal Re serve System, Washington, D.C. 20551. 2 Section 1: Concept of Accounts The flow of funds system of national accounts is designed to bring the many financial activities of the U.S. economy into explicit statistical relation ship with one another and into direct relation to data on the nonfinancial activities that generate in come and production. The purpose of the accounts is to provide, systematically, the aggregate mea sures of transactions needed to identify both the in fluences of the nonfinancial economy on financial markets and the reciprocal influences of develop ments in financial markets on demand for goods and services, sources and amounts of saving and in vestment, and the structure of income. The ac counts are intended to provide an empirical base for exploring such questions as the sensitivity of bor rowing to interest rates as against other influences, the effects of the cost and supply of credit on de mand for physical investment, the role of money holdings in the public’s structure of assets and lia bilities, and the relation of financial positions— levels of assets and liabilities—to demands for goods and services, for credit, and for investment in financial claims. The flow of funds system focuses on such ques tions in a macroeconomic setting that covers, as far as possible, all of the institutional groups and all types of transactions in the economy. Some ele ments of the system exist elsewhere and separate from the structure—as statements of, for example, corporate finance, government finance, balance of payments, money and banking activities, individ uals’ saving, residential finance, and security mar ket activity. These elements are incorporated into the system as integral parts, together with informa tion from income and product accounts on saving and capital formation. Each such element is one as pect of an integrated economy, and each connects with the others in several ways. The security mar kets, for example, are a point of intersection among business developments generating long-term credit needs, international capital movements, the avail ability of bank credit, flow of credit through finan cial institutions, and the financing of government deficits. When all of the relevant information is put together in mutually consistent fashion in one framework, each element is seen as part of a broader macroeconomic system, and its connection with the other parts can be made explicit enough for analysis. Like the national income and product accounts, published by the U.S. Department of Commerce, the flow of funds system is a social ac counting structure that records both the payment and the receipt aspects of any transactions included in the system and that includes a balance in each account of the structure between total payments and total receipts. The flow of funds accounts can, in fact, be viewed as a direct extension of the Com merce income and product structure into the finan cial markets of the economy, with the purpose of establishing direct linkages between the Commerce data on saving and investment—the capital account in the income and product structure—and the lend ing and borrowing activities that are associated with saving and investment. Model account structure The nature of those linkages and, more generally, the relation of financial markets to the nonfinancial activities of the economy are portrayed in table 1. The table is a severely condensed and simplified form of the flow of funds matrix found on page S.l, which maps the basic structure of the flow of funds system.3 The arithmetic of the matrix is fairly simple, and when applied to the full system of ac counts it lays a basis for understanding both the ac counting relationships among the time-series tables in this publication and the analytic approach under lying the system. The accounting rules of the matrix, their conse quences for analysis, and the relation of the matrix to the tables are spelled out in section 2. A very simplified form of the matrix structure appears in table 1, which is a statement of the capital account for the economy as a whole showing investment in assets in the use columns and the means of financ ing that investment in the source columns. The table divides the economy into several groups of sectors, each of which has a column in the matrix; and all transactions of each group are recorded on one or another row of the matrix. Row 1—saving— is for each sector the net sum of current receipts from income less current outlays for consumption, operating expenses, and so forth. Saving appears as a net amount available from current operations for investment purposes. Other amounts are borrowed 3. The note to table 1 is important for working out the rela tion between the general description in this section and the more complex form that financial activity takes in the actual economy. 3 Section 1: Concept row 1 for the sector, and (2) that on any one row of the matrix the sum of all uses of funds shown across the columns is equal to the sum of all sources of funds in that row. (Rows 1 and 2 of table 1 are the source and use sides respectively for a single account covering all nonfinancial transac tions together.) With balance vertically between saving and investment and horizontally between payments and receipts, each column constitutes one full sector account of the structure and each row a transaction account. The relationships among columns, among rows, and between columns and rows express the interlocking nature of the account ing system as a whole. As one illustration of the structure, the govern ment column in table 1 can be seen to be a particu lar form of budget statement, with a nonfinancial deficit in the first row offset by a net sum of in financial markets by each sector, and borrowings and saving together are the sources of funds used to acquire physical and financial assets. A distinction is drawn between nonfinancial transactions reflected in rows 1 and 2 of table 1— purchases and sales of goods and services, trans fer payments and receipts, and taxes—and financial transactions in rows 3 through 6—net changes in the capital amounts of claims owed as liabilities or held as assets by each sector. All of the financial transactions of a sector are combined into a net fi nancial investment that is the excess of the sector’s lending (financial uses) over its borrowing (finan cial sources). The two basic constraints in the matrix are (1) that for each sector total investment, which is the sum of capital outlays plus net financial invest ment, is by definition equal to the saving shown in Table 1. Model flow of funds matrix1 Hypothetical data Sector Type of transaction Private domestic nonfinancial Use Nonfinancial 1. Saving............................................ 2. Capital outlays.............................. Financial 3. Net financial investment.............................. 4. Total financial uses and sources (5 T 6)................ 5. Deposits at financial intermediaries........................ 6. Loans and securities...................... Source Govern ment Use Source Financial inter mediaries Use Use 5 - 10 179 Source Memo: Rest of world Total Source 69 60 5 15 70 15 70 3 50 19 5 - 10 60 2 Use -4 170 9 -4 65 3 55 2 10 1 Domestic totals 7 7 Source Use 170 Source 174 170 170 0 4 147 144 140 55 55 53 55 92 92 91 85 147 1. This table compresses twenty-six sectors in the full system into four columns for sector types that are to be distinguished in the present discussion; the rows are a similar grouping of transaction categories. In addition, the matrix is simplified by omitting the row and the column for discrepancies and a number of items peripheral to the mainstream of financial transactions. These omitted items are treated as nonexistent in the simple economy shown. The relation of transactions in this table to the full matrix on page S. 1 is as follows; FULL MATRIX MODEL Gross saving Gross investment Private capital expenditures, net Net financial investment Financial uses, net, and financial sources Gold, foreign exchange, Treasury currency Deposits and currency Insurance and pension reserves, interbank items Credit market instruments Security credit, trade credit, taxes payable, equities, miscellaneous, and sector discrepancies Saving Omitted Capital outlays Net financial investment Total financial uses and sources Omitted Deposits at financial intermediaries Omitted Loans and securities Omitted The government sector should be interpreted as central government only, with state and local governments omitted as another simplification. Of the omissions, the most important for the discussion that follows is insurance and pension reserves, which are a major form of intermediation. This item is left out because part of such reserves are liabilities of governments and complicate the relation between intermediation and financial institutions. The present section focuses only on the broad outlines of structural relationships, and a more detailed de scription requires many qualifications and additions to the broad form to incorporate these governmental reserves and the other omitted items. 4 Introduction to Flow of Funds changes in cash balances, loans, and debt outstand ing in the rows below. This column is a balanced account that differs from other budget statements for governments mainly in that it distinguishes sharply between nonfinancial and financial transac tions and arranges transactions so that they can be identified across the rows in the accounts of other parties to the transactions. The rest-of-the-world column is similarly a particular form of balance of payments statement, arranged so as to connect it with other sector columns along specific rows. A loan from the government to a foreign borrower, for example, appears on row 6 as a government use of funds and a foreign source of funds, regardless of how it may be treated in other budget statements or balance of payments statements. Each of the two loan entries—the use and the source—is then play ing a double role in the matrix: vertically as a com ponent of its sector’s column balance, and horizon tally as part of the row balance. Horizontally they of course balance each other, but vertically they in tegrate in more complex ways with the other trans actions of the two sectors separately. The interlock of the system consists of establishing such double roles, horizontally and vertically, for all transac tions of all sectors in the system simultaneously. The result is an integrated structure that can be used to measure linkages either vertically or horizontally or, in the most complete forms of analysis, in both directions simultaneously. The condition that saving equal investment for each sector is identical in form with the well-known equality of saving and investment for the overall economy in income and product accounting. For the total economy, investment on a consolidated basis consists of outlays for capital goods plus net foreign investment, the excess of lending abroad over bor rowing from abroad. In the flow of funds accounts, similarly, each sector’s investment consists of its purchases of capital goods plus a net financial in vestment that includes net lending to the rest of the domestic economy as well as abroad. In the model matrix (table 1), the first three rows state the equal ity of saving and investment for each sector, and a separate memo column gives totals for the three do mestic sectors. This memo column is one form of the capital account in the Commerce Department in come and product system. It can be seen that the matrix, in its domestic sector columns, constitutes a deconsolidation of that capital account, with capital outlays distributed among the domestic sectors and with a detailing of each sector’s net financial in vestment that is a more general form of the net for eign investment in the consolidated total. This relation to the Commerce domestic capital account is expressed in the first three rows of the matrix. In the lower rows, the matrix goes into de tail on the forms of lending and borrowing by each sector that underlie the sector’s net financial invest ment. Only two types are shown in the model— deposits at intermediaries and loans and securities— but the full matrix (page S.l) has many more cate gories, as shown by table 7 on page 39. For each of these financial categories a full accounting of purchases and sales of the particular type of instru ment is required in the system. It is this detailing of credit transactions in the capital account that brings the financial statistics of the economy into coherent relation to one another and into direct relation to the nonfinancial statistics in the income and product accounts. The accounting link to nonfinancial trans actions is net financial investment (row 3 of table 1), but the economic substance of the information is in the interactions among specific types of credit flows—deposits and loans—and between such flows and specific forms of capital outlay, income genera tion, and saving, all within the accounting con straints of the system. The matrix goes beyond the Commerce capital account in that it incorporates the foreign sector (rest-of-the-world) explicitly. This form requires that the consolidated domestic capital account be shown as a memo column, but it has the advantage that for each category of financial transaction the matrix states directly all of the transactions in the market, whether domestic or foreign. Alternative forms tend to obscure market conditions without adding information. Analytic role of matrix The matrix is an essential framework for both cal culating and using financial market statistics on an economy-wide basis. It is general enough in form to assimilate new types of financial instruments, new forms of relationship, and the continual changes in emphasis or practice in individual finan cial markets. The explicit constraints of the system enforce a consistency of analysis not easily reached without the framework, particularly in questions at a macroeconomic level, at which all market forces interacting with one another are to be accounted for. Such questions can be handled only when the transactions involved have been stated within the matrix on a complete basis but without double counting. Section 1: Concept 5 The role of the matrix for such purposes can be demonstrated by the simple exercise of assuming some major financial development, such as a sharp rise in government borrowing or in deposit flows to banks; placing that flow in its appropriate cell of the matrix, and working out even a minimum possi ble conjunct set of entries necessary to keep the matrix in balance. If the example is in government borrowing, that source of funds to the government must be mirrored in the government column in some combination of a nonfinancial deficit (nega tive saving) and government lending as an offset ting use of funds, because the money raised is obvi ously being absorbed in one way or another. At the same time, the borrowing itself must be matched by an equal amount of lending somewhere along the row that carries government securities. And in whatever column that lending appears, there must be a source of funds available for this use. In the simplest situation, that source can be the positive private saving and borrowing from the government that are already implied in the government account. For example, a minimum complete accounting for the government borrowing might be as follows: ITEM PRIVATE Use Saving Government loans Government securities 10 GOVERNMENT Source Use 7 3 3 Source -7 10 When this form of speculation is extended from the merely possible to the likely, economic analysis enters the exercise. In the example above there are questions of the probable demand by private sectors for other types of financial assets, such as cash and other deposit claims, that are competitive with gov ernment securities as investment forms and that af fect the volume of flow into financial intermediaries and the volume of credit supplied by intermediaries. More broadly, analysis raises questions as to the circumstances that generated the government defi cit, including income distribution and private de mand for capital goods, and the resulting influences on credit market flows. Each aspect interacts with the others, and as the various tendencies are item ized they are to be fitted into the frame of the whole in mutually consistent forms. The operation of the matrix is also illustrated by considering what happens when the money supply increases. Money is a liability of the banking sys tem and an asset of the public; any increase in it must be accompanied by some combination of a de crease in other bank liabilities, an increase in bank assets, and offsets in the accounts for other sectors. The organization of the accounts forces these contraentry questions to the surface and in the process spells out the initial question in a complete form. Analysis of this kind can be applied to an actu ally expected set of developments by using the ma trix structure as a device in forecasting or projecting the future, with the specific function of keeping in dividual parts of the forecast in touch with one an other. The merit of such constrained systemwide forecasts is that each element can be tested by the plausibility of its counterparts in other areas of the matrix. The structure as a whole is reasonable only when all of its parts are reasonable. Whether the el ements are derived econometrically from empirical models or assembled judgmentally by hand, the procedure has room for successive approximations that approach the final result by working out the ef fects of each change on the rest of the structure and by then working back from the effects to revised versions of the initiating change. A complete forecast on this basis illustrates the integral role of financial market behavior in capital theory and in general theories of income, produc tion, and economic growth. The choices each indi vidual in the economy makes as to consumption, physical investment, financial investment, and bor rowing are related to one another and are confined only as a group within the limits of his income and net worth. The option of borrowing lets a person shift his consumption and investment patterns over time, and higher levels of debt allow him to carry higher levels of either physical or financial assets at any time. He may in his mind attach priorities to one or another use of his income, but in practice all of his demands work against one another to some extent and indeed also influence the amount of in come he tries to earn. The columns of the matrix reflect these relations among the activities of an individual transactor by putting all of his transactions together in the general form of a statement of sources and uses of funds.4 The system becomes macroeconomic when the columns for all sectors are aligned with one another to generate the market summary rows in which the demands of different transactions impinge on one another. The effect is a joining of financial invest ment analysis directly to theories of production, in come, saving, and physical investment in a manner that adds generality to the model as a whole. 4. By statistical necessity, however, they are combined with similar transactions of many other individuals. 6 Introduction to Flow of Funds Stocks and flows The generality of the matrix tends to obscure cer tain structural aspects of the financial system that are of continuing interest in analysis. These struc tural aspects are concerned with concepts such as intermediation, “primary” demands for credit, and “ultimate” sources of credit—or more broadly with “double-counting” of credit flows and the position of financial institutions in the system. In a general sense, intermediation consists of borrowing for the purpose of lending rather than for nonfinancial out lays. The term is usually associated with financial business, such as banks, savings institutions, insur ance companies, and investment companies that concentrate on such activities. The distinction be tween intermediary and nonintermediary sectors must be recognized as an institutional one, how ever, rather than a concept definable in theory; on the one hand households, nonfinancial business, and governments also engage in intermediation to some extent, and on the other intermediaries are subject to the same general investment principles as nonfinancial sectors. Nevertheless, the difference in degree is extreme and the distinction justified in practical analysis. Intermediaries tend to specialize in the forms of debt they offer, or the forms of credit they extend, or both. Insurance companies, for example, raise funds primarily through policy premiums but invest broadly in credit markets, while finance companies specialize in their lending but not their borrowing. Savings and loan associations are specialists both in borrowing—through deposit accounts—and in lend ing—through mortgages. In whatever way they spe cialize, however, these institutions are filling a gap between the types of claims the nonfinancial public wants to hold as assets, such as liquid deposits and insurance reserves, and the very different types of claim the public wants to (or is able to) owe as debts, such as bank loans, consumer credit, and mortgages. With or without intermediaries, the total of claims held as assets by nonfinancial transactors is nearly equal to the total of their debts, because directly or indirectly they owe the debt to one an other. But with intermediation the composition of their assets becomes very different from the compo sition of their debts. The intermediaries are thus performing a transformation process within the fi nancial markets between the asset and the liability sides of the public’s balance sheet. Intermediaries are important to analysis in many 5. As the matrix on outstandings shows, stock data are pre sented only for financial claims in the accounting structure and do not include parallel data for holdings of tangible assets or for sector net worth, which are the balance sheet counterparts of capital expenditures and saving in the flows. A more complete set of sector balance sheets that include tangibles and net worth has been compiled recently at the Federal Reserve using Com merce Department estimates of stocks of reproducible assets, es timates of land values based mainly on data from the Census Bu reau and financial positions from flow of funds data. These full balance sheets are part of the flow of funds accounting system and include statements of the relation between gross investment as a flow and changes in net worth, both for principal sectors and for national totals. Tangible assets are valued at current prices in the balance sheets, and as a result much of the differ ence between investment flows and movements in net worth arises from valuation changes that are reflected in net worth but not in saving or investment. The complete balance sheets have been available so far only on an informal basis, and their description has not been included in this publication. They are maintained on a current basis in an nual form, however, and copies can be requested from the Flow of Funds Section at the Federal Reserve. The immediate connection between financial mar kets and nonfinancial activity is in terms of net flows of claims, since it is as flows that financial markets absorb funds from income and supply funds to spending. These financial flows are always increments in amounts of assets and liabilities out standing, however, and the levels of these claims in existence are as much a part of the picture as the flows themselves. Economic equilibrium (in any sense of that term) must be a balance simultane ously among stocks, among flows, and between the stocks and flows, a consideration that is reflected not only in advanced models but also in such ruleof-thumb indexes as liquidity ratios, turnover rates, and debt-service coverage by income. Over the period covered by the flow of funds ac counts, several types of credit have shown fairly stable relations to expenditures or receipts in terms of flows; but the flows have been at such rates as to generate strong secular drifts, relative to activity, in levels of debts and assets, either upward or down ward. The meaning of these drifts in stock relation ships, or even whether they have meaning, is an important aspect for financial analysis; for such questions, data on stocks of financial claims out standing are included in this publication on a basis parallel to the tables on flows, including both a ma trix of claims as assets and as liabilities, on pages S.2 and S.3, and time-series compilations for indi vidual rows and columns.5 Intermediation and primary credit flows 7 Section 1: Concept ways. Their presence in the market broadens enor mously the forms of both financial investment and borrowing available to the public: capital formation, saving, income, and consumption are all higher than they would be without the catalyst of interme diaries in raising financial flows. In the U.S. econ omy a large part of all credit goes through interme diaries. In the short run much of financial analysis is concerned with how well intermediaries are meet ing demands for the specialized forms of credit they offer with the funds they are able to attract from savers. Legal constraints on their rate structures, lending practices, and forms of borrowing often prevent intermediaries from adjusting fully to cur rent conditions and decision patterns, causing siz able shifts of funds into and out of them. On the other hand, intermediaries frequently introduce new practices or new credit instruments that also have major effects on the structure of flows. Both the constraints and the innovations of intermediaries have to be taken into account in even simple and summary analysis of economic development. Flow of funds summary tables Intermediation implies some basic or primary flow of credit in the economy that in part passes through these institutions. The idea of such a flow raises the question as to what it might be or, more specifi cally, how it might be defined in an analytically useful form. The matrix itself is too general in form to show such a concept, inasmuch as it puts finan cial intermediaries parallel to other sectors and gives totals along the rows that include all sectors indiscriminately. This matrix accommodates both the intermediary-type debt owed by nonfinancial sectors, particularly governments, and the market able debt of intermediaries, such as bonds and open market paper, that are not distinguishable as debt instruments from the same types of claim owed by nonfinancial sectors. Nevertheless, the elements needed to approximate a concept of a basic flow of credit that may or may not be intermediated can be abstracted from the ma trix. One such approximation is put together in the two summary tables on credit markets that appear at the beginning of most flow of funds presentations, one on the structure of borrowing in credit markets and the other on sources and forms of supply of funds to credit markets. They appear in this publi cation beginning on page S.4 for flows and page S.6 for outstandings. The summary tables are not an explicit part of the flow of funds structure, but they are useful in outlining relationships among forms of borrowing, among forms of lending be tween credit demand and supply, and between inter mediary and direct lending in markets. Using figures from the model matrix in table 1, the two summary tables are illustrated together in table 2, with borrowing in the upper part and credit supply in the lower. Table 2 identifies the interme diation process through an institutional distinction, isolating groups of firms that are mainly in the business of borrowing funds for the purpose of re lending and treating these groups as a channel of fi nancial flows rather than a primary source of credit demand or supply. The primary credit flow, on the first row of the table, is thus borrowing by every one else, that is, nonfinancial sectors, itemized by sector in the next three lines. The total of 82 is less than the matrix total of 92, on the bottom row of table 1, by the amount of credit market borrowing by intermediaries. The full form of the table, on page S.4 includes the types of instruments used as well as a listing of borrowing sectors.6 Part II of table 2 is a summary structure of the sources of supply for the credit flows listed in part I. It is more complex than part I in that it shows 6. Notes to table 1 list several types of financial claims that have been omitted from the model matrix for simplification, such as trade credit and taxes payable. These omitted forms are not part of organized credit markets and are omitted from the full form of table 2, as on p. S.4. Types of credit included in the table 2 total are listed in the full version on page S.4. Table 2. Model credit market summary Figures from table 1 1. 2. 3. 4. I Funds raised by nonfinancial sectors Government Foreign Private domestic nonfinancial 5. II Sources of credit supplied 6. Government Foreign 7. 82 15 7 60 82 2 1 Financial intermediaries Total funds advanced Sources of funds Private domestic deposits Funds raised in loans and securities Other sources 50 10 10 13. 14. Private domestic nonfinancial sectors Direct purchases of loans and securities (lines 5-6-7-8+10) Deposits in intermediaries (line 9) Total financial investment (lines 12+13) 19 50 69 15. Credit sources not in line 14 (lines 6 + 7+11) 13 8. 9. 10. 11. 12. 70 8 Introduction to Flow of Funds supply at more than one level simultaneously: direct lending in credit markets by nonfinancial sectors and by intermediaries as well as the sources of funds to intermediaries to finance their part of the direct credit supply. The first item (row 6 in table 2) shows lending activity by federal government units, federally sponsored intermediaries, and the Federal Reserve, a source of funds to credit markets that is almost entirely directed by public policy objectives such as assistance to particular credit markets and open market operations by the Federal Reserve. Foreign lending on row 7 includes foreign private funds, but in recent years it has been dominated by foreign official transactions in U.S. government se curities as a reflection of balance of payments de velopments. Both row 6 and row 7 are largely ex ternal influences on credit markets in that most of the amounts that appear do not reflect profitmaking decisions in the narrow sense but rather are policy directed or almost automatic. The middle section of part II of the table summa rizes credit market lending by intermediaries, in cluding commercial banks, and the main types of financing for that lending. In the table 2 example, intermediaries supplied credit of 70, mainly from private deposit growth but also from their own bor rowing in credit markets and from other sources, such as foreign and government deposits, insurance and pension reserve growth, and their own retained income. The several sources of intermediary funds vary greatly in relative proportions as credit condi tions change, and shifts in their sources are re flected elsewhere in the table, such as in govern ment lending to intermediaries and the forms of financial investment by the private nonfinancial sec tors. The bottom section of part 11, beginning with row 12, integrates into the preceding picture the structure of financial investment by private domes tic nonfinancial sectors: households, businesses, and state and local governments. Row 12 is direct lend ing by these sectors in credit markets, which con sists of any of the credit flow in row 1 not supplied by government or foreign sources, or by intermedi aries, together with credit market borrowing by in termediaries on row 10. From the viewpoint of the private sectors, this direct lending is but one of sev eral possible forms of financial investment, with al ternatives that in the model table are wrapped to gether as deposits, such as checking accounts, savings deposits, and negotiable certificates of de posit. These deposits, shown here as a use of funds, are the same flows that appear on row 9 in the intermediary section of the table as a source for intermediary credit supply. The distribution of pri vate funds between direct lending and deposit flows has sizable influence on although not total control of the flow of credit through intermediaries and thus on supply of the specialized forms of credit, such as mortgages and bank loans, that come mainly from intermediaries. Line 14 contains the total flow from the private nonfinancial groups that is distributed between direct and deposit flows. It is somewhat less than total borrowing on row 1 al though closely related. The difference, on row 15, consists of direct flows from government and for eign sources and the “other” sources of intermedi ary lending.7 In recent years a major element of change in row 15 has been foreign official lending that reflects shifts in the U.S. trade balance and capital outflows in the balance of payments state ments. Most movements in government lending are reflected directly or indirectly in the private total on row 14, while intermediary “other” sources are rel atively stable over the long run. Diagram of financial structure The view of the economy that is reflected in table 2 is indicated in diagram D-l. The diagram is a picture of the nation’s capital account and, again, uses the model matrix (table 1), abstracting in the same way from the full complexity of the system. The diagram is specific to the data in the model in that it shows current-account deficits for the gov ernment and foreign sectors on the right, in parallel with physical investment, as “uses” of private sav ing entering the capital account on the left; if either of these sectors had a positive current balance, it would appear at the left in the diagram. In a fully detailed picture, the dissaving of any individual transactor with a negative current-account balance would also appear on the right, with treatment of fi nancial flows parallel to that for a deficit govern ment. To simplify the diagram, all saving of the private domestic sectors is on the left, even though the total for the sector is a net sum for savers and dissavers together.8 The diagram takes on precision if each sector is viewed as a single person in an economy made up of only four different persons. 7. Row 15 is not included in the full form of the table. 8. Saving in the diagram is the total for private sectors, in cluding intermediaries. Intermediary saving is an internal source of funds for lending that is identified in the diagram. Section 1: Concept This primitive view can be extended easily to a more general picture with many separate units in each sector. The diagram pictures saving entering the capital account as a diversion from the current payments stream and passing through a number of channels to finance physical investment outlays and government and foreign deficits that inject spending back into the current stream. Part of the saving goes directly into physical assets, to the extent that people buy ing capital goods pay for them without recourse to borrowing, and this appears as “internal finance,” the excess of capital outlays (170) over private bor rowing (60). Another part of saving goes into finan cial assets, however, such as cash and deposits for liquidity and marketable securities for capital gains. Part of this financial investment goes directly to nonfinancial borrowers (12), but most of it is put into deposit (55) and security claims on intermedi aries (10), who relend the funds to nonfinancial sectors through quite different forms of credit in struments, such as mortgages and bank loans (70).9 These credit flows from intermediaries, combined with direct lending from savers, make up the total 9. Intermediaries use their own retained income (5) to lend somewhat more than they borrow. 9 volume of borrowing (82) by nonfinancial sectors that it used mainly to cover the deficits of dissavers and to pay for investment outlays not covered by internal finance. The bottom of the diagram shows a reverse flow of funds from the borrowing to the lending side of the structure that is equal to the investments in fi nancial assets made by the two deficit sectors. In the model matrix (table 1) these two sectors have not limited their borrowing to the minimum needed to cover their deficits but rather have borrowed ex tra amounts to add to their asset positions (8). They borrow in part for liquidity purposes and in the government’s case to help carry out lending pro grams for public policy purposes. These extra credits represent borrowing in order to relend and as such constitute a form of intermediation by non financial sectors. The U.S. government does in fact act as an intermediary to financial markets, floating its own securities to assist agriculture, small busi ness, the home mortgage market, and other private markets; a more complex diagram could show that activity explicitly. The more general point, how ever, is that quasi-intermediation occurs in many forms in nonfinancial sectors, that all of its forms create reverse flows in the diagram, and that they 10 Introduction to Flow of Funds add an element to the relation between the total flow of credit as defined in the diagram and the as sociated totals of saving and investment. Typically, this kind of intermediation is difficult to identify, as is illustrated by taking the private do mestic nonfinancial sector in the diagram to be a single individual. Even though this person’s saving (179) was greater than his capital outlays (170), he chose to put a substantial amount into financial in vestments (69) and then to borrow some of these funds on the other side of the market in different forms (60). This is reasonable behavior, since the combination of assets and liabilities he now has suits his short-term and long-term needs better than do lower totals of both assets and liabilities. How ever, it raises the question whether he borrowed to invest in physical or in financial assets, and the an swer is that he borrowed for the two purposes jointly in unidentifiable and even undefinable pro portions. Only in special cases, such as the two deficit sectors in this model or a borrowing total that is larger than total investment outlays, can such intermediation be even partially measured. This discussion illustrates the ambiguities in the concept of intermediation and thus in the concept of a basic or primary flow of credit that is to some ex tent intermediated. Intermediation is nevertheless a useful construct for analysis when it is given an in stitutional sense that is based on the characteristics of a set of financial businesses, including the legal constraints on their operations, their typical prac tices as borrowers and lenders, and their flexibility in responding to changing economic conditions. Isolating financial institutions as an intermediary group brings out the broad division of financial flows between those that enter this area of special ized and constrained lending operations and those that are available only in more generally marketable instruments. It is this institutional foundation for analysis that underlies table 2. As applied to nonfi nancial sectors, the concept of intermediation is too ambiguous to be useful, and it is well replaced by the integrated balance-sheet view of physical invest ment, financial investment, and borrowing that is implicit in this discussion. In comparison with the accounts as published, the diagram is primitive although accurate as far as it goes. In both the model matrix and the diagram, credit flows are limited to the main-stem group of financial claims that are handled in organized credit markets, such as securities, mortgages, consumer credit, and bank loans. In flow of funds publica tions these are labeled credit market instruments. This central group of claims is the focus of the summary tables in publications as well as in the model used for this discussion. A glance at the full matrix on page S.l reveals that the financial struc ture as a whole includes a variety of other claims, such as gold, foreign exchange, trade credit, and equities in noncorporate business. These are more specialized instruments that are also part of the fi nancing of the economy and that appear in the ac counts where appropriate, but for summary pur poses they are treated as outside the credit markets proper. The diagram is also primitive in that it can not easily show negative financial flows, such as debt repayment or reductions in asset holdings, and because it ignores the layers of intermediation among financial firms, such as bank loans to secu rity dealers and insurance company purchases of fi nance company bonds. The diagram serves only to illustrate in broad outline the relation between saving and investment on the one hand and the aggregates of borrowing and intermediation shown in table 2 on the other. The financial markets absorb part of saving and supply part of the funds for spending; but the total volume of credit flows as defined here has no nec essary relation, dollar for dollar, either with saving or with investment because of the opportunities for internal finance and for borrowing to carry financial assets that the diagram suggests. The effects of re stricting or expanding credit flows are thus not nec essarily or immediately on saving and investment but rather tend to be diffused throughout the system inside and outside financial markets. Such relations as exist between credit flows and nonfinancial ac tivity must be found analytically and empirically, with credit seen both as borrowing by nonfinancial sectors and as lending by those same sectors. Historical relationships The charts on the following pages give examples of the empirical relationships over time that have em erged from the data at the broadest levels of the economy. The charts do not go into specific sector analysis, which would consist of relations among shifts over time in sources of funds, uses of funds, prices, and interest rates, and which can become more complicated than is suitable for this historical survey. The focus is rather on broad aggregates and on the story they tell of changing financing prac tices and changing financial structure. Some of the relations are close, but they do not point directly to Section 1: Concept conclusions about the workings of the economic system as a whole. With credit flows dependent on demands by borrowers for financial assets as well as their nonfinancial outlays, the problem of distin guishing supply and demand is more complex for financial markets than for many other areas of anal ysis, and has yet to be worked out. The charts start, somewhat arbitrarily, at the point of household and business borrowing, proceed to the total borrowing by nonfinancial sectors that is pictured in the diagram, connect that total to private financial investment, and summarize the results of these flows in terms of debts and assets outstanding. The statistical relations of the charts to flow of funds tables are listed in the notes to charts (page 23), which refer to the appendix tables (pages S.1-S.10). Except for the matrices and the two summary tables discussed earlier, the only tables in cluded are those reflected in the charts.10 Before charting, all of the data used were deflated by a compound index of prices and the 1952-79 trend of gross national product in order to highlight cyclical relationships apart from the strong growth trends over the period in most of the data. A single defla 10. The tables carry annual data for a few years only. They are taken from Flow of Funds Accounts, 1949-78 (Board of Governors of the Federal Reserve System, 1979). 11 tor was used for all of the time series, and a rising trend in any of the plotted series indicates a rate of growth faster than the trend of GNP, although not necessarily faster than GNP growth in any short period. A series with a falling trend is not necessar ily decreasing in actual dollar amounts; it may be only increasing at a slower rate than the GNP trend. The deflator itself is presented and described in the notes to charts; it is not directly part of the ac counts, which show only current-dollar quantities. Charts 1 and 2 illustrate the associations that have existed between short- and long-term borrow ing in credit markets by business and households, and their spending for capital goods. Capital ex penditures here cover all private domestic invest ment in the national income and product accounts except capital outlays by financial sectors, and they also include purchases of consumer durables, which are consumption spending in the national income and product accounts (NIPA). Chart 1 shows the closely parallel movements of changes in short-term busi ness credit and net inventory movements over the period except for a short time in the late 1960s and during 1973. The relation exists not with the NIPA measure of inventory change, however, but rather with book inventory movements, which include complicated interactions among price movements, inventory turnover rates, and inventory accounting 12 Introduction to Flow of Funds methods such as FIFO and LIFO (first-in-first-out and last-in-first-out). The difference between the two inventory measures is small before the later 1960s on the scale of this chart, and the NIPA mea sure, which reflects standardized pricing and ac counting methods, is shown in the chart only for the later years, when higher inflation rates made the difference substantial. On an a priori basis there is no reason for the closer relation of short-term fi nancing to book rather than NIPA inventory move ment because the higher prices that buyers pay during inflation to maintain inventory on a book basis is offset, in general, by higher prices in their sales, and the increased cash flow from sales are available to be used directly to finance higher costs of inventory maintenance. The chart indicates that this is not dominant business practice, however, and that in general price effects of inflation on cash flow appear to be isolated from inventory financing operations. The 1969 and 1973 aberrations in the chart are strong cases of the general tendency for short-term borrowing to grow somewhat more than inventories during cyclical expansions and to fall somewhat more during recessions. This tendency is consistent with increased expectations, as activity approaches a peak, that short-term financing can soon be refunded in longer-term forms at more at tractive long rates. Chart 2 gives a similar pairing of longer-term private investment and credit, which in this chart is a mixed collection of corporate bonds, mortgages, and consumer credit.11 In the early years shown in the chart the high rate of investment relative to credit raised was centered in housing, in which pur chases of new construction were considerably larger than net mortgage borrowing. Beginning in 1961 home mortgage financing shifted upward relative to construction, possibly reflecting an increase in transactions in existing houses; but later in the 1960s this shift was offset by a marked reduction in consumer credit flows relative to consumer durables purchases and by a restraint in business long-term financing relative to outlays. In the later 1960s business relied heavily on short-term credit, as chart 1 shows, but in 1970 long-term financing shifted upward again relative to spending, at first to fund short-term debt and later to take advantage of the expanded supply of both business and housing credit. The years after 1974 contrast with preceding periods in the high rates of private borrowing rela tive to both capital spending and GNP. After 1974 net borrowing by the group started running at rates well above net fixed investment, primarily because of unusually large financings in residential mort gages. While these flows accelerated the growth rates in debt outstanding during the later 1970s, the high inflation rates of those years acted to mod- Chart 2 11. Investment appears in charts 2 and 3 net of depreciation charges, which are measured on a current-cost basis, as in NIPA. Section 1: Concept 13 erate the rise in debt relative to income and prod uct, as the later charts show. Chart 3 combines the data from charts 1 and 2 and illustrates the extent to which movements in private capital outlays have been dominant com ponents of GNP fluctuations. The two vertical scales in chart 3 have the same gradient while their absolute values are very different, and only during the Vietnam period of the later 1960s are the move ments in GNP substantially larger than those in the investment series. Total private borrowing has al most the same volatility as net investment and thus is almost as closely related to fluctuations in GNP.12 Chart 4 completes the structure of borrowing by adding to the business and household components net funds raised by foreign borrowers, state and local governments, and the U.S. government. Net borrowing by the U.S. government is much the most volatile of these elements and is the source of most of the changes in differences between the pri12. A common practice in current analysis is to measure either investment or net borrowing as a percentage of GNP. The relationship illustrated in the chart—that is, roughly equivalent amplitudes on very different base levels—produces volatile per centage movements relative to GNP that are sensitive indicators of cyclical movements. The chart suggests, however, that the movements in percentages are somewhat beside the point and that comparisons of absolute movements indicate more directly regular and irregular cyclical developments. vate and total series. In general its effect has been to shift peaks and troughs into earlier quarters, making total borrowing a slightly leading series at GNP turning points.13 Over the 1970s federal net borrowing also contributed considerably to the up ward tendency of total credit flows relative to GNP trend, for reasons that are apparent in later charts. State and local governments are a hybrid group in the economy and hence in the social accounts: as governments they are attributed no physical invest ment outlays in income and product data but as in dependent decisionmakers these units base their fi nancial planning on much the same market considerations as households and businesses and in this respect are part of the “private” segment of credit markets. Although borrowing by state and lo cal governments is excluded from the private totals in charts 1 and 2 that are related to physical invest ment, their investment in financial assets is in cluded with other private financial investment in later charts on supply of funds to credit markets. 13. Turning-point relationships among series are affected by the deflation of the data that was described earlier. With undefla ted data, the leading characteristic of total borrowing is more pronounced, because adding growth trends to the data shifts peaks in GNP further into later quarters than peaks in borrowing. The reason is that GNP is a proportionately more stable quantity than net credit flows and has a relatively larger trend component. Chart 3 1953 1957 1961 1965 1969 14 Introduction to Flow of Funds Charts 5 and 6 indicate the cumulative effect on debt outstanding that has resulted from the structure of borrowing since 1952 that appears in preceding charts. Within a total debt owed by nonfinancial sectors that has risen only slightly in relation to GNP, there was a major shift from federal into pri vate liabilities outstanding over the whole period 1953-74, with U.S. government debt shrinking Chart 4 Chart 5 Section 1: Concept from 47 percent of the total in 1952 to 17 percent at the end of 1974.14 The explanation for the shift lies in a combination of circumstances: the legacy still remaining from depression and war at the be ginning of the period in the form of high public (and low private) debt, the strength of private in vestment demand stemming partly from the same cause and tending to generate private debt, and the favorable government budget position that reflected strong private demand for goods and services. The resulting trends in debt structure were strong but could not be expected to continue indefinitely. Growth of private debt, particularly that of house holds and state and local governments, slowed markedly after 1965 and has been roughly on a pla teau relative to GNP trends since then. A sharp burst of private borrowing in 1972-73 was followed 14. Deflating flows and levels by a single index of growth and prices for the charts creates a special relation between the deflated figures for net borrowing and changes in debt outstand ing. If the deflator increases 5 percent a year, borrowing must equal 5 percent of outstanding debt merely to keep deflated debt constant. A borrowing rate of more than 5 percent will raise the debt level, but if the rate is less than 5 percent, deflated debt goes down even with positive borrowing. In the data used for the charts, average growth in the deflator was 6.8 percent per year from 1952 to 1974. U.S. government debt was growing in abso lute terms by only 2.2 percent, however, which deflation con verted to a 4.5 percent rate of decrease. Private debt, on the other hand, was growing at a 9.4 percent annual rate, well above the deflator. These figures exclude corporate equity issues from both debt and borrowing. Chart 6 15 by an equally sharp correction in 1974-75, and while those were turbulent years burdened by food production problems, oil price increases, and an ep isode of price controls, they also saw a strong runup in capital outlays (charts 1 and 2), and an equally strong reversal in capital spending during the 1974-75 recession. The downtrend of federal debt appears to have come to an end in 1975 and, after a short-run compensation for the drop in pri vate debt, federal debt maintained a fairly stable re lation to GNP trends. In the most recent years shown in chart 5 there is some tendency toward re sumed growth of private debt offset by decreases in federal debt, and the chart suggests that if private capital formation is to be maintained at adequate rates financing may have to shift from heavy reli ance on debt toward greater use of internal or exter nal equity funds. Chart 6 divides private debt into four types, in cluding state and local government securities. All of these forms were growing relative to GNP trends until 1965, but from then to 1974 only business debt continued an upward tendency. After the 1974-75 correction residential and business loans were the sources of strength that underlay the up ward tendency of the total in chart 5. Growth in these debt forms was less than charts 1 and 2 might suggest, however, because much of the flow in those charts was offset by the high inflation rates of 16 Introduction to Flow of Funds the period and is removed by deflation in chart 6. State and local government debt shows a steady de clining trend even after the sizable advance refund ings of 1977-78 that are included in the total. Charts 7 through 12 shift to the supply side of credit markets and summarize aspects of private nonfinancial sectors as lenders rather than as bor rowers. As diagram D-l and table 2 illustrate, most of the total borrowing by nonfinancial sectors that appears in chart 4 has a counterpart in accumulation of financial assets by private domestic nonfinancial sectors, either directly through security purchases in markets or indirectly through investment in deposits or other claims on intermediaries that are lending directly. The relationship is presented in amounts outstanding in chart 7, in which the top line is total debt of nonfinancial sectors, the middle line is holdings of such debt by private domestic sectors including intermediaries, and the bottom line is de posits and security holdings by households, nonfi nancial business, and state and local governments.15 In terms of the model table 2, these are respectively item 5, items 8 plus 12, and item 14. The gap be tween total debt and the middle line consists of fed erally related and foreign direct holdings, and the increase in that gap after 1975 reflects mainly the large increases in foreign official holdings of U.S. government securities related to international trade deficits. The gap between the middle and bottom lines consists of net holdings by intermediaries fi nanced by sources other than private domestic de posits and securities: mainly insurance and pension reserves, federal and foreign deposits, and the eq uity funds of intermediaries. That gap also widened markedly after 1975 as a result of an accelerated flow of funds into pension reserves and the shift of those flows into investments in credit instruments. These developments produced a clear contrast in the chart between the definite upward trend of total debt after 1975 and the essential flatness in private nonfinancial assets, reflecting a strong growth in these other sources of credit market funds. 15. Insurance and pension reserves appear as assets of house holds in the total accounting structure and on that basis could be included in the bottom line as assets of the nonfinancial group. Such reserves are, however, more remote from day-to-day in- vestment decisions of households than are their deposit and secu rity portfolios and on that basis are set aside in summary tables and in these charts as a separate financial relationship in the sys tem. Chart 7 Section 1: Concept Chart 8 shows the marked shift over 25 years in the relative positions of private financial assets and debt in the economy. This shift combines the rela tion in chart 7 between private assets and total debt, which had little trend over the last 20 years relative to activity, with the shift in chart 5 from federal to private debt outstanding. The chart illustrates that, to an increasing extent since the early 1950s, the fi nancial assets that private investors hold have come to be based directly or indirectly on claims owed by themselves rather than by others. For the most re cent years the widening gap between the two lines in the chart reflects primarily the accelerated flow of pension reserve funds into debt securities men tioned earlier. Paralleling this change in asset and debt structure has been a sizable increase in the degree of inter mediation in financial markets. Private sectors as borrowers must look mainly to financial institutions for mortgages, consumer credit, and business loans, all of which are usually too specialized and too small in individual loan size to be broadly market able; and even for their marketable debt, such as municipal and corporate bonds, the institutions are important suppliers of funds. As their debts have grown, private sectors as lenders also have turned increasingly to institutional deposits as an invest ment alternative to the diminishing supply of fed Chart 8 17 eral securities outstanding. Over the period covered in the charts, institutional holdings of credit instru ments increased from 68 percent of the total held privately in 1953—the middle line of chart 7—to 84 percent at the end of 1979. Most of this growth was financed by the shift of private investment away from direct market instruments and toward deposits in intermediaries, which increased from 58 percent of private portfolios in 1953—the bottom line of chart 7—to 70 percent in 1979. That shift in private investment is broadly indi cated in chart 9, which divides the private asset to tal in chart 8 (and chart 7) into its deposit and credit instrument components. The two components have been rather more volatile over the short run than their total has been, reflecting the sizable short-run changes in yield relationships between de posits and market instruments and the shifts of funds in response to changes in the yield spread. Interest rates on most deposits have been much more stable cyclically than have market rates, partly because of regulatory ceilings that have restrained those rates from following market rates upward when credit has been tight. In the sequence of tight financial conditions covered by the chart— principally 1959, 1966, 1969, and 1973-74—high rates on market instruments drew increasing amounts of funds out of institutions and into direct 18 Introduction to Flow of Funds investment, reflecting widened yield spreads and heightened investor sensitivity to those spreads. Some of the deposit growth in the first half of the 1960s resulted from the development of large nego tiable certificates of deposit by commercial banks, which introduced the CDs as money market instru ments to attract funds from large investors, such as major corporations, that had been holding liquidity mainly in Treasury bills. With the diminishing posi tion of Treasury debt in the market, the CD became a major investment medium and an important con duit for converting liquidity holdings into bank credit for the growing volume of private debt. The effect of rate ceilings on deposits was most extreme in 1969, as chart 9 indicates, when CDs in particular fell from $23 billion at the beginning of the year to $9 billion at the end (in actual dollars). Following that episode ceilings were lifted on CD rates, and in the 1973 tight-credit period the effect of yield spreads was much more moderate than in 1969. In 1973 there was also a marked increase in se curity repurchase agreements held by nonfinancial investors and included in the deposit total. RPs are a short-term form of bank liability that have never been subject to rate ceilings and that can yield the investor money market rates of return on maturities as short as one day. They are included in the de posit total in chart 9 and are another reason why deposits held up fairly well during 1973-74. After 1977 the introduction of six-month money market certificates of deposit, the growth of money market mutual funds, and other new channels opened ac cess to market yields to much smaller deposits, as little as $1,000 in some cases; and by the end of the charted period most of the yield-spread incen tives toward disintermediation had vanished from credit markets. The effect was to give deposit insti tutions resilient lending positions during tight credit conditions but at the same time to put an increased part of their liabilities at market rates of interest. This change in their cost of funds was carried through to the rates that institutions charged, which also became more volatile and more market related for all types of loans, including mortgages and con sumer credit. The shift toward stronger and more market-related lending positions for intermediaries fitted closely as a structural change with the re duced supply of federal debt as a liquidity instru ment for private investment. Chart 9 1953 1957 1969 1973 1977 Section 1: Concept Chart 10 combines again the deposits and credit instruments from chart 9 to compare the total hold ing—the same total that is in chart 7 and chart 8— with GNP. In spite of the shifts in composition of total assets, the relationship to GNP is unusually close over most of the chart in both movement and—in what is presumably only a coincidence— absolute value. The asset total tends to have some what smaller cyclical movements than GNP and shows a slight leading tendency. These differences are small within the total relation, however, and over the span of years covered no significant drift in trend is apparent. The relation is closer than that between GNP and debt totals, with the differences absorbed in connective elements of credit supply, such as government, foreign, and pension reserve sources of supply, that constitute the gaps between the three lines in chart 7. This connection between private financial assets and activity is, like the rest of the material in the charts, an empirical “black box” in that it neither supports nor is explained by any broadly accepted 19 analytical system. Without analytic support there is no basis for predicting whether it will continue un der other economic circumstances, such as chroni cally higher inflation rates or slower economic growth rates. The persistence of the relation on a quarterly basis nevertheless suggests a connection between activity and asset holdings that may be a macroeconomic constraint of importance both to forecasting and to policy. That it is closer than the debt relation to GNP suggests further that changes in other forms of credit supply may be the source of changes in the debt relation and whatever conse quences follow from the debt movements. During 1976-79, when a marked increase occurred in both net foreign and pension reserve supply, private bor rowing was high (chart 3), and private debt rose faster than trend (chart 5), with very little effect on the asset connection in chart 10. A continuance of such conditions could lead into dangerously burden some levels of private debt without the correspond ing rise in private liquidity that accompanied the 1972-73 debt increase. Chart 10 Billions of 1972 dollars 1220 1180 1140 1100 1060 20 Introduction to Flow of Funds Chart 11 breaks out the household component of private assets to illustrate the drift in sector distribu tion of holdings within the total. Over the period of the chart the household share increased from 71 percent of the total to 82 percent, with an offsetting decrease, from 19 to 10 percent, in holdings by nonfinancial business—mainly business liquid as sets. State and local government holdings rose from 6 percent of the total to 8 percent, even with a de clining trend in their debt outstanding. Statistically, the total is more reliable than its parts, particularly the distribution between household and business as sets, and the shift may be weaker than source data suggest. For corporations, however, a drop in liquid asset position from the early 1950s is fairly well supported, and there is little question that over 25 years corporations have held diminishing amounts of a total that has stayed almost constant relative to GNP. Chart 12, finally, introduces corporate equity holdings into the picture. The preceding charts have focused on debt instruments, both as liabilities and as assets, and the relationships have appeared for this total of claims. Equities have a separate posi tion in the financial system in that as liabilities they are only residual claims and, in a legal sense at least, are not burdens on issuers. In the flow tables net new stock issues appear as external sources of funds to business and as net financial uses of funds Chart 11 by investors. In tables on outstanding assets and lia bilities, however, they appear only as assets valued by market prices, and no specific liability for them is attributed to issuers. While net purchases of equi ties are a small component of household financial investment, holdings valued at market are a major part of household assets, as large as all deposits and debt securities over much of the period of the chart. Chart 12 illustrates that such holdings are also far more volatile in amount than other financial assets because of movements in stock market prices. There is a mild correlation between changes in the two that is obscured by the compression of the ver tical scale of chart 12 needed to cover movements in stock values. In the deflated dollars of the chart, equity values have moved by roughly $7 for each $1 change in holdings of deposits and credit instru ments, neglecting the many short-term perturbations in the equity series and some irregularities in the timing of movements. There may be interaction be tween the two totals that is exaggerated for equity values because of the lack of net flows of new is sues, but to some extent the two series are probably also responding in parallel to other conditions in the economy. The shift in credit structure from directly held central government debt to intermediated private debt, which is a dominant feature of the charts, is put into another perspective in table 3. This table Section 1: Concept 21 Table 3. Private claims on U.S. government institutions Amounts outstanding at year end in 1972 dollars, trend removed 1952 1965 1974 1978 1979 807 500 362 423 418 98 64 2 643 71 31 60 20 58 16 57 14 397 282 348 346 6. Holdings, by group 807 500 362 423 418 7. 8. Foreign Private domestic 15 792 23 477 45 317 71 352 57 361 9. 10. Financial Nonfinancial 399 393 220 257 136 181 166 186 165 196 89 304 63 194 52 130 51 136 49 147 571 1,134 740 1,213 738 1,128 751 1,131 731 1,121 1,149 1,648 1,493 1,518 1,528 Item 1. Total claims, by type Currency in circulation Member bank reserves Foreign deposits at Federal Reserve Banks U.S. government securities 2. 3. 4. 5. Currency outside banks U.S. government securities 11. 12. * * * * Memo: Private domestic nonfinancial sector 13. Total deposits at financial institutions 14. Total money, deposits, and credit instruments Memo: Financial business holdings of reserves and credit instru ments * Amount insignificant. pulls together, again in detrended and deflated dol lars, a set of claims on the U.S. government and closely related institutions as a proxy for a total of basic reserve assets that are available for private in vestment. The set of claims is broader than govern ment debt in chart 5 in that it includes reserve money and also the debt of federally sponsored credit agencies and mortgage pools; these have played a greatly expanded role in recent years as government-related intermediaries, lending housing and farm credit on the basis of public issues of their own debt.16 16. The total is also a little narrower than that in chart 5 in that it omits government debt held by the Federal Reserve. Chart 12 1953 1957 1961 1965 1969 22 Introduction to Flow of Funds The total of these reserves fell sharply from the 1950s to 1974 but then moved upward again with the reversal in trend of U.S. government debt. Part of the rise after 1974 was absorbed by foreign inter vention operations in international exchange mar kets. Domestic holdings, on row 8, also went up, however, in both Treasury and federally sponsored securities. The rise in domestic holdings of Trea sury securities beginning in 1975 was mainly in fi nancial institutions, which for various reasons had gone into extended and illiquid positions by the end of 1974. Much of the increase reflected a shift of pension fund and insurance investment flows away from equities and toward high-grade debt instru ments. That shift was prompted by legislation and may have been a one-time adjustment toward an as set structure that will be maintained in the future with a smaller current demand for Treasury securi ties. Banks almost doubled their Treasury security holdings in 1975-76 as part of a recovery from a heavily loaned position at the end of 1974 that was the counterpart of the high private debt that appears in chart 5. The picture here is of an unstable finan cial condition at the end of 1974 that was followed by abrupt but interrelated corrections by both finan cial and nonfinancial sectors in both assets and lia bilities. These corrections were followed after 1976, however, by a return to many of the earlier trends that had led into 1974, with the possibility of an early repetition of the 1974 experience. One of the effects of the increasing exposure of private finance in credit markets has been the bur geoning of the federally sponsored credit activities mentioned earlier. While operating in specialized credit markets—mainly housing and farm credit— the sponsored agencies expanded their debt on row 5 of table 3 from $7 billion in 1952 to $102 billion at the end of 1978 (in the deflated dollars of the ta ble) to finance an almost equal increase in their holdings of private credit. If private debt continues to grow relative to activity, these agencies will probably absorb a rapidly increasing share of the to tal growth accompanied by growth in a variety of government guarantee programs for private credit. Direct lending and loan guarantee operations by the government have focused on particular kinds of credit that have been in difficulty, and they are seen mainly as a method by which the government can help those loan markets to compete against other kinds of demand. While the agencies appear some times to be “draining” loanable funds from private markets and creating credit tightness that would not exist otherwise, they also perform an important function in supplying an investment and liquidity instrument—in the form of their own debt—of a kind that has become increasingly scarce. This review of the historical data has not tried to explain analytically the cycles and trends of postwar financial developments or to point up trends with alarm. Its purpose has been rather to illustrate main connections within the flow of funds accounts among lending, borrowing, balance sheet positions, and nonfinancial activities—connections that are close over the period covered and that are basic data for analysis of the economy as a whole. Some of the connections have shown tendencies to shift over the period, and financial markets have re sponded with facility and speed in adapting to new practices and new financial instruments. These changes in financial flow structure usually appear in individual markets or sectors and can be explained to some extent by detailed analysis of those markets or sectors. They occur within the frame of the whole, however, and are in part reactions to changes in that frame. Whether as a framework that constrains particular markets or as elements acting on one another within a system, the main members of the structure appear to have an empirical exist ence that should be recognized explicitly in the data and in analysis of the data. □ 23 Section 1: Concept Notes to charts All data in charts 1 through 12 have been deflated by a single compound index (1972 = 100) that is the product of (1) the U.S. nonfinancial population 16 years of age and over, (2) the GNP price deflator, and (3) an exponential growth trend in de flated GNP per capita found by least-squares regression to be 1.8 percent per year for the period 1952—79. After deflation, all flow data are plotted as centered two-quarter moving averages (three quarters weighted 1-2-1), with 1953 Q1 and 1979 Q4 omitted from the charts. Assets and liabilities outstanding are deflated by Table Chart Item 1 2 3 4 5 6 7 8 9 10 11 12 S.10 Net change in inventories S.10 Business loans Private net fixed investment Households + business borrowing S.4 except business loans Private net capital outlays S.4 Households + business borrowing S.4 Total nonfinancial borrowing S.4 Households + business borrowing S.6 U.S. government debt S.6 Other nonfinancial debt S.10 Business loans S.6 Residential mortgages S.6 Other business + household debt S.6 State & local government debt S.6 & S.7 Total debt Privately held credit market S.7 instruments Private domestic nonfinancial sector S.7 deposits and credit market assets S.7 Deposits and credit market assets S.6 Credit market debt S.7 Deposit assets S.7 Credit market assets S.7 Deposits and credit market assets holdings S.7 Deposits and credit market assets S.9 Household deposits and credit market assets S.9 Deposits and credit market assets S.9 Corporate equity holdings the same index, but they are plotted directly, not as moving av erages. To eliminate quarterly seasonality of outstandings the year-end levels were incremented to other quarters of each year by the seasonally adjusted quarterly flows. Corporate stocks are omitted from all data in the charts both as assets and as liabilities except in chart 12. Data for the charts are derived from tables at the back of this publication (pp. S.1-S.10) and are identified in the following list: Line 9, upper section. Book value = line 9 less total IVA 18 4- 19, upper section Table S.8, 13 - 10 + Table S.10, 5 less capital consumption 27 + 28 upper section less business loans in chart 1 From charts 1 and 2 27 + 28 upper section 2, upper section 27 + 28 upper section 2 5 12 + 13, lower section 10 + 11 21+22 less business loans and residential mortgages 20 1, total credit market debt owed by nonfinancial sectors 12 48, credit instruments, deposits, and currency 48 5 38 32 48 48 2 2 19 (at market value) Fourth-quarter values of the deflator are presented below in reciprocal form, as multipliers against actual data: 1952 1953 1954 1955 1956 1957 1958 3.233 3.136 2.995 2.833 2.661 2.516 2.408 1959 1960 1961 1962 1963 1964 1965 2.280 2.176 2.095 1.986 1.885 1.794 1.693 1966 1967 1968 1969 1970 1971 1972 1.581 1.483 1.366 1.250 1.144 1.051 .972 1973 1974 1975 1976 1977 1978 1979 .872 .758 .681 .627 .570 .509 .453 24 Section 2: Organization of Accounts Section 1, on the concept of flow of funds ac counts, describes the system only in broad terms and does not constitute an operating description of the system. Sections 2, 3, and 4 define the accounts in terms of the rules that organize the system, the relation of the accounts to income and product in formation, and descriptions of individual sector and transaction categories. Statistical derivation proce dures for individual items in the accounts and pro cedures for processing source data are described in a separate publication. Section 1 emphasizes that the matrix organization of data is fundamental to the calculation, under standing, and analysis of flow of funds information. The matrix is also the organizing principle for the statistical tables in flow of funds publications, each of which is a statement, in time-series form, of one column or one row of the matrix taken as a bal anced account of debits and credits. The tables for individual columns are sector statements of sources and uses of funds, while the tables for rows sum marize purchases and sales in markets for individual transaction categories. Tables of contents are orga nized to indicate the matrix structure of the timeseries tables as directly as possible. This section de scribes in more specific terms the organization of the matrix of accounts and hence of the system it self. References to the matrix are to the table on page S.l of the statistical section. As a device in social accounting, the flow of funds matrix has the following characteristics: 1. Sectors. The economy is divided into major groups of transactors, such as households, busi nesses, and governments. These groups are termed sectors in flow of funds discussions and consist of sets of commonly identifiable economic units. The term sector thus always has an institutional meaning in these accounts, contrasted with many other bodies of data, economic models, and analytic dis cussions in which it sometimes refers to types of activities, as in the investment sector or the financ ing sector. Investment and financing are forms of activity that any institutional group might undertake and are referred to here as types of transactions (see item 3 below).17 17. Noncorporate business is an exception to this principle, as discussed in section 4. 2. Sector uses and sources. A pair of columns, one for payments (U for uses of funds) and one for receipts (S for sources of funds), is established for each sector, and all transactions by the members of the sector are reflected in one or the other of these two columns. 3. Financial transaction categories. All pay ments and receipts of each sector are classified into standard categories, which constitute the rows of the matrix. Just as each family, firm, or govern mental unit is classified entirely in one or another column, so each individual financial claim—such as a savings account passbook or a single Treasury bill—is exclusively in one or another row, and all transactions in that claim are recorded in that row. Summation of all uses of funds along a row and across the sectors of the matrix gives a total of out lays made to acquire a particular kind of asset, whereas summation of sources along a row yields a total of funds raised in that particular manner. 4. Financial sources and uses. Financial claims are shown in the S column of a sector only to the extent that members of the sector issued such claims as liabilities to raise funds. Correspondingly, transactions in the U columns refer only to dealings in the claim as an asset. Sale of the claim as an as set is a negative offset against acquisitions of claims in the U columns, and debt repayment is an offset to borrowing in the S columns. Gold and special drawing rights (SDRs) are treated as financial assets but not as liabilities. Gold is a metal widely used as a monetary reserve, but it is not owed by anyone to the holder, and SDRs are of the same nature. All transactions in these items appear as purchases and sales of assets in the U columns of the matrix. Net new issues of corporate equities appear as sources of funds to issuing sectors, but in tables on outstanding assets and liabilities most corporate equities, like gold and SDRs, are shown only as as sets. As residual claims on corporate net worth, eq uity securities do not constitute specific liabilities of business that can be stated in the accounts. 5. Financial market summaries. Each purchase of a claim is always someone else’s sale of that same claim. Hence, taking the economy as a whole Section 2: Organization and including transactions with foreigners, total funds raised by issuing a particular type of claim are necessarily equal to total funds used to acquire that claim as an asset. Total borrowing then equals total lending in any type of claim and for any set of claims taken to gether. Each row or set of rows for financial claims therefore is a summary of all funds coming into and going out of a particular financial market or set of markets. 6. Floats in financial transactions. Because in many instances a single transaction is not entered into the books of the buyer and seller on the same day, there are many discrepancies in the basic ac counting records of the economy between total as sets and liabilities outstanding. The result is a cer tain amount of floating supply of claims as assets or liabilities that is an exception to item 5 above. In the flow of funds accounts, the floats that can be estimated appear in the Discrepancy column of the matrix (discussed under item 10 below). 7. Nonfinancial transactions. The first ten rows of the matrix are for each sector a condensed sum mary of all nonfinancial transactions—payments and receipts for wages, goods and services, taxes, and transfers. Current receipts and payments are netted into a sector total of saving, while purchases of physical capital are shown separately. Cumulated across the columns for domestic sec tors, the row for saving adds to total saving in the U.S. economy, which is shown in a memo column (National saving and investment). The physical in vestment rows add across in a similar way to total capital formation in the economy. 8. Sector balances—saving and investment. As an accounting matter, every receipt of funds by an individual or a sector is reflected in one or more uses of funds, if only to increase cash balances.18 18. In the flow of funds context the terms source of funds and use of funds mean no more than the standard terms credit and debit in double-entry bookkeeping. The sector statement is not a traditional sources and uses of funds aimed at explaining move ments in a single item such as working capital, bank reserves, Treasury cash, or gold and foreign exchange. Any such single item in the accounts is a concept of funds special to one or an other activity in the economy. When parallel statements are set up for all sectors, there is no one concept of funds that can be useful uniformly across the matrix. Even cash loses its generality in this setting, because cash of the public is different from cash of a bank or monetary reserves of a central bank. Hence the flow of funds statement evolves to a generalized form in which the funds themselves vanish, and there remains only the balance be tween total debits and total credits. 25 For each sector, then, a balance exists (except for statistical discrepancies) between total sources and total uses of funds. This balance can be shown in a variety of ways, but in the matrix presented on page S. 1 sector-account balances are shown as an equality between gross saving of each sector and its gross investment (rows 1 and 4 of the matrix). The concepts of saving and investment used here for sectors are the same as those applied to national ag gregates, and for each sector saving equals invest ment in the same sense as for the total economy. For each sector saving equals that sector’s physical capital formation plus a net financial investment that measures the sector’s excess of lending to other sectors over its borrowing from other sectors. At the national level, similarly, total saving equals capital formation plus net foreign investment, where the latter is the excess of lending abroad over bor rowing from abroad. With this accounting structure, the particular types of financial transactions by a sector, both bor rowing and lending, are subcategories under net fi nancial investment. The totals shown for financial sources and uses of funds by a sector in general in clude financial flows within as well as between sec tors. It is only in the net of the two totals, where intrasector flows are canceled out, that the financial figures become intersector flows. This netting is carried across to the national total of net financial investment, where all domestic flows are washed out and where net financial investment of the econ omy becomes identically equal to net foreign in vestment.19 9. Balance of the matrix as a whole. The effect of the preceding eight items is to produce in the matrix a severely constrained accounting system that undertakes to place every transaction of the economy into direct juxtaposition to its counter parts, both vertically in sector accounts and hor izontally in transaction or market-summary ac counts. Horizontally the matrix is constrained by the equalities between saving and investment, be tween total nonfinancial sources and nonfinancial 19. Net foreign investment is measured in flow of funds ac counts from capital flows (that is, the net of financial flows) in the international transactions statement, whereas net foreign in vestment in the national income and product accounts is mea sured from the current account—exports less imports and net transfer payments. The difference between the two measures is the statistical discrepancy in the international statement, shown in the matrix as the sector discrepancy (row 44) for the rest-ofthe-world sector. 26 Introduction to Flow of Funds uses of funds, between net financial investment and net foreign investment, and between total borrowing and total lending in each financial market. Verti cally it is constrained by the equality between sav ing and investment by each sector and for the econ omy as a whole. The upshot of these constraints is that in using this organization of data as a framework for anal ysis—construction of models, simulation exercises, forecasting, or estimation of the data—no one cell of the matrix can be altered without changing at least three others: one in another row of the same sector column, one in another column of the same row, and at least one other for the second column and second row. 11. Matrix as capital account. The most general and most important characteristic of the matrix is that it constitutes a capital account for the economy as a whole deconsolidated among a number of insti tutional sectors. It is a capital account in the sense that it is a statement of acquisition of assets—both physical and financial—together with the sources of funds used to acquire those assets. For each sector the entry for gross saving is the net sum of internal sources of funds—a residuum of current receipts less current outlays—and constitutes in the matrix an addition to sector net worth plus capital con sumption reserves. Investment is stated gross of capital consumption and net of borrowing and is thus a use of funds consistent with the saving con cept as a source. The matrix deconsolidates among sectors the cap ital account of the national income and product sta tistics. The nature of the matrix as an expansion of that capital account into individual sectors, and into individual financial markets, is central to the con cept of flow of funds accounting and analysis. The position of the income and product capital account in flow of funds is discussed in section 3. As already mentioned, each table in the sector and transaction accounts is a statement in timeseries form of one column or one row of the ma trix. The sector tables are statements of sources and uses of funds, and the transaction tables cut across sectors to summarize flows into and out of individ ual markets. Any one cell of the matrix appears in both a sector table and a transaction table and is a link between the two. This simple matrix organization of flow of funds tables allows flexibility in grouping of the data for specific purposes. Flow of funds data lend them selves to many views of economic activity, and each view characteristically needs its own summary structure, with particular items or relationships em phasized. The matrix itself provides a map from which more condensed systems can be designed with explicit indication of where each cell will fall and with assurance that balance of the accounts as a whole can be maintained to the degree necessary. □ 10. Discrepancies. The matrix includes a Discrep ancy column and a Discrepancy row to absorb un accounted entries in transaction rows and sector columns. The Discrepancy column carries the net sums of sources of funds less uses of funds across rows, and the sector-discrepancy row carries corre spondingly the net sums vertically. Because all ele ments of the matrix are reflected in both of the two accounts, they add to identical net totals in the cor ner of the matrix. While they are net totals in the matrix, the two discrepancy accounts can also be viewed as a final sector and a final transaction account in a matrix that identically adds to zero in both directions. With that viewpoint, the statements in item 9 on con straints take on added generality, since one option in changing the matrix is to alter sector or transac tion discrepancies. Indeed, if any single cell within the matrix is altered without explicit offsetting ad justments, the three other changes will automati cally be in a sector discrepancy, a transaction dis crepancy, and the joint sum of sector-transaction discrepancies. All discrepancy entries have the sign of net uses of funds (the net sum of all sources minus allocated uses in an account). This is an arbitrary convention; it happens to be the same as that used in interna tional transactions statements and the opposite of the convention in the national income and product accounts, in which the statistical discrepancy is on the saving side of the capital account as a net source. 27 Section 3: Relation to National Income and Product Accounts As stated earlier, a major purpose of the flow of funds accounts is to relate developments in financial markets directly to the nonfinancial activities of the economy. For that purpose, the nonfinancial econ omy is taken to be measured by the scope, defini tions, and data of the U.S. national income and product accounts (NIPA) published by the Bureau of Economic Analysis (BEA) in the Department of Commerce. The capital accounts for individual sec tors of the economy that are pictured in the matrix on page S.l are in accounting form essentially a deconsolidation of the single capital account published by the Commerce Department in, for example, the July 1979 Survey of Current Business (SCB), as table A-5, “Gross Saving and Investment,” on page 25 and as table 5.1 on page 47. The account appears in quarterly income and product estimates in SCB as table 15. In that account all financial claims within the United States are offset against one another in a national consolidation of all capital account activity. There is thus no recording of fi nancial flows within the economy or of financial in vestment by individual sectors. The consolidation leaves a measure of net financial investment for the economy as a whole that is conceptually the same as net foreign investment—the excess of U.S. lend ing abroad over U.S. borrowing abroad. The flow of funds deconsolidation distributes the national totals of saving and tangible investment among domestic sectors. It introduces explicit re cording of financial flows among sectors, detailed by type of instrument, that indicates the routes— direct or through intermediaries—by which sectors, such as households that have excesses of saving over physical investment, lend to sectors, such as business and governments that may have an excess of spending. The position of the Commerce Department capi tal account in the flow of funds system is described in tables 4 and 5, by using data for the year 1972. These tables refer to Commerce Department catego ries of saving and investment as presented in The National Income and Product Accounts of the United States, 1929-74, published as a supplement to SCB in 1977. Saving and investment totals Table 4 gives the relationship between the national totals of saving and investment in the two systems of accounts. Total gross national saving (line D) in the flow of funds accounts is equal to the Com merce Department total, with the major exception that purchases of consumer durables have been treated in the flow of funds accounts as capital ex penditures rather than as consumption. This shift produces a smaller amount of current outlays and a Table 4. Gross saving and investment, comparison of two systems, 19721 Millions of dollars Income and product accounts Flow of funds accounts Difference Source of difference A. Gross private saving B. Government surplus C. Capital grants to the United States 180,354 -3,516 710 303,560 -15,152 — 123,206 -11,636 -710 Rows B, E, and I Insurance and pension reserves Omitted in F/F flows D. Gross national saving 177,548 288,408 110,860 Rows C, E, and I E. Gross private domestic investment F. Net foreign investment 188,275 -9,046 299,516 -11,676 111,241 -2,630 Consumer durables Rows C and J G. Gross national investment 179,229 287,840 108,611 Rows E and F H. Statistical discrepancy (D minus G) -1,681 568 2,249 Item I. Wage disbursements less accruals J. Statistical discrepancy in international transactions 1. F/F = Flow of funds. 329 1,920 Rows I + J Omitted in F/F flows F/F row F is based on capital flows rather than currentaccount balance 28 Introduction to Flow of Funds larger amount of saving' in flow of funds accounts than in NIPA.20 This treatment of consumer durable goods is based on the consideration that expenditures on those goods are, in a financing context, closely similar to those on producers’ durables: (1) a house hold purchase of durables typically represents an in vestment in a product that will be useful over a per iod of several years; (2) consumer durable goods substitute to a significant degree for related business capital equipment; and (3) purchases of durable goods are debt-financed to a large extent. To bring consumer durable goods into the complex of saving and investment, a total for household saving is taken before deduction for these purchases, and total saving and investment are correspondingly higher. A second, smaller difference in the two totals of saving is in the treatment of allocations to the United States of special drawing rights when these are created and distributed by the International Monetary Fund. Such allocations occurred in 1970, 1971, 1972, and 1978, and in the Commerce ac counts they appear as capital transfers from abroad, a component of saving that offsets the rise in SDR holdings included in net foreign investment. SDR allocations are reflected in asset holdings in flow of funds accounts, but they are omitted from flows as not actually transactions. Flow of funds accounts have a somewhat differ ent distribution from Commerce accounts between private and public saving. This difference arises from the treatment of government life insurance and retirement fund activities. In the Commerce ac counts transactions of government life insurance and retirement funds with households are treated as social insurance contributions and transfer payments in the current account, both part of personal in come. In flow of funds, however, life insurance and pension claims by households are established as part of household assets, and claims of these types against government funds are treated the same as claims on private insurance and retirement funds. Growth of government reserves is thus taken to re flect not a current surplus in government accounts but rather an increase in liabilities owed to house holds. This difference in distribution shifts saving from governments to households relative to the Commerce Department accounts but has no effect on total saving.21 Federal government insurance funds are consoli dated directly into the flow of funds sector account for the U.S. government, where net growth in in surance reserves is deducted from current surplus and appears as a financial source of funds under lia bilities. State and local employee retirement funds, however, are shown as a financial sector separate from the operating accounts of these governments. The treatment there is to transfer saving from gen eral government (in the flow of funds state and lo cal governments—General funds sector) to house holds, and to impute a lending from households to the retirement funds (in the flow of funds state and local government employee retirement funds sec tor). The amount of both transactions is measured by total net growth in the funds’ assets. An occasional minor difference between the two totals of national saving occurs when there is an ex cess of wage accruals over disbursements, usually arising from retroactive wage rate changes and en tered in the accounts ex post. While these could be shown in the household statement as a nonfinancial source offset by a receivable as a financial use, the added complication would not contribute to anal ysis, and such adjustments are merged with the nonfinancial discrepancy, as shown in table 4, row I The only difference in table 4 between the mea sures of gross private domestic investment (row E) in the two systems is the presence of consumer du rables in the flow of funds total, as discussed above. In the total of national investment another difference arises in the measurement of net foreign investment. In the Commerce Department accounts, net foreign investment is measured as the net of current-account transactions in balance of pay ments—imports, exports, and unilateral transfers.22 In flow of funds accounts, on the other hand, net foreign investment is measured as the net of capital account transactions, the excess of U.S. funds ad vanced to foreigners in all financial forms over U.S. funds raised from foreigners. The current and capital balances are conceptually equal, but in prac tice they differ by the amount of the statistical dis crepancy in the international transactions statement, and this discrepancy is thus part of the difference between the two measures of gross national invest- 20. The shift includes introducing capital consumption allow ances for consumer durables but is made without imputing in come from use of durables to total income or services from dura bles to product. 21. Government retirement funds here cover government em ployees and persons covered by railroad retirement. Old-age and survivors insurance is treated the same in the two accounting systems; in neither does it give rise to household saving. 22. With the adjustment for SDR allocations mentioned earlier. 29 Section 3: Relation to NIPA ment. The capital account balance is used in flow of funds accounting because it is the foreign coun terpart (with sign reversed) of the net financial in vestment that is measured for domestic sectors from financial transactions and that appears in the model matrix in table 1 as row 3. Table 4 shows on row J that this difference in foreign investment totals is reflected in a difference between the national in come and product statistical discrepancy and flow of funds discrepancy between saving and invest ment (row 44, last column of the matrix, page S.l).23 Distribution of totals among sectors Table 5 spells out the allocation of national saving and tangible capital formation among flow of funds sectors. Part A.l shows the allocation among the flow of funds of each component of total saving as published in the national income and product ac counts (total column). Part A.2 shows the changes in the total and their distribution in the flow of funds accounts occasioned by differences in treat ment of specific transactions. Part A.l is based en tirely on Commerce Department data underlying the national income and product accounts, whereas A.2 is based on flow of funds estimates except for con sumer durables. In A.l a few specific points of al location should be mentioned. Corporate farms are in the farm sector, and household capital consump tion on row 8 is on owner-occupied housing and nonprofit facilities. Gross saving of nonfarm nonfinancial corpora tions in the flow of funds is different from the Commerce Department nonfinancial corporate total (for example, SCB, July 1979, page 32) only in that the flow of funds total includes net receipts from foreign branches and excludes farm corpora tions. The major differences in transaction treatment be tween the two accounting systems, recorded in part 23. The discrepancy between saving and investment in the flow of funds is to be distinguished from the nonfinancial dis crepancy that appears in the matrix, row 1, discrepancy column. The latter matches total gross saving (the net on current nonfi nancial transactions), including that of foreign sectors, with total nonfinancial investment (row 5). In this matching, the foreign component is the balance of payments current-account balance (with opposite sign) used as net foreign investment in the Com merce Department statement. The flow of funds nonfinancial dis crepancy is thus equal to the Commerce Department statistical discrepancy, although opposite in sign, plus the excess of wage accruals over disbursements. A.2 of table 5, have been discussed in relation to table 4: consumer durables (row 12), which affects total saving, and government life insurance and re tirement funds (rows 13 and 14), which affect only distribution among sectors. Another adjustment to allocation of saving is capital-gains dividends of open-end investment companies, which are treated in the Commerce Department accounts as a capital transfer rather than as a dividend component of per sonal income. In the flow of funds these are a cur rent-account payment from investment companies to households in order to avoid using a capital-transfer account in the system for this one item. Saving is reallocated accordingly. Row 18 introduces capital consumption on con sumer durable goods needed to derive net house hold and national saving in the flow of funds ac counts, where such durables are viewed as capital goods rather than as consumption at the time pur chased. The estimate is from BEA and like NIPA capital consumption is straight-line depreciation stated in current-year prices. Part B.l of table 5 shows sectoring of totals of gross private domestic investment by type. Both to tals and details are estimated by BEA. An impor tant part of this section is the allocation of residen tial construction purchases directly to households. This is the net amount spent by households on owner-occupied dwellings, including new houses, mobile homes, condominiums, brokerage fees, and additions and alterations to those dwellings. The na tional income and product accounts treat owneroccupied housing as a business activity, in which owners pay imputed gross rents to themselves and then as landlords deduct depreciation, property taxes, mortgage interest, and so forth as business expenses to yield a residual imputed net rental in come that is part of personal income.24 The flow of funds accounts continues these imputations in per sonal income, consumption, and personal saving, which are directly from the national income and product accounts, but in the rest of the household statement consolidate landlord activities of owner occupants directly into other activities: (1) capital consumption allowances are added back to personal saving to get household gross saving (in table 4, row 6) because gross saving is a cash-flow concept, and capital consumption is only a book-entry cost rather than a cash outlay; (2) capital outlays for owner-occupied housing appear directly as a house24. Details are shown in, for example, SCB, vol. 59 (July 1979) p. 68, lines 61-68. 30 Table 5. Saving and physical investment in flow of funds accounts, 1972' Nonfinancial business Item House holds Total Non State Farm corporate Corporate and local nonfarm A.l 1. Personal saving 2. Undistributed corporate profits 3. Corporate IVA 4. Corporate capital consumption adjustment Capital consumption allowances 5. Corporate 6. Noncorporate 7. Wage accruals less disbursement 8. U.S. government surplus 9. State and local government surplus 10. Capital grants to the United States 11. Gross national saving (NIPA) 22,4832 -6,597 7,427 2,522 -8 2,695 - 165 65,362 40,002 -329 -17,263 410 17,504 7,029 62,195 2,757 -329 13,747 66,874 7,545 111,241 111,241 ..................... 3,145 ..................... 8,491 ..................... 1,420 ..................... 381 288,408 191,171 76,107 76,107 97,560 106,937 15,469 80,776 - 17,263 10,019 710 381 7,545 15,469 ....................... -8,491 -3,145 ................... ... - 1,420 80,776 5,256 -20,408 8,599 381 0 18,581 5,256 -20,408 5,842 0 ..................... 0 106 Allocation of gross private domestic investment in NIPA among F/F sectors 62,006 4,049 36,783 21,174 40,715 4,049 34,866 1,800 664 15,344 4,911 372 664 6272 14,717 6263 4,285 372 116,827 9,442 5,5414 6,629 610 13,364 1,271 86,869 7,561 188,275 46,256 7,903 29,979 99,341 299,516 13,747 Transactions differences between NIPA and F/F affecting saving 4,424 . . . 4,796 Transaction differences between NIPA and F/F affecting investment 111,241 ..................... 157,497 7,903 1. NIPA = National income and product accounts published by Department of Commerce, Bureau of Economic Analysis. F/F = Flow of funds accounts. IVA = Inventory valuation adjustment. 15,469 -17,263 13,747 710 177,548 111,241 Not allocated Allocation of NIPA saving among F/F sectors 114 B.2 Consumer durables Mineral rights from U.S. government Gross private domestic investment (F/F) Finance 30,024 -6,597 B.l 20. Residential construction 21. Mobile homes 22. One- to four-family structures 23. Multifamily 24. Nonresidentia! plant and equipment 25. Change in business inventories 26. Gross private domestic investment (NIPA) Federal 49,370 49,370 A.2 12. Consumer durables 13. U.S. government and insurance and pension reserves 14. State and local government pension reserves 15. Capital gains dividends of investment companies 16. Less: not allocated 17. Gross national saving (F/F) 18. Depreciation on consumer durables 19. Net national saving (F/F) (lines 17-5-6-18) Government 29,979 912 -912 100,253 -912 2. Includes foreign branch profits. 3. Change in builders’ work in process. 4. Nonprofit organizations. 4,796 Section 3: Relation to NIPA hold investment expenditure; and (3) mortgage bor rowing against owner-occupied houses appears in credit market funds raised by households. This con solidation of housing activity into the household sector differs from flow of funds accounts in some other countries and must be remembered in interna tional comparisons. Buying and selling of existing houses within the household sector is netted out of the outlay total ex cept for brokerage fees. Such transactions are both a use and a source of funds in household capital ac counts and are not included in gross capital forma tion in GNP. The dollar volume of trading in exist ing houses has in recent years been much larger than that for purchases of new houses, however, and with rising average house prices the in crease has been accompanied by net growth in mortgage debt unrelated to new capital formation. This is a substantial consideration in comparing household mortgage borrowing with purchases of new homes. Business investment in one- to four-family units represents only changes in work in process on houses for sale to households and is essentially an inventory-change component of the total residential figure. Multifamily construction allocated to house holds consists of condominium purchases. Farm residential construction is allocated to farms as pur chasers, since it is commingled with other farm ex penditures in financing. Nonresidential plant and equipment (row 20) is allocated as a single figure among sectors rather than separately for construction and producers’ du 31 rable goods. The household allocation is for plant and equipment of schools, churches, and other non profit organizations. Like existing-house transactions, purchases and sales of all types of land and existing plant and equipment are omitted from the sector distribution of capital outlays, as are transactions in intangibles such as leaseholds and patents. This omission pro duces statistical imbalances in the accounts insofar as there are net transfers among sectors in tangible assets, and the basis for omitting such transactions is only the lack of substantial information on the quantities. In general there is probably a net sale of land and intangibles by households and noncor porate business and a net purchase of these assets by corporate business and finance, causing im balances of opposite sign in the two sets of sector statements. There may have been several billion dollars of such transfers in recent years that are not in the accounts. Table 5 carries no allocation of net foreign in vestment among domestic sectors. Each sector’s net foreign investment is part of its net financial invest ment, but not yet entirely identifiable as such. To complete identification would require allocation of miscellaneous financial sources and uses of funds in the balance of payments statements that are occa sionally sizable but not specified as to nature. Pend ing further specification of those items, net foreign investment can be viewed only as the consolidated total of net financial investment for the United States, mixed for individual sectors with similar net investment in domestic claims. □ 32 Section 4: Definition of Sectors and Transaction Categories each. Flow of funds publications frequently carry, as on page S.3, a submatrix for nonbank financial sectors at the most detailed level available. The sector structure from the most detailed level to the broadest groupings used in the sector and transaction accounts tables is shown in table 6. Any institutional group for which a complete state ment of sources and uses of funds can be estimated in flow of funds accounts may be viewed as a sec tor for analytic purposes. At the most detailed level there are about 26 such sectors for which data are maintained on a continuing basis. The list changes over time, however, to reflect either new institu tional arrangements that appear in markets or ex panded availability of data that allow more detailed presentation of activities. The concept of a sector is very general, moreover, and in table presentations and discussions of the data, the elemental sectors are often combined into broader sector groupings that can also be treated as sectors analytically. The matrix on page S.l simultaneously shows two levels of sector detail, of which one is a very broad summary of the accounts into four sector groups—private domestic nonfinancial, U.S. gov ernment, finance, and foreign—while the other breaks private domestic and finance into three parts Sector definitions Households consists predominantly of individuals as consumers, as owners of houses that they live in and as personal investors in financial claims and in business activities. Unlike the treatment in some other countries, this sector does not include directly the business activities of noncorporate proprietors, such as investment in producers’ capital goods and rental real estate or borrowing directly related to those business activities. Noncorporate business transactions are set off, in this account structure, in Table 6. Sector structure Households Farm business Nonfarm noncorporate business Corporate nonfinancial business State and local governments—General funds 1 Noncorporate business J Nonfinancial business Private domestic nonfinancial Non financial Rest of the world U.S. government Federally sponsored credit agencies Mortgage pools Monetary authorities Domestic commercial banks Domestic affiliates of commercial banks Foreign banking offices in the United States Banks in U.S. territories and possessions Savings and loan associations Mutual savings banks Credit unions Life insurance companies Other insurance companies Private pension funds State and local government employee retirement funds Finance companies Real estate investment trusts Open-end investment companies Money market funds Security brokers and dealers Commercial banking } Savings institutions ► Insurance ► Finance not elsewhere classified ► Private ► nonbank finance Finance Section 4: Definitions separate business sectors that allow transactions to appear in concise, related form and allow summary sector statements for business as a whole, combin ing corporate and noncorporate forms. While many business proprietors mix their household and busi ness financing activities in ways that make separate statements artificial for single proprietors, the dis tinction between household and business positions is generally much sharper for partnerships and large proprietorships; and in the national totals the pres ence of larger firms gives substantial meaning to the separate business sector statements. The household sector includes as marginal com ponents of the group all personal trusts and non profit organizations serving individuals, such as churches, schools, labor unions, and charitable or ganizations. Trusts and nonprofit groups are in cluded mainly because the data for separate state ments are historically thin and sporadic. Beginning in 1968 there have been systematic tabulations of trust assets that have been administered by insured commercial banks, which include a substantial part of personal trust assets, and insured-bank totals for personal trusts and estates are presented as an ap pendix to Flow of Funds Accounts, 1949-78, page 171. During the 1970s, personal trust assets in cluded about 6 to 7 percent of total financial assets of the household sector, including security holdings in the range of 15 percent of the sector totals. For security market analysis, personal trusts thus appear to be a significant element of household invest ments but far from a dominant one. Data on nonprofit organizations are thinner and more scattered. Recent estimates give them about 3 percent of total household financial assets and 5 percent of the sector’s corporate equity holdings for the mid-1970s. Farm business covers all farming activities in the United States including corporate farms. The sector includes farm credit cooperatives consolidated with the farms that own them, and it includes farm hous ing activities. Consumption activities of farmers are in the household sector. Noncorporate farm income in the accounts is as defined and measured for na tional income purposes and it includes imputed in comes. Except for retained profits of corporate farms, income is transferred entirely to the house hold sector and is reflected in household saving. Owner equity investments in noncorporate farming enter the farm sector through the transaction ac count, “equity in noncorporate business.’’ To the extent that farmers commingle household 33 and business activities in their own accounts, this sector departs somewhat from the principle that all activities of a unit are to be in a single sector ac count. Because the corporate component is small, the farm business sector can be viewed almost as an activity subaccount of the household sector that iso lates in a separate statement the investment and business financing of this aspect of household activities. Nonfarm noncorporate business consists of part nerships and proprietorships in nonfinancial enter prises, including individuals’ rental activities and the professions. Like farming, this sector is treated in the accounts as an activity subaccount of the household sector: all current income is transferred to households, net saving is shown as zero, gross saving is equal to capital consumption allowances, and all changes in equity capital appear as net in flows in “proprietors’ net investment.’’ Corporate nonfinancial business comprises all pri vate corporations not specifically covered in finan cial sectors or farming. It includes holding com panies and closed-end investment companies on a consolidated basis, and also includes real estate firms. It is identical with the nonfinancial corporate group shown in Commerce tables except that it ex cludes farm corporations. Like the Commerce group this sector covers only the domestic activities of corporations and does not represent worldwide financial position or investment and borrowing by U.S. corporations. Operations of foreign subsidiaries and foreign branches are re flected only in the income items for branch profits received and net dividends paid (which are net of dividends received from foreign subsidiaries) and in the asset item for foreign direct investment, which combines on a net basis all capital-account transac tions between domestic head offices and foreign op erations. All of these links are on a cash basis of payments and receipts and do not, in particular, in clude the foreign earnings retained abroad that are part of the international transactions statement as current-account receipts and capital-account invest ment outflows.25 U.S. operations of foreign corpo rations are treated symmetrically: they are included 25. Balance-sheet equities in overseas operations that appear in statements of assets and liabilities for the sector include the effect of earnings retained abroad, however, and this difference in treatment between flows and outstandings causes sizable dif ferences between the net flows and changes in the outstandings shown. 34 Introduction to Flow of Funds in the sector, their earnings payments to foreign parents are positive in net dividends or negative in branch profits received, and all capital-account flows are netted into a single net financial source of funds as “foreign direct investment” in the United States in the corporate business statement. This treatment of the sector as a domestic consol idation differs markedly from financial statements published by corporations, which are almost always worldwide consolidations. Balance sheet ratios can differ substantially on the two bases, depending on whether foreign operations have been financed heavily by foreign borrowing or by parents’ domes tic borrowing that has moved abroad through the di rect investment outflow item. The two types of con solidation have different purposes, with the domestic oriented toward a view of the U.S. econ omy as such and the worldwide focused on the con dition of companies as such. A national accounting system is by its nature concerned with activities of a country and thus incorporates a domestic state ment for business, as in the form used here. the Postal Service and the Federal Financing Bank. Many of these agencies operate lending programs, and a few have debt outstanding with the public separate from Treasury securities. The sector does not include the Federal Reserve System and certain Treasury monetary accounts that constitute the mon etary-authority sector, and it does not include a set of federally sponsored credit agencies described be low. The sector account is consolidated, and trans actions and claims among agencies are not shown. Statistically, this sector has the same coverage of agencies and the same degree of consolidation as the Monthly Treasury Statement of Receipts and Ex penditures (MTS) with the exception of the District of Columbia, which is included in state and local governments. With that exception, its credit market debt is defined by “net borrowing from the public” as shown in MTS and as tabulated in the Treasury Bulletin, table FO-1. State and local governments—general funds com prises the 50 state governments, their political sub divisions, and all corporations, enterprises, debt issuing authorities, and trust funds operated by these units other than employee retirement funds; these last are shown separately as a financial sector. The basic data for the sector are the aggregates in the U.S. Census Bureau’s Census of Governments. Rest of the world is as defined in the statement of international transactions for the United States, and the data in this sector account are from that state ment, with capital-account flows classified into flow of funds financial transaction categories and with nonfinancial transactions as published in the national income and product accounts. The sector discrepancy is conceptually the “statistical discrep ancy” from the international transactions statement and differs from that item only by statistical differ ences between NIPA net foreign investment and the current-account balance in international transactions statements. U.S. government covers, for all years, the agen cies and funds that are in the government’s unified budget as of 1969, except the District of Columbia. Included are the Exchange Stabilization Fund, em ployee retirement funds, life insurance funds, all corporations that are wholly or partly owned by the government, and all “off-budget” activities such as Federally sponsored credit agencies is a financial sector consisting of six specialized lending institu tions that have close legal connections with the government but that are now excluded from the government budget accounts as private institutions. In the flow of funds accounts they are separate from the government sector for all years. These agencies finance their lending activities mainly through issues of their own debt securities, and such issues have been closely coordinated with Treasury debt operations. The agencies are as fol lows: AGENCY PRINCIPAL TYPE OF CREDIT Federal Home Loan Banks Loans to savings and loan associations Federal Home Loan Mortgage Corporation Residential mortgages Federal National Mortgage Association Residential mortgages Federal Land Banks Farm mortgages Federal Intermediate Credit Banks Short-term farm credit Banks for Cooperatives Short-term farm credit Federally sponsored mortgage pools comprises a set of arrangements authorized by the Housing Act of 1968 whereby negotiable securities are issued to the public against collateral of specific pools of mortgages that have been insured or guaranteed by federal agencies. The securities are “pass-through” Section 4: Definitions in that holders receive periodically scheduled inter est and amortization payments related to the pools as well as any prepayments of principal on the mortgages in the specific pools. The securities themselves are guaranteed by the managing agen cies, which have so far consisted of the Govern ment National Mortgage Corporation (GNMA), the Federal Home Loan Mortgage Corporation (FHLMC), and the Farmers Home Administration (FmHA). Pooling and security issues have been un dertaken both by these three agencies and by pri vate businesses such as mortgage bankers. The FmHA securities—certificates of beneficial owner ship—have, since March 1975, been sold only to the Federal Financing Bank and appear in the tables as federal government purchases of U.S. govern ment agency securities. This sector is unusual in that it consists only of these arrangements, with mortgages as assets and pool securities as liabilities, rather than of a set of institutions in the normal sense. The pooled mort gages do not appear on any lender balance sheets as assets, and the securities appear nowhere as institu tional liabilities. The sector thus exists to fill an im portant role in matching asset and liability positions in the system. Monetary authorities covers the Federal Reserve System and certain monetary accounts of the Trea sury: the gold account, the silver account, and an account constructed to record other currency liabili ties of the government and the assets behind those liabilities. The sector is identical with the group of institutions and accounts for which the “Member Bank Reserves, Federal Reserve Bank Credit, and Related Items” table in the Federal Reserve Bulle tin is a balance sheet. “Factors supplying reserves” in that table are assets, and “Factors absorbing re serves” are liabilities. The principal liabilities are thus bank reserves and currency in circulation, and the principal assets are U.S. government securities, gold, bank borrowings from the Federal Reserve, Federal Reserve float, and Treasury currency— assets that are backing for the reserve money of the economy.26 26. The structure of the sector is described in detail in “Member Bank Reserves and Related Items,’’ Banking and Monetary Statistics, 1941-1970, Section 10 (Board of Governors of the Federal Reserve System, 1976), in particular pp. 522-23. The present form of the published table is somewhat different from that published before the 1970s, and the flow of funds sec tor conforms to the present version of the table. 35 Domestic commercial banks comprises all banks that have head offices in the 50 states. It conforms in coverage of institutions to the domestic-bank subset shown in the Federal Reserve’s monthly sta tistical releases on bank credit. It omits, in particu lar, U.S. branches of foreign banks, which are in the “foreign banking offices” sector described be low. These branches were included in semiannual statements of condition for banks (call reports) as a major component of noninsured banks through June 1978. The presence of foreign branches in the call reports means that the call report totals that are benchmarks for this domestic sector are somewhat lower than published call report totals but are not identifiable separately. Domestic noninsured banks are a small group, however, and benchmarks for this sector are only slightly larger than call reports published for insured commercial banks. The sector is on a consolidated basis: all deposit and loan relationships among domestic commercial banks have been “washed out.” Interbank items in general add to different totals as assets and as lia bilities because of items in transit and classification variances, however, and the net differences are in cluded in the sector account as a residual interbankclaim liability. As with nonfinancial corporations, foreign branches and foreign subsidiaries of these banks are not included in the consolidation. These offices are classified as foreign in international transaction statements and in the rest-of-the-world sector state ment and are linked to the domestic bank statement through a single net interbank liability to foreign. Domestic subsidiaries, other than Edge Act corpora tions, are consolidated into the sector; but domestic parents such as bank holding companies are not. Domestic affiliates of commercial banks covers mainly holding-company parents of banks. The data included for the group are at present limited to spe cific assets and liabilities related directly to banking activity: loans to banks, loans purchased from banks, and commercial paper issued to finance such activities. Foreign banking offices in the United States is a combination of Edge Act and Agreement corpora tions, U.S. branches of foreign banks, and U.S. agencies of foreign banks. Edge Act corporations are subsidiaries of American banks that are mainly in international banking under specific laws but that have certain domestic deposit liabilities and money market positions. Branches and agencies of foreign 36 Introduction to Flow of Funds banks operate in the United States under special bank charters and have substantial domestic posi tions in business loans and deposits or deposit-like liabilities, but they are not corporate entities sepa rate from their parent banks. These three groups are included in international transactions statements as banks, and in Federal Re serve bank credit statistics their credit holdings are added to domestic bank credit to arrive at total bank credit. Their deposit-type liabilities are included in the monetary aggregates published by the Federal Reserve. The group does not include U.S. banks that are subsidiaries of foreign banks. Subsidiary banks are included in the domestic bank sector described ear lier. also excluded; they are in the U.S. government sec tor account. Banks in U.S. territories and possessions are classified as domestic in international transactions statements and are included in the banking group here. They are not, however, included in bank credit totals or the monetary aggregates published by the Federal Reserve. The group consists of those currently published by the Federal Deposit Insur ance Corporation. It includes branches of U.S. and foreign banks in these areas. Savings and loan associations are mutual and stock institutions chartered by states and federal government to accept share capital and to lend pri marily in mortgages. The group consists of associa tions covered in Federal Home Loan Bank Board statistics, including noninsured associations. Mutual savings banks are institutions operating under savings bank charters in 19 states with de posit insurance from the FDIC. Data for the group are those published by the National Association of Mutual Savings Banks. Credit unions are employee organizations related to individual firms or agencies that are organized under state or federal charter to accept share funds from members and to lend consumer credit to mem bers. The group consists of all state and federal credit unions in statistics published by the National Credit Union Administration. Life insurance companies are those covered in the annual Fact Book published by the American Council of Life Insurance but excluding fraternal orders. Government life insurance programs are Other insurance companies are the fire, casualty, and other companies covered in Best's Aggregates and Averages, a private publication. Private pension funds are defined in the annual statistics on self-administered pension funds pub lished by the Securities and Exchange Commission. They include retirement funds of nonprofit organi zations and multiemployer plans shown in those data. Their total assets are treated as a holding in trust for the household sector and are the measure of a pension reserve liability to households. By this treatment pension funds have zero saving by defini tion. The current-account transactions that affect pension fund assets are imputed to households and are reflected in personal saving. This money is then advanced by households to pension funds in the financial accounts. State and local government employee retirement funds are the group of such funds reported in the Census of Governments. They have the same posi tion in the accounts as private pension funds, with zero saving and a liability to households equal to their assets. A current-account transfer of saving from governments to households is required to fi nance this household investment, however, because in the national income and product accounts the saving is attributed to governments. This NIPA treatment is described in section 3. Finance companies comprises sales finance, con sumer loan, and commercial finance companies covered in the Federal Reserve’s five-year survey of finance companies.27 The group also includes mort gage companies. Real estate investment trusts (REITs) are a recent form of intermediary that, through 1960 legislation, are exempt from federal corporate income tax pro vided that they distribute most of their ordinary in come to shareholders and that most of their invest ments and gross income are from real estate or mortgages. They can be either open end or closed end, but in practice all trusts created have been closed-end companies. Their investments have been mainly in construction and development loans, and 27. The 1975 survey was published in the Federal Reserve Bulletin, vol. 62 (March 1976), pp. 197-207. 37 Section 4: Definitions their funds have been raised through diversified pat terns of bond and share issues, bank loans, and commercial paper issues. on page 26 in its relation to the discrepancy trans action row. Open-end investment companies (mutual funds) are the group reported by the Investment Company Institute, other th^n money market funds and mu nicipal bond funds. Money market funds are a sepa rate sector described below, and municipal bond funds are consolidated into the household sector. Mutual funds issue shares on a continuing basis and redeem shares on demand at values based on cur rent market values of net assets. Their capital is in vested in a variety of debt and equity instruments, with wide differences among funds in investment objectives. Closed-end companies are consolidated with the nonfinancial corporate business sector. Transaction categories Money market funds are a form of mutual fund that became prominent during the 1970s. They are open-end investment companies that invest primar ily in short-term money market claims and offer to small investors the yields that are available from commercial paper, large CDs, and other instruments that typically come in minimum denominations of $100,000 or more. The group covered is that re porting to the Investment Company Institute. Security brokers and dealers data are based on aggregates published by the Securities and Ex change Commission in its annual reports and cover ing all such firms registered with the commission. Discrepancy, the last column in the matrix, records the residual excess of total sources over total uses of funds along transaction rows of the matrix. These discrepancies have the sign of a net use of funds. In an accounting sense the discrepancy column is the last sector account needed to com plete the matrix. As indicated in the descriptions of transaction accounts below, many of these discrep ancies have substantive meaning and are not solely the result of statistical deficiencies. The discrepancy for nonfinancial transactions is equal to the statisti cal discrepancy in the national income and product accounts (with sign reversed), reflecting the integra tion of Commerce data into the system discussed in section 3. Transaction accounts with zero discrepan cies have residual estimates along the row for trans actions of some actual sector in the account. Fre quently the residual is in the household account, but not always. The discrepancy column is discussed Transactions in the flow of funds accounts fall into three major groups: current nonfinancial, capital nonfinancial, and financial. In addition, there are several internal entries, subtotals, and transfers be tween current and capital subaccounts, such as capi tal consumption charges, current surplus, saving, investment, corporate profits, and unincorporated business net income. Many sectors also have a re sidual discrepancy item—the excess of saving over investment in the data. Flow of funds accounting, as sketched in table 1, is not directly concerned with current transactions— income, transfers, current spending—except through the gross-saving measure of excess current receipts flowing into capital account. Current transactions yielding that surplus are covered systematically in the national income and product accounts and are not repeated or paralleled in this system. Some of the sector tables include a few current items from NIPA data as a convenience in analyzing relation ships with capital account activities, but not on a systematic basis across sectors. The household statement includes a derivation of gross saving from NIPA personal saving, and the statement of nonfi nancial corporate business includes the distribution of profits, the position of inventory valuation and capital consumption adjustments, and the relation of NIPA gross saving and investment to counterparts on company books. Statements on the government sectors include some detail on taxes, purchases, and transfers, and the rest-of-the-world statement sum marizes exports, imports, and transfers. The first table in most flow of funds presentations gives the NIPA data needed to show the sector distributions of the gross saving totals published in NIPA. Capital nonfinancial Sector gross saving is a direct accounting link be tween the current account, where it is a residual use of funds that clears the account, and the capital ac count, where it enters as a source of capital funds. Other capital nonfinancial components of the matrix are the purchases of capital goods that are discussed in section 3. in their sectoring and their relation to the national income and product accounts. The flow 38 Introduction to Flow of Funds of funds table mentioned earlier that presents sec toring of gross saving includes as well a sectoral distribution of capital outlays on a time series basis. ample, household mortgage assets and liabilities are entered separately), nor in different types (such as a deduction of security credit from security hold ings).28 Certain time-series tables of the accounts show such deductions, but they are within special formulations and not part of the general structure of the accounts. Net financial investment for each sector is the ex cess of net acquisitions of financial assets over net increases in liabilities. It measures net funds ad vanced by each sector to all other sectors. Net fi nancial investment for each sector plus the statisti cal discrepancy for that sector equals the sector net surplus on all nonfinancial transactions. Table 7 lists the types of financial claims for which separate transaction accounts are maintained in the flow of funds accounts. The items listed are categories normally shown in the published tables. Some are sums of subcategories for which accounts are also maintained; subcategories are indented. The groupings are those frequently used to summarize transaction accounts. Financial For flow of funds accounting the term “financial transaction” refers broadly to transfers of claims among transactors, mainly debt claims—promises to pay—but also money, which is a claim on the banking system, and business equities. Common examples are borrowing, in which the lender’s cash (or sometimes deposit liability) is exchanged for the borrower’s debt instrument; security trading, in which lenders exchange cash and securities; and debt restructuring, in which a lender accepts a new debt instrument from a borrower in exchange for an old one. In each of these cases the balance sheet of each transactor has offsetting entries among liabili ties, among assets, or in assets matched against lia bilities, and the transaction is entirely in financial accounts. Beyond these are transactions in which a finan cial claim is transferred in exchange for goods and services. Such a transfer occurs, for example, when the seller of a house accepts a mortgage from the buyer in exchange for title to the house, when de ferred payment for a purchase results in a tradecredit claim of the seller on a buyer, or finally when a purchase is immediately paid in cash. These transactions also affect balance sheets, but the off sets to the changes in claims are in physical assets or in net worth if the transaction is in the current account for the buyer or seller. A third type of financial transaction included in the system consists of accrual of claims, which are bookkeeping entries within single balance sheets that usually offset current-account entries and thus net worth. These are not transfers in the plain sense, but the sector statements contain many of them in the “miscellaneous” category described be low. Tax liabilities are a specific accrual item that appears as a separate category. The reasons for in cluding accruals in transactions statements are men tioned in the discussion of those categories. All financial transactions are entered from the ac counts in a particular form of net basis: asset sales by a sector are entered as a negative use of funds— deductions from purchases of the same kind of asset—whereas debt repayments are entered under sources as deductions from new borrowing of the same type. There are in the matrix no deductions of liabilities against assets either within a type (for ex Gold and special drawing rights consists of gold held as a monetary reserve and SDR holdings. Transactions in these assets are recorded only for monetary authorities, the Exchange Stabilization Fund in the U.S. government sector, and the rest of the world. All transactions are treated as uses of funds, and no liability is imputed for not holding gold or for SDRs. All monetary gold is in assets of the monetary authorities, while gold held by the Exchange Stabilization Fund is in U.S. government assets together with all SDR holdings. As men tioned in section 3, SDR allocations to the United States, which began in 1970, are included in asset holdings but not in flows. Revaluations of the U.S. dollar also appear as changes in gold and SDR holdings not reflected in flows. The flow data in clude only purchases and sales of these assets. Official foreign exchange position is defined as in international transactions accounts: convertible for eign currencies and the net IMF gold tranche posi tion. This is a liability of the rest of the world and a net asset distributed between the U.S. government (Treasury holdings of currencies plus IMF subscrip tion less IMF notes and letters of credit) and mone tary authorities (Federal Reserve holdings of curren cies less certain deposits of the IMF). 28. The one exception to this rule in the matrix is the net In ternational Monetary Fund position (capital subscription less cer tain IMF claims on the United States), which is counted in the U.S. foreign exchanged position as an asset on a net basis. Section 4: Definitions 39 Table 7. Financial transaction categories Gold and special drawing rights Official foreign exchange position IMF gold tranche position Convertible foreign exchange Treasury currency > Monetary reserves Demand deposits and currency Private domestic U.S. government Foreign Time deposits at commercial banks Savings accounts at savings institutions Money market fund shares Federal funds and security repurchase agreements Deposit claims on financial institutions Interbank claims Interbank claims Life insurance reserves Pension fund reserves Corporate equities } Insurance and pension reserves Corporate equities U.S. government securities Treasury issues Short-term Other marketable Savings bonds Federal agency issues Loan participation certificates Sponsored agency issues Mortgage pool securities State and local government obligations Corporate and foreign bonds Mortgages Home (one- to four-family) mortgages Multifamily residential Commercial Farm Consumer credit Installment Noninstallment Bank loans not elsewhere classified Other loans Open market paper Finance company loans to business U.S. government loans Sponsored credit agency loans Loans on insurance policies Security credit Owed by brokers and dealers Owed by others Taxes payable Trade credit Equity in noncorporate business Miscellaneous Foreign claims U.S. government claims Insurance claims Unallocated claims Sector discrepancies Credit market instruments ► Other claims 40 Introduction to Flow of Funds Treasury currency consists of silver held as mone tary reserves by the domestic economy and certain asset-debt relationships between the banking system and the federal government in connection with the monetary system—seigniorage on silver, deposits with the U.S. government for redemption of Fed eral Reserve Bank notes and national bank notes, and the liability of the U.S. government in connec tion with minor coin and United States notes backed by gold reserves.29 Transaction flows for this category occur only between the Treasury and the monetary authorities. Beginning with 1970, this account also includes SDR certificates as an asset of monetary authorities and a Treasury liability. SDR certificates are a domestic claim, separate from SDRs themselves, through which some of the Treasury’s SDR holdings become part of the asset backing for the monetary base. The large difference between total assets and total liabilities in the estimates of amounts outstand ing reflects the fact that gold and silver are shown in the accounts as assets but not as liabilities (ex cept seigniorage revaluations on silver, which are treated as a U.S. government liability). Gold and silver are treated as tangible assets rather than as claims. The totals used here also differ from M-1A in that they include deposits held by foreign banks and foreign governments as part of rest-of-world hold ings, while these are omitted from the M-l that was introduced in early 1980. The item excludes all forms of checkable time deposits at banks and sav ings institutions such as NOW and ATS accounts, which are included in M-1B but are not in M-l A. The matrix on page S.l indicates in the discrep ancy column differences in this category between li abilities as seen in bank records and assets as re corded in holder-sector accounts. These differences are mail float, representing checks in the mail that are moneys no longer on the books of senders but not yet on the books of receivers. Mail float relates to checks that have not yet entered the banking system’s clearing procedure. It exists in parallel with and separate from cash items in process of col lection and Federal Reserve float. Cash items and Federal Reserve float are deducted from gross de mand deposits liabilities of banks to consolidate the bank liability down to an amount owed to non banks.31 Mail float is a further deduction taken to arrive at holder records of money balances. This deduction of mail float is necessary to bring holder entries for cash into consistent timing with the other entries in nonbank accounts. It is mainly an accounting requirement, however, and does not imply that holder records are analytically more im portant than bank records. In general the public looks at the bank record of its deposits as more rel evant in managing cash than the balance on its own books. Were it possible statistically to shift timing of all noncash entries in sector accounts to a basis consistent with bank records of money supply lia bility, the entire body of accounts would perhaps be improved for analysis. Short of this, the deduction of mail float is necessary.32 Demand deposits and currency covers demand de posits at commercial banks in the United States, government and foreign deposits at Federal Reserve Banks, and U.S. currency outside banks. The con cepts and estimating methods used to calculate these monetary liabilities are the same as those in M-1A data published by the Federal Reserve in treatment of floats, interbank deposits, and so forth. There is a substantial statistical difference, how ever, in that the flow of funds accounts are calcu lated for the single last day of each quarter rather than for weekly, monthly, or quarterly averages. The one-day numbers are needed for consistency with all other information entering the system and are frequently very different from the averages be cause of specific events or even the day of the week that ends a quarter.30 29. For a detailed discussion of these relationships, see Flow of Funds in the United States, 1939-1953 (Board of Governors of the Federal Reserve System, 1955), chap. 17. The form of Treasury accounting for these relationships has changed over the years, in particular in the elimination of the gold and silver ac counts, and the flow of funds scope of the monetary authority sector has changed. The general principles described these never theless still hold. 30. A series on ownership of demand deposits was introduced in Federal Reserve Bulletin, vol. 57 (June 1971). For the rela tion between those data and flow of funds estimates, see that Bulletin, table 8, p. 463. 31. The role of these items in the money stock is described in Federal Reserve Bulletin, vol. 46 (October 1960), pp. 1108-12. The money stock as published by the Federal Reserve is a bank ing-system liability record. 32. Statistically, mail float is estimated directly and used in calculating household cash as a residual. The nature and meaning of household cash as an “other-party” record are discussed in George Garvy, “The Float in Flow of Funds Accounts,” in The Flow of Funds Approach to Social Accounting, Studies in In come and Wealth, vol. 26 (National Bureau of Economic Re search, 1962), pp. 431-61. A further note on the meaning of the bank-record liability: If all check-writing were to cease for a fortnight and all checks in the clearance system to reach their final destination, both the bank gross records of liabilities and holder record of assets would settle at the level of demand deposits shown in money supply statistics—that is, net of cash items and Federal Reserve float. Bank records would come down and holder records would come up. It is this ultimate view of the present state of balances plus checks in transit that in general has most meaning to the public as a cash balance. Section 4: Definitions Mail floats are show in the matrix for private do mestic and for U.S. government deposits. Foreign deposits are on a bank-record basis in international transactions statements (and hence here), consistent in timing with at least the large bulk of capitalaccount transactions. A mail float in demand deposits implies corres ponding floats in many if not all other transaction categories. As a general matter, records of sales and purchases and of lending and borrowing are not timed simultaneously, and it is not possible to bal ance both sector accounts and transaction accounts without float items. Statistically, most of these floats cannot be estimated. The largest volume of transactions generating float is undoubtedly in trade credit, however, and as noted below, a float exists in the system for that account. Time deposits and savings accounts consists of all time deposits at commercial banks (including nego tiable certificates of deposit) and all deposit and share accounts at mutual savings banks, savings and loan associations, and credit unions. The item in cludes all checkable savings deposits such as NOW and ATS accounts. Flows include crediting of inter est and dividends as well as deposits and with drawals. Postal Savings System deposits are in the miscellaneous category, and savings bonds are in U.S. government securities. Money market fund shares are the highly liquid claims that investors hold against money market mutual funds (q.v.). Payments into and out of these shares are typically at no cost to the investor, and withdrawals in particular can be very fast, through telegraphic transfers and special checking accounts. The funds require minimum balances and minimum amounts for withdrawal, but these requirements are fairly low, such as $2,000 and $500 respectively. These shares are included in the M-2 introduced by the Federal Reserve in 1980. Federal funds and security repurchase agree ments represents net borrowings by the banking system and other finance from nonbank lenders. A large proportion of these loans have one-day matu rity and they are thus highly liquid investments, but minimum denominations are typically large, a mil lion dollars or more. Overnight security RPs are in cluded in the Federal Reserve’s M-2, and longerterm RPs are in M-3. Federal funds are excluded from these monetary aggregates altogether as assets either of deposit institutions or of federally related agencies. This flow of funds category has broader 41 scope than the M components in that, while inter bank lending has been netted out, the quantities do include federal funds and RP lending by savings in stitutions and by federally related agencies. Federal funds loans are unsecured borrowings of today’s balances at Federal Reserve Banks, and Federal Reserve regulations limit the range of par ticipants in the market to banks, savings institu tions, and federally related financial institutions. The market is dominated by interbank lending that is consolidated out in the flow of funds accounts. The amounts included are thus net borrowings by banks from nonbanks. Security repurchase agreements are loans that from the borrower’s viewpoint consist of a security sale out of portfolio with an agreement to repur chase the security at a named future date at a named higher price. For the lender the loan is col lateralized by title to the security. The RP market has a wide range of both borrowers and lenders, but the claims included here, limited by data availabil ity, are only those against banks and savings insti tutions. The net liability of banks to nonbanks in these instruments is measured by the excess of their re ported borrowings over their reported lending to U.S. banks, and because the data combine federal funds and RPs the two types of claim are combined in this category. The implicit net borrowing by banks is statistically much larger than the amounts of lending reported by nonbanks in recent years, and the excess is included in the category as a dis crepancy. Further development of data sources on lending can be expected to reduce this discrepancy. Interbank claims are a set of relationships between the Federal Reserve and commercial banks, among the several subsectors of commercial banking, and between domestic and foreign banks. The item pulls together several kinds of claim among these sectors and combines them in forms that are consistent with the standard statement for monetary authorities, with a consolidated statement for domestic banking as a whole, and with an item for net international capital inflows. The table below lists the types of claim that are combined into this category and their treatment for each sector as an asset (A), a negative asset (-A), a liability (L), or a negative liability (-L). Claims among the commercial banking subsectors appear explicitly on a net basis in the subsector statements but for the group as a whole are washed out in a process similar to consolidation. For sev eral reasons, including timing discrepancies, domes tic interbank claims come to somewhat different to- 42 Introduction to Flow of Funds tals statistically as tabulated on the asset and liability sides of balance sheets, and the net differ ence is included in this category as an unallocated net liability of the commercial banking sector. This item can be interpreted mainly as a float in interbank transactions. plementary contracts. Borrowing by policyholders on policies from insurance companies and from government insurance programs is a positive liabil ity of households in the “Other loans” category rather than as a deduction from policy reserves. Changes in policy dividend accumulations and acci dent and health reserves are in the miscellaneous transactions category as liabilities to policy holders.33 ITEM Loans to member banks Federal Reserve float Member bank reserves Vault cash FEDERAL RESERVE COMMERCIAL BANKING A A L L L L A A Due to foreign affiliates Due from foreign affiliates Deposits at foreign banks L -L -L Due to domestic affiliates Domestic interbank deposits Domestic interbank loans L, -L L, -L L, -L Unallocated interbank claims L Total interbank claims A, L L REST OF WORLD A -A -A A The amounts due to and due from foreign affili ates—branches, subsidiaries, and foreign head of fices—are reported by banks in published state ments on a net basis, as either an “other” asset or an “other” liability, depending on the sign of the balance for all types of claim and all types of affili ate. Because the totals of the reported items have no separate significance, they are further netted here to a liability item for the total banking system, as in the Federal Reserve’s statistical series on non deposit sources of bank funds. Statements on inter national transactions use the separate gross flows of claims on and liabilities to affiliates for individual banks as capital outflows and inflows respectively. For consistency with banking, the rest of the world sector statement combines these into a single net capital inflow to the United States and in this re spect shows smaller total inflows and outflows than Commerce Department statements on international transactions. Deposits at unaffiliated foreign banks are in published statements for domestic banks as a component of cash balances. Life insurance reserves are established in the ac counts as a claim by households as policyholders against life insurance companies and U.S. govern ment insurance programs. Statistically, the category is estimated to be equal to policy reserves against private and U.S. government life insurance policies, including individual and group annuities and sup Pension fund reserves are in the accounts as a claim of households as beneficiaries against retire ment programs. They cover private pension plans (both those administered by insurance companies and other private plans, and both vested and un vested plans), government employee retirement funds, and the Railroad Retirement Fund. They do not cover the OASI social insurance programs. Sta tistically, the category is estimated as equal to re serves of private plans administered by insurance companies and total assets of other private plans, government employee retirement funds, and the Railroad Retirement Fund.34 Corporate equities represent net issues of and trans actions in equity securities of private domestic cor porations and U.S. net purchases of stocks of for eign corporations. The category includes shares issued by the open-end investment company sector and covers both common and preferred stock. Fig ures for asset levels of sector holdings are stated at market value, and annual changes in levels differ from net purchases because of fluctuations in mar ket price. No estimates of liabilities for corporate stock are attributed to issuing sectors except openend investment companies. These companies differ from other corporations in that they undertake to re deem shares on demand at values based on current values of portfolio assets. Credit market instruments is a core group of debt claims that is the principal medium used by nonfi nancial sectors in raising funds through formal 33. Measurement of life insurance claims is discussed in Fed eral Reserve Bulletin, vol. 45 (August 1959), p. 837. 34. Treatment of pension funds claims is discussed in Federal Reserve Bulletin (August 1959), p. 838. With corporate equities valued at market prices in pension fund assets, year-to-year changes in stock market prices can cause substantial differences between movements in total reserves shown as outstandings and the net flows into reserves shown in flow tables. The net flows represent premium receipts and investment income less benefit payments and operating costs. Section 4: Definitions credit channels. It excludes trade credit arising in the normal course of business, tax liabilities, secu rity credit, and proprietors’ equities in noncorporate business. It also excludes miscellaneous claims, which are mainly accruals for private sectors and various trust deposits for the U.S. government. Credit market instruments are used by financial as well as nonfinancial sectors as a source of funds but to a much smaller extent relative both to bor rowing in this form by nonfinancial sectors and to borrowing in other forms by financial sectors. In the matrix borrowing by financial sectors in credit markets is included in the credit market rows, but the principal summary tables on credit flows, dis cussed in section 1 and illustrated in table 2, focus on the use of these markets by nonfinancial sectors. U.S. government securities consist mainly of what security markets refer to as Treasury and federal agency securities. Following market usage, the cat egory includes issues by sponsored credit agencies that are not direct liabilities of the U.S. government and not guaranteed by the government. The group also includes mortgage pool securities, which are federally guaranteed, and several kinds of nonmarketable Treasury debt held by the public. More spe cifically, the types of security included are the fol lowing. 1. All Treasury issues, both marketable and nonmarketable, including savings bonds, foreign series, and foreigncurrency series. Excluded are special issues to government agencies and trust funds, on the basis that these are intra sectoral claims to be eliminated in a consolidated sector statement, but the total includes special issues to spon sored agencies that arise from earlier periods when such agencies were part of the government.35 2. Securities issued by agencies of the government other than Treasury, such as the Tennessee Valley Authority, Postal Service, and Export-Import Bank. 3. Loan participation certificates issued by the Government National Mortgage Association, the Export-Import Bank, and several other agencies. Most of these issues were floated during the 1960s and at the time were treated in government accounts as sales of loan assets. Because of firm government guarantees, however, they are treated here as government borrowing collateralized by the loans held. 35. Where maturity detail is shown, “short-term marketable” consists of all bills, certificates, notes, and bonds due within a year of the date shown, regardless of original maturity. The amounts also include part of issues due within two years on a sliding-scale basis. “Other” issues are marketable issues not classified as short-term and all nonmarketable issues. 43 4. Commodity Credit Corporation certificates of interest and CCC-guaranteed bank loans. CCC price-support opera tions for farm commodities have changed form somewhat over the years, but in the national income and product ac counts most farm inventories that are placed under CCC loan programs are treated as federal government purchases in GNP, and the CCC loans are here treated as federal borrowing to finance those purchases. 5. Security issues by the sponsored credit agencies sector (q.v.). As mentioned above, most of these are not guaran teed by the government, but they are closely associated in markets and in debt-management operations. 6. Securities issued by the mortgage pool sector (q.v.). These “pass-through mortgage-backed’’ securities are col lateralized by pools of mortgages and are further guaran teed by the Government National Mortgage Association or the Farmers Home Administration (both government agen cies) or by the Federal Home Loan Mortgage Corporation (a sponsored agency). As mentioned in the sector descrip tion, the securities are separate from the mortgage pools and are not directly the liability of any other sector. Fed erally related guarantees are the basis for including them in U.S. government securities. An important feature of “ pass-through’’ securities is that all amortization and pre payment of debt principal on the underlying mortgages is paid out immediately to security holders. This feature gives the effect that the maturity of the securities con forms to the maturity characteristics of mortgages, with an element of unpredictability caused by early retirement of mortgages. For each of these types of securities the amounts included are those held outside the issuing sector. The Treasury debt that appears in the accounts is exactly the Treasury figure for “public debt securi ties held by the public’’ as published, for example, in the Treasury Bulletin, table FD-1, where “the public” includes Federal Reserve Banks. Govern ment agency debt in the accounts is the amount of agency securities held by the public that appears in table FD-1 with the exception of a small amount of mortgage debt that has been transferred to the mort gage category. Totals for sponsored credit agencies are as published in the Treasury Bulletin, table TSO-5, and for mortgage pools as published in the Federal Reserve Bulletin, table 1.56, “Mortgage debt outstanding.” In recent years mortgage pool securities based on Farmers Home Administration mortgages have been purchased entirely by the Fed eral Financing Bank, a U.S. government agency, and in the accounts this appears as sizable pur chases of agency securities by the government sec tor. Liabilities of the U.S. government not covered by this category are shown in the following list: 44 Introduction to Flow of Funds U.S. GOVERNMENT LIABILITY TRANSACTION CATEGORY Special notes issued to the IMF Negative in official foreign exchange position Defense Department and Coast Guard housing mortgages Multifamily residential mortgages Trust and deposit liabilities Certain accrued interest (beginning fiscal year 1956) ► Miscellaneous financial Postal Savings System deposits Currency items in the public debt Other Treasury currency liabilities Treasury currency Certain accounts payable Trade debt State and local government securities cover the total debt of all state and local government units, except loans from the U.S. government (which are in the other loans category) and trade debt. State and local obligations held by the state and local government sector are included in both assets and liabilities of that sector. Both short-term and long term securities are included, conforming in amount and maturity division to data shown in the Census Bureau’s annual Survey of Government Finances. Interest income from all of these securities is ex empt from federal income taxation. Some of the debt in this category is shown as owed by the nonfinancial corporate business sector. These are tax-exempt issues by state and local gov ernment agencies that finance projects for specific private corporations, mainly to improve pollution control, and the corporations guarantee payment of both interest and principal. Although these securi ties are legally government liabilities, the treatment here gives more directly the relation of business to the securities. Corporate and foreign bonds consist of the funded debt of U.S. private corporations and for eign (private, governmental, and international agency) bonds held in the United States. The do mestic liability has the coverage reflected^ in the Securities and Exchange Commission series on bonds and notes in “Net Change in Outstanding Corporate Securities’’ as published before 1974. It thus includes convertible issues until converted into equities. Conversions appear as debt retirements and equity issues. Mortgages consist of loans secured by real estate collateral and are divided into four categories ac cording to type of collateral. Home mortgages are those secured by one- to four-family residential properties, and as long-term loans they are assumed to be owed entirely by households; they include loans on individual units of condominium struc tures. Business liabilities for home mortgages are estimated construction loans on work in process, while the savings and loan association liability is “loans in process’’ in their balance sheets, which is an offset against mortgages already in their assets that have not yet been disbursed. “Commercial’’ mortgages consist of all nonfarm nonresidential mortgages, including those of nonprofit organiza tions such as churches and schools. Mortgage data are statistically the same as those published in the Federal Reserve Bulletin, table 1.56, “Mortgage Debt Outstanding.’’ Consumer credit comprises short- and intermedi ate-term consumer installment and noninstallment credit and is statistically the same as the consumer credit series published monthly in the Federal Reserve Bulletin, table 1.57 and in separate statisti cal releases. Bank loans n.e.c. (not elsewhere classified) covers the following types of bank loans: 1. By the commercial banking sector (in terms of call re port classifications): a. Business loans, except open market paper (in the other loans category) b. Farm loans, except CCC-guaranteed loans and CCC certificates of interest (included as a government li ability in the U.S. government securities category) c. Loans to foreign banks (loans to domestic commercial banks are in the interbank claims category d. Loans to other financial institutions except commercial paper (in the other loans category) e. All other loans (mainly to foreign official institutions, nonprofit organizations, and individuals). 2. By Federal Reserve Banks: a. Foreign loans on gold b. Industrial loans. Section 4: Definitions Real estate and security loans are excluded en tirely from bank loans n.e.c. as credit in the flow of funds mortgage and security credit categories. Consumer credit is also excluded from this cate gory. Both the asset and liability sides of the category are measured gross of valuation reserves. Other loans is the final grouping within credit mar ket instruments and consists of the following types: 1. Directly placed finance company paper. 2. Dealer-placed commercial paper. 3. Bankers acceptances. 4. Finance company loans to business mainly for financ ing of equipment purchases or to carry inventories of receivables. 5. Loans from U.S. government (other than mortgages and trade credit, both included in other financial cate gories, and cost CCC loans, treated as government purchases of inventories), 36 such as student loans, small business loans, and foreign aid loans. 6. Loans other than mortgages by federally sponsored credit agencies. 7. Policy loans on life insurance policies. The first three of these types have in common that they are short-term money market investments from the lender’s view and are combined in tables as “open market paper.’’ Sector holdings are shown only for the combination of the three types of instrument, in absence of data for further break down of holdings. It is thus as a combination that the three instruments constitute a transaction cate gory. Security credit consists of loans subject to Federal Reserve regulation for the purpose of purchasing or carrying securities. It includes loans to security dealers from the banking sector and customer debit and credit balances with brokers and dealers. This credit is, in the first instance, an indirect form of supply of funds to credit markets, rather than a credit market demand for funds. On the main stem of the relationship, banks finance private security holdings through direct security loans and loans covered by broker and dealer credit to customers; in addition banks finance dealer direct holdings of se curities. It does not include all loans with security collateral, many of which are in bank loans n.e.c. Taxes payable is the excess of taxes accrued from past operations, as measured in NIPA, over taxes that have been paid. Both U.S. government and 36. CCC loans to cooperatives for tobacco and CCC storage facility loans are treated as loans and included in the other loans category. 45 state and local taxes are included. At present the item covers only corporate profits taxes, but it would be useful and relevant to include parallel lia bilities for personal income, social insurance, and indirect taxes. Unlike most other financial items in the accounts, this is not a claim that has been for mally recognized by both debtors and creditors. Un til final settlement on a year’s liability, each party makes his own estimate of the amount involved. Taxes payable are nevertheless recognized in finan cial planning by both business and governments and in business accounting. Because estimates of the amount of claim can differ, the discrepancy in this transaction account is different in concept from the mail floats discussed above. Statistically, the liability side is estimated from corporate balance sheets, whereas the asset side is the excess of Commerce Department esti mates of accruals over governmental reports of ac tual receipts. While part of the discrepancy between the two arises from data problems, a conceptual el ement remains. The data discrepancy in taxes appears in the ac count for the corporate business sector. Algebrai cally, accruals less payments of profit taxes should equal the change in the sector’s profits tax liability, but in the statistics this is not the case. Accruals, receipts, and balance-sheet liabilities are taken from independent data sources, derived from separate tabulations of profit estimates, governmental re ceipts data, and corporate balance sheets; and there are inevitable inconsistencies in timing, coverage, and estimating procedures among the three. In addi tion there is always some amount of payments or refunds in tax settlement cases that has not been en tered into either balance sheets or accrual estimates. For these reasons the three tax items shown in the corporate sector table typically do not balance ex actly in the statistics. Trade credit is an approach to a book credit cate gory; it consists broadly of receivables and pay ables, other than consumer credit, arising from sales of goods and services. It covers mainly claims among domestic businesses, but it includes corres ponding claims to and from foreign buyers and sellers and claims on governments and nonprofit or ganizations. The trade credit asset of the U.S. gov ernment arises from prepayments to business on items not yet delivered, while its liability includes, for recent years, similar prepayments by foreign governments on items not yet delivered by the U.S. government. These foreign prepayments are in rest- 46 of-world trade credit. In the flow tables noncor porate receivables are netted against payables, but in tables on outstandings they are shown separately. A large mail float exists between receivables and payables in trade credit for two reasons: receivables are recorded by sellers before buyers have received and recorded amounts payable, and buyers write down payables when checks are mailed and before sellers have received them. This float is in the transaction discrepancy along with statistical incon sistencies of the estimates. Equity in noncorporate business represents net flows of equity funds invested by proprietors in un incorporated businesses, both farm and nonfarm. Statistically, however, this business source of funds is measured as a residual in noncorporate sector statements, the amount necessary to balance sources and uses of funds. As a residual its interpretation depends on the treatment of all other items in the noncorporate statements, and its meaning as an eq uity flow is specific to the structure of the state ments. As mentioned in the sector descriptions, noncor porate business sectoring in these accounts is actu ally a segregation into separate statements of certain household transactions that are plainly business re lated. The purpose of the sectoring is to present as fully as possible statements for nonfinancial busi ness as a whole, but the segregation cannot include all flows that have a business element because many of them are mingled with household financing and liquidity management. A business bank loan that is used to finance higher education results sta tistically in a withdrawal of proprietors’ equity in this item, while a house mortgage loan to pay for business construction is reflected as an equity in flow. Both of these are appropriate representations; on the other hand noncorporate business liquid as sets are left mainly in the household sector account, and any business-related transactions for liquidity management may produce equity flows in the data that are more obscure. Because segregation of non corporate business activities is artificial to some ex tent, there is no “correct” procedure but rather a selection of items to segregate that minimizes the artificiality of both the statement and the residual net equity item. The two noncorporate statements in the system are constructed with this purpose. An important determinant of the meaning of the proprietors’ net equity flow is the amount of saving that is shown for the noncorporate business sectors, since segregation of saving is one of the more arti Introduction to Flow of Funds ficial elements of the sectoring. For the annual esti mates in the present treatment, all net income of noncorporate business is shown as withdrawn by proprietors and becomes part of household income, while net saving (retained income) of the firms is arbitrarily put at zero. Gross saving, by this device, becomes identically equal to capital consumption al lowances. This means that all investment in physi cal and financial assets by noncorporate sectors be yond the amount of capital consumption is to be viewed as financed externally in the accounts. Such funds as are not raised from credit markets or trade debt enter the sectors as net equity investment by proprietors in the household sector. To the extent that noncorporate business has in fact an identifi able retained income, this treatment overstates household saving as a source of funds (by overstat ing income receipts); but it also overstates house hold equity flows to business as a use of funds by the same amount. Discrepancies in household or other accounts are thus unaffected by the treatment. For the quarterly estimates, it is assumed that in come withdrawals and equity inflows are more uni form over the year than business income and that in unadjusted quarterly accounts there are positive and negative retained earnings that add to zero over the year. In seasonally adjusted accounts, retained earn ings are zero quarterly as well as annually.37 Miscellaneous financial claims consists of several forms of specific claims together with a variety of unallocated sources and uses of funds in sector sta tistics. Among identified claims the largest types in recent years have been business direct foreign in vestment and customers’ claims on insurance com panies. Nonbank direct investment by business in foreign affiliates appears separately in the foreign-claims section of the tables on miscellaneous claims. As amounts outstanding such direct investments are as defined and reported in international investment po sitions of the United States published annually by the Commerce Department, and they include both U.S. investments abroad and foreign investments in the United States. As flows however, they conform to NIPA treatment in that they exclude earnings re tained abroad both from investment income in the current account and from net foreign investment in the capital account; only actual net investment pay ments to foreign affiliates are included in direct in37. These remarks apply to noncorporate farms, but it should be noted that the farm business sector has a small net saving rep resenting retained income of corporate firms. Section 4: Definitions vestment flows. The effect is that year-to-year changes in outstanding direct investment positions have typically been much larger than the net flows because of growth in equity in retained incomes. Other specific items in this category are foreign deposits held by business and government, equity and deposit claims on U.S. government-related agencies, and accrual items arising in the course of insurance business such as dividend accumulations and accident and health reserves in life insurance, and prepaid premiums and benefits payable in fire and casualty insurance. The unallocated items arise in the course of sec tor accounting, when known totals of financial sources or uses of funds are adopted as controls for the sector’s financial accounts. Any component of the totals that cannot be attributed to one of the specific transaction accounts then falls residually into the unallocated items. As a social-accounting practice this is arbitrary, since an alternative proce dure is to leave unknown items in a sector’s dis crepancy. Treating them as miscellaneous claims, however, keeps them within the bounds of financial transactions and sharpens the meaning of most sec tor discrepancies. At the simplest level, the principle is illustrated by sector accounts for commercial banks, life insur ance companies, savings and loan associations, and mutual savings banks. There exists an established universe estimate of the balance sheet and financial transactions for each of these industries as a whole.38 For each, the bulk of financial assets and liabilities is clearly identifiable in terms of flow of funds transaction types, but for each there is a minor remainder of assets and liabilities—mainly income receivable and expenses payable—that is left unspecified. These claims are generated by the calculation of income on an accrual basis and must be included in financial accounts to maintain con sistency with income statistics. When they are in cluded, the sector discrepancy for each of the groups then becomes a measure of the statistical in consistency between, on the one hand, the body of the income and product data from which saving and physical investment are derived and, on the other hand, the body of balance-sheet data that constitutes financial accounts. That some of the balance sheet is of an unknown nature can be approached within the framework of financial statistics. 38. Each, in fact, is defined operationally in terms of universe data available. 47 Unallocated claims for the rest of the world are only slightly different. Here the control totals are from international transactions data, and preserving them maintains the discrepancy in the statement. Sector discrepancies is the last row of the matrix, the final transaction account that closes the matrix vertically. A few sector accounts have no discrepancy entry because data are lacking to put together inde pendently estimated totals of saving and investment. For such sectors—noncorporate business, pension funds, and most elements of finance n.e.c.—one or another source or use of funds is derived residually in the sector account as the amount needed to balance saving and investment. The effect is to shift whatever discrepancy actually exists in the sector’s column of data into some other account—first, in the transac tion-account row that the residual is taken in and then, perhaps, into another sector through further re siduals. In any social-accounting system, the designer in effect chooses where to show discrepancies or in deed whether to show them at all. For this and other reasons there may be a low correlation between actual data errors and discrepancies as recorded in the sys tem. For the sectors mentioned in the discussion of unallocated claims, sector discrepancies represent inconsistencies among a few major bodies of data for the sector. For governments and nonlife insur ance, discrepancies are more complex because to tals of financial sources and uses were built up for these sectors from identifiable components rather than broken down from clearly demarked totals with unallocated residuals. The discrepancy in the household sector is the most complex in the system and in general the larg est. Statistically, every transaction of households is a residual, since all items in the account are derived from the books of other sectors, including wages and personal taxes. The household discrepancy is thus a final resting place for data inconsistencies throughout the system. Because a good deal of the data in the system becomes available as coherent sector information—for example, balance sheets of financial institutions—data inconsistencies are to a large extent between sector columns of the structure and consist of such problems as differences between borrower and lender records on the timing of credit flows. For transaction types in which households are either borrowers or lenders, most of these inconsisten cies are carried directly into the residual household estimates and thence to the household discrepancy. □ 48 Section 5: Publications of Flow of Funds Data The principal publication of current data for the flow of funds accounts consists of quarterly tables of both seasonally adjusted and unadjusted flows. These current tables are extensions for up to five or six quarters of base data that are produced each year by a review and revision process. The base data are published as tables of year-total flows from 1946 to the present and year-end outstanding claims from 1945 to date. The base data exist in quarterly form from 1952, and these quarterly data are made available to the public as computer data tapes; they are not published as quarterly tables because of the amount of paper required. As an alternative to the computer tapes, computer printouts are supplied on request for quarterly data in selected sections of the accounts that are of particular interest to individual users. The current quarterly tables are a separate publi cation of the Board of Governors that is available on request, and a mailing list is maintained for quarterly distribution. Complete historical tables of year-total flows and year-end outstandings, begin ning in the late 1940s, are published approximately every three years and are for sale by the Board of Governors. In both types of publications the tables include a full set of sector statements of saving and investment and a full set of transaction account ta bles that give net borrowing and lending in individ ual types of claims. They also include the two sum mary financial tables described in section 1, as well as a table showing the sectoral distribution of data from the national income and product accounts used in the system. Estimates of outstanding assets and liabilities are maintained on a quarterly basis and are on the computer data tapes; but they are printed only in year-end amounts in the annual publica tions, where they parallel the flow tables in cover age of summaries, sectors, and transaction types. The two summary tables of flows appear monthly in the Federal Reserve Bulletin. Current quarterly tables become available about six weeks after the end of the most current quarter included in the data, but the data for that most re cent quarter are preliminary and tentative. Each is sue of the quarterly tables includes revisions for the next to last quarter that result from the large amount of data that has become available since the quarter’s first preliminary tabulation. The tables may also include revisions in earlier quarters of the current calendar year to conform to revisions in source data resulting from new benchmarks such as the quarterly call report for commercial banks. On a current quarterly basis, however, revisions are not carried back to earlier years that have already appeared in the annual publication mentioned previ ously, even when source data are revised for sev eral preceding years. Such longer-run revisions are postponed until the annual revision. Annual revisions are intended to introduce all of the new information that has become available in the preceding year. The revision includes as a rou tine matter new benchmarks for earlier years or—as in the case of NIPA—revisions of source data based on new benchmarks; but it can also include shifts to new data sources, changes in derivation methods, improvements in table formats, or even changes in sectoring and transaction categories. Such changes can affect the accounts back to the earliest years covered, even when no new data have appeared for those periods. Annual revisions thus have more po tential scope in the flow of funds accounts than in the national income and product accounts, for which revisions are usually limited to three years. □ 49 Section 6: Data Sources While a full derivation statement is outside the scope of this publication, it is possible and useful to list the principal bodies of data that go into flow of funds calculations at present and to indicate briefly the schedules on which these data are available.39 The summary list in table 8 omits many peripheral and occasional sources of information, but it sketches the statistical skeleton of the system. For some areas both benchmark and current sources are listed; where no such distinction is shown, the sources used for current information are not subject to revision except as indicated. These source descriptions are relevant only to the last two or three years as a group. Some of the sources are available for most of the period since 1945 covered by the accounts, but others are very recent. Statistical sources change continually in both scope and detail, and one of the problems in establishing a long continuous history is in transfer ring procedures from older to newer sources. A de scription of those transfers would go beyond the scope of table 8 and of this section. Table 8 has two conspicuous omissions. The first is in sources of nonfinancial data such as saving, corporate cash flows, government surplus, and capi tal outlays. These data come directly from the Commerce Department’s national income and prod uct accounts, and while the sectoring in flow of funds requires detail that does not appear in the published NIPA, the Commerce Department makes all the necessary breakdowns and supplies them to the Federal Reserve. For the first preliminary calcu lation of a quarter, the 15-day NIPA estimates are used. These figures omit corporate profits and profit tax accruals, which must therefore be estimated by the Federal Reserve for that first run. The other major omission from the table is the household sector. Data for this sector are almost en tirely residuals from the rest of the calculation in that virtually all of the transactions and balances are measured from reports by other parties to their transactions. (The exceptions consist only of mort gage and trade debt liabilities of nonprofit organiza tions included in the sector.) The residual status of the sector means that a listing of data sources for 39. The most recent description of methods of calculation is “Flow of Funds Accounts—Data Sources and Derivations’’ (October 1971). This publication is available on request from the Board of Governors of the Federal Reserve System, Flow of Funds Section, Washington, D.C. 20551. all other sectors together is implicitly a listing of sources for households. Some of the chains of rela tionships are extremely long, but a discussion of their nature belongs in a description of the deriva tion methods rather than in a listing of sources. None of the inputs listed in table 8 are compiled explicitly or exclusively for the flow of funds ac counts, although the needs of the accounts have been one consideration in the design of many of the reporting forms. Rather, flow of funds accounting consists of absorbing and digesting a wide variety of financial information, both flows and balances, each part of which has been constructed in isolation from others with its own accounting procedures, timing classifications, and institutional coverage. The digestion process is intended to standardize the accounting as far as possible, so that a transaction in a financial claim appears consistently in the seller’s and buyer’s statements in the same transac tion category, at the same value, and in the same period. Problems of consistency can be illustrated in cer tain areas. One is in federally related securities— over $200 billion outstanding at the end of 1978— which are known collectively as the agency-issue market. These issues receive widely varying treat ment in holders’ balance sheets and are frequently combined with bonds of the World Bank and the Inter-American Development Bank that are unre lated to the government in any direct sense. The problem was exacerbated by the growth of federally related mortgage pool securities during the 1970s and, in the later years of the decade, by private mortgage pool securities that are similar in form. These securities are, on the one hand, not the liabil ity of any specific issuing institution and, on the other, are frequently treated by lenders directly as mortgages. As a result there is statistical uncertainty in tracking both the volume outstanding and their ownership. In consistency of timing, there are major prob lems in commercial banking, where certain balance sheet items are highly volatile on a day-to-day basis, including money supply liabilities. The dat ing of bank balance sheets is frequently not coinci dent with those of the other parties to the transac tions, and the differences can generate sizable discrepancies in the data. These are a few illustrations of the statistical problems that arise in combining a variety of sepa- 50 Introduction to Flow of Funds rate accounting systems into an integrated structure that matches payments and receipts throughout the economy. The process of adjustment unavoidably produces sector and market statements that differ to varying extents from the conventional statements used by specialists in particular financial activities. This is part of the price of constructing the broader system. One direction for development of the sys tem is a deepening of the detail in financial ac counts in ways that show continuously the relation ships to other presentations of the same information. However, the principal uses of the data are in studies of intersectoral and intermarket relationships, and for these the standard categories of the accounts are unavoidable even when they are somewhat unfamiliar to individual activities. Table 8. Sources of financial data for flow of funds accounts Area Source Availability Federal government Monthly Treasury statement of receipts and expenditures, Treasury Bulletin Monthly, about 30 days after month-end Federally sponsored credit agencies Statements of condition for five groups Monthly, quarterly, or semiannual; 25 days Census Bureau, Governmental Finances Gross offerings of securities, Public Securities Association Banking data Annual, about 17 months lag State and local governments Benchmark Current Monthly, 30 days Treasury Bulletin Weekly, 10 days revised by quarterly call reports Monthly, 60 days Call reports Several weekly and monthly reporting systems Quarterly, about 4 months, 10 to 20 days after period end, revised quarterly Savings and loan associations Federal Home Loan Bank Board Monthly reports, 25 days Seviannual call reports Semiannual surveys of liquid assets Mutual savings banks National Association of Mutual Savings Banks Call reports Monthly reports, 45 days National Credit Union Administration Monthly reports, 24 days Life insurance Benchmark Current Life Insurance Fact Book American Council of Life Insurance Annual, 8 months Monthly, 50 days, revised after 12 months Private pension funds SEC Statistical Bulletin Quarterly, 10 weeks, revisions annually Census Bureau, Governmental Finances Annual, 12 months Census Bureau Quarterly, 10 weeks Best's Aggregates & Averages Treasury Bulletin SEC Annual, 9 months Monthly, 60 days Quarterly, 10 weeks Commercial banking Benchmark Current Credit unions State and local government retirement systems Benchmark Current Other insurance Benchmark Current Semiannual, 8 months 51 Section 6: Data Sources Source Area Finance companies Benchmark Current Real estate investment trusts Security brokers and dealers Benchmark Current Investment companies, money market funds Rest of world Benchmark Current Availability Federal Reserve, survey of finance companies Federal Reserve monthly survey Quinquennial, 28 months National Association of Real Estate Investment Trusts Quarterly, 3 months SEC Annual Report Banking data Annual, 12 months Weekly, 10 days and monthly, 20 days Investment Company Institute Quarterly, 6 weeks and monthly, 30 days Monthly, 35 days BEA (Commerce Department), International Annual, 6 to 9 months Transactions, and International Investment Position BEA, International Transactions Treasury Department Banking data Quarterly, 10 weeks Monthly, 6 weeks Weekly, 10 days FTC, Quarterly Financial Report Quarterly, 10 weeks Financial reports to regulatory commissions FTC, mail surveys, regulatory commissions Annual, 1 to 2 years IRS, Statistics of Income Averages for other industries Annual, 3 to 4 years IRS, Business Tax Returns; Partnership Tax Returns; Corporate Income Tax Returns Census Bureau, Census of Housing Banking data (q.v.) Corporate data (q.v.) Consumer credit statistics Annual or biennial, 3 to 4 years USDA, Balance Sheet of the Farming Sector Banking data (q.v.) Federally sponsored agency data (q.v.) Mortgage data (q.v.) Annual, 9 months Mortgages Federal Reserve Quarterly, with preliminary in 30 days; revisions from institu tional data Consumer credit Federal Reserve Monthly, 35 days, revised at various intervals Open-market paper Federal Reserve Bank of New York Monthly, 20 days, revised occasionally Nonfinancial corporate business Manufacturing, mining, trade Regulated industries Benchmark Current Other industries Benchmark Current Nonfarm noncorporate business Benchmark Current Farm business Benchmark Current Approximately decennial, 2 years 52 Bibliography Data presentations in print, 1979 Board of Governors of the Federal Reserve System. Flow of Funds Accounts, 1949-1978. Washington: Board of Governors, 1979. This contains the annual total flows and year-end assets and liabilities. ___________ “Flow of Funds, Seasonally Adjusted and Unadjusted.” Processed. Washington: Board of Governors, Division of Research and Statistics, Flow of Funds Section. This contains the current quar terly data, available six weeks after the end of the quarter. Earlier forms of accounts “A Quarterly Presentation of Flow of Funds, Saving, and Investment,” Federal Reserve Bulletin, vol. 45 (August 1959), pp. 828-59. Board of Governors of the Federal Reserve System. Flow of Funds in the United States, 1939-1953. Wash ington: Board of Governors, 1955. Copeland, Morris A. A Study of Moneyflows in the United States. New York: National Bureau of Economic Research, 1952. “Flow of Funds Seasonally Adjusted,” Federal Reserve Bulletin, vol. 48 (November 1962), pp. 1393-1407 International presentations Organisation for Economic Co-operation and Development. OECD Financial Statistics. Annual. Volume I contains statistics of most OECD member countries, volume II extensive notes on country definitions and data sources. United Nations. Yearbook of National Accounts Statistics. Annual. New York. Includes definitions. Other Bain, A. D. “Surveys in Applied Economics: Flow of Funds Analysis,” Economic Journal, vol. 83 (December 1973), pp. 1055-93. Cohen, Jacob. “Copeland’s Moneyflows after Twenty-Five Years: A Survey,” Journal of Economic Litera ture, vol. 10 (March 1972), pp. 1-25. Dorrance, Graeme S. National Monetary and Financial Analysis. New York: St. Martin’s Press, 1978. Earley, James S., Robert J. Parsons, and Fred A. Thompson. Money, Credit, and Expenditure: A Sources and Uses of Funds Approach. Bulletin 1976-3. New York: New York University Graduate School of Business Administration, 1976. Freund, William C., and Edward D. Zinbarg. “Application of Flow of Funds to Interest-Rate Forecasting,” Journal of Finance, vol. 18 (May 1963), pp. 231-48. Goldsmith, Raymond W. The Flow of Capital Funds in the Postwar Economy. New York: National Bureau of Economic Research, 1965. Hendershott, Patrie H. Understanding Capital Markets. Volume 1. A Flow-of-Funds Financial Model: Esti mation and Application to Financial Policies and Reform. Lexington, Mass.: Lexington Books, 1977. Mendelson, Morris. “A Structure of Moneyflows,” Journal of the American Statistical Association, vol. 50 (March 1955), pp. 72-92. National Bureau of Economic Research. The Flow of Funds Approach to Social Accounting: Appraisal, Analysis, and Applications. Studies in Income and Wealth, vol. 26. Princeton University Press, 1962. 53 Other—continued Ritter, Lawrence S. The Flow of Funds Accounts: A Framework for Financial Analysis. Bulletin 52. New York: New York University Graduate School of Business, 1968. Robinson, Roland I., and Dwayne Wrightsman. Financial Markets, 2d ed. New York: McGraw Hill, 1980. Taylor, Stephen P. “Revision Experience in Flow of Funds Accounts.” GNP Data Improvement Project. Processed, December 12, 1973. ___________ “Uses of Flow of Funds Accounts in the Federal Reserve System,” Journal of Finance, vol. 18 (May 1963), pp. 249-58. Billions of dollars Private domestic nonfinancial sectors Sector Transaction category Households S U Gross saving.......................................... 2 Capital consumption........................ 3 Net saving (1-2).............................. State and local governments Business U U S 338.3 181.0 157.3 Total U S 195.6 172.7 22.9 S 7.6 380.1 298.2 200.3 92.0 5.9 174.1 249.9 11 Net financial investment (12-13). . . 81.9 -75.7 .5 12 Financial uses........................................ 13 Financial sources................................. 248J 84.6 25.1 S L S U 23.5 -34.9 23.5 -34.9 . 15.0 .5 .7 5.4 8.4 -.2 . 358.0 55.7 . 28.9 . 400.8 46.7 13.3 141.2 199.6 843.4 -.3 5.9 43.0 351.4 18.2 18.2 20 21 22 Time and savings accounts............... At commercial banks..................... At savings institutions.................. 105.2 44.1 61.1 23 24 Fed funds and security RPs............ Money market fund shares............... 6.9 7.5 6.9 25 26 27 Life insurance reserves..................... Pension fund reserves........................ Net interbank claims........................ 12.0 65.8 12.0 65.8 28 Corporate equities........................... -6.2 29 30 31 32 33 34 35 36 37 38 Credit market instruments............... U.S. Treasury securities............... Federal agency securities............... State and local govt, securities. . . Corporate and foreign bonds . . . Mortgages....................................... Consumer credit.............................. Bank loans n.e.c............................... Open-market paper........................ Other loans.................................... 58.0 17.3 9.7 3.3 -1.4 14.5 1.4 . . 22.5 22.5 . . 115.2 54.1 61.1 . .2 -.2 . -.2 . 1.1 1.1 . . 63.5 -2.6 . 2.6 104.8 50.6 3.4 14.6 39 Security credit.................................... Trade credit....................................... Taxes payable.................................... 42 43 Equity in noncorporate business . . Miscellaneous................................. -20.8 7.6 44 Sector discrepancies (1-4).................. -41.8 . . 1.0 . 23.6 25.1 3.2 1.7 3.8 40 41 3.2 20.1 43.3 14.6 9.8 2.8 1.0 33.9 5.2 19.9 1.4 1.4 1.1 54.9 18.1 21.4 45.5 3.4 1.0 1.6 . -20.8 4.0 7.0 . 2.6 2.4 -.5 311.8 37.7 28.2 32.8 . .1 .1 . . 28.3 20.1 148.2 50.6 37.3 5.2 22.2 1.6 7.7 53.7 55.1 -1.3 -.4 -.1 4.0 18.3 6.6 3.9 7.9 1.4 1.4 0 0 47.9 3.4 3.4 -.3 -20.8 25.7 -20.8 5.0 4.7 10.8 20.4 . 54.9 1.6 -13.3 4.0 10.8 . 13.0 2.7 3.5 . 2.4 2.6 2.6 28.2 24.8 -.2 3.7 7.8 9.7 -2.0 124.2 65.0 59.2 4.0 20.9 6.9 1.7 4.2 -.3 1.7 135.8 6.3 9.3 .1 -3.1 7.6 1.7 79.8 -1.1 -1.0 .3 .3 1.4 3.6 41.4 44.6 .5 .1 7.5 .9 30.6 2.8 14.6 12.5 -1.2 14.6 41.4 41.4 5.9 7.0 7.7 -.4 o -.4 5.9 124.2 65.0 59.2 124.2 65.0 59.2 2.6 2.1 6.9 11.5 6.9 20.9 6.9 11.7 58.9 12.0 65.8 14.9 12.0 65.8 15.6 478.0 55.1 40.1 28.3 31.6 149.0 50.6 58.4 26.4 38.6 478.0 55.1 40.1 28.3 31.6 149.0 50.6 58.4 26.4 38.6 62.3 5.2 50.0 5.2 * 1.1 7.5 .5 128.7 -6.5 7.0 9.6 -.3 35.0 26.9 58.4 -1.3 6.9 168.1 5.2 12.3 14.2 31.6 68.3 20.4 31.5 .2 6.7 -2.3 7.3 .9 5.1 10.9 2.8 7.9 12.5 1.8 -1.0 1.4 .3 .5 .5 0 .5 9.1 -6.3 28.2 24.8 -.2 3.7 59.2 o 4.8 28.9 25.1 -.2 4.0 59.2 -2.9 .6 .2 .5 7.8 9.7 -2.0 1.3 37.1 .2 .6 65.0 65.0 9.7 11.9 8.2 3.5 19.9 539.0 551.8 200.3 108.0 221.1 22.3 43.0 55.7 191.2 2.3 2.3 1.3 18.5 -3.1 -3.3 551.6 551.8 200.3 108.0 221.1 22.3 22.0 15.5 - .3 6.8 18.8 ■ 1.7 -.3 . * * 11.7 58.9 15.6 348.4 6.9 19.1 23.8 31.3 133.9 47.3 58.4 2.2 25.5 . .7 9.8 1.4 1.6 .6 1.6 .6 9.5 71.4 20.0 13.3 4.5 -1.4 15.5 3.2 16.3 . . -6.2 -1.6 4.0 9.6 4.2 12.6 46.2 385.7 .3 6.9 5.4 125.6 .7 .5 524.9 359.7 165.2 548.5 359.7 188.7 13.3 3.3 10.0 . Demand deposits and currency . . . Private domestic.............................. Foreign............................................. U.S. government........................... -1.2 -7.1 .7 .2 .7 National saving and investment S U 34 2.7 .7 -2.0 16 17 18 19 162.6 1.0 S -34.7 20.7 5.6 . .5 2.0 .7 . -36.6 -2.0 . 1.2 5.5 U S 12.7 24.6 8.1 8.1 U 1.0 6.7 Gold and official foreign exchange . Treasury currency.............................. 2.0 2.0 S U 18.4 6.0 12.4 Discrepancy AU sectors Private nonbank finance Commercial banking . 160.4 -1.1 -1.1 S Monetary authority 12.7 16.3 209.3 22.3 2.0 5.4 5.4 Sponsored agency and mtg. pools Total 554.8 548.1 200.3 108.3 215.2 22.3 2.0 . 14 15 U.S. government S U 541.5 353.7 187.7 7.6 4 Gross investment (5+11)..................... 5 Private capital expenditures............... 6 Consumer durables........................... 7 Residential construction.................. 8 Plant and equipment........................ 9 Inventory change.............................. 10 Mineral rights.................................... 166.4 Financial sectors Rest of the world Appendix Tables Summary of flow of funds accounts for the year 1978 -20.8 -20.8 49.6 52.6 -.7 -.3 3.0 -3.1 GO Financial assets and liabilities, December 31, 1978 on Amounts outstanding in billions of dollars Private domestic nonfinancial sectors Sector Transaction category 1 Total financial assets........................... 2 Total liabilities.................................... 3 4 5 6 7 Households A L Business A L 825.6 3422.0 State and local governments A L Total A L 4431.8 184.2 296.3 1466.1 1210.0 Financial sectors 37.6 9.7 1.0 4.4 81.3 81.3 317.3 317.3 13.9 13.9 0 1.6 1.1 2.8 1096.3 471.7 624.6 15 Fed funds and security RPs............... 16 Money market fund shares.................. 10.8 23.7 10.8 17 Life insurance reserves........................ 18 Pension fund reserves........................... 19 Net interbank claims3........................ 198.5 530.8 198.5 530.5 20 Corporate equities4.............................. 808.5 21 Credit market instruments.................. 22 U.S. Treasury securities5.................. 23 Federal agency securities6............... 24 State and local government securities 25 Corporate and foreign bonds .... 26 Mortgages.......................................... 27 Consumer credit................................. 28 Bank loans n.e.c................................. 29 Open-market paper........................... 30 Other loans....................................... 486.0 1164.8 166.7 37.1 75.0 64.8 106.2 766.1 340.0 19.2 36.1 39.5 11.7 * 1.6 13.1 22.1 22.1 13.7 8.8 60.5 10.0 15.6 77.6 1129.8 .6 3.5 3.7 15.8 318.3 392.4 43.6 260.2 26.3 25.4 117.6 82.5 42.4 16.3 8.3 282.1 275.6 15.6 6.5 21.7 13.2 355.5 10.3 266.2 271.5 23.9 40.8 14.2 12.5 646.2 2576.8 209.7 56.9 86.9 291.4 64.8 318.3 121.8 1158.5 43.6 340.0 279.4 62.4 25.4 163.8 79.0 10.8 -7.2 54.4 189.8 470.7 38.1 42.0 235.6 42.6 626.2 2820.3 619.2 271.7 6.2 125.4 204.5 346.6 .8 1040.8 296.4 358.2 30.2 146.6 399.3 38.8 25.9 8.7 59.8 808.5 171.8 137.8 165.5 129.5 23.8 10.6 42.9 9.9 23.3 49.9 26.6 46.0 8.8 21.7 0 0 355.5 12.5 326.7 299.0 23.9 51.2 20.3 12.7 42.8 179.6 95.8 8.9 13.6 8.5 A L 1129.9 .3 .3 104.3 99.2 4.4 .7 1.5 1.5 14.1 11.3 * 98.1 3.6 199.9 215.6 1.4 .2 60.8 13.3 160.6 28.8 63.9 32.7 .2 53.1 199.9 199.9 46.7 119.2 110.6 8.0 0 .6 A 46.7 L 20.3 20.3 615.6 615.6 26.5 24.3 2.1 12.0 .1 235.5 1025.0 95.2 43.8 126.2 7.4 214.0 167.2 358.2 13.0 21.7 1460.6 64.5 73.3 78.3 5.9 339.1 666.2 129.1 21.0 16.4 93.5 17.8 2.5 18.8 3.0 5.2 35.5 .9 61.2 57.1 A 8.6 7229.0 49.3 11.2 1.0 4.4 13.1 1.0 4.4 10.7 377.1 339.4 18.7 19.0 405.3 367.8 18.5 19.0 -2.5 28.2 28.4 -.1 626.7 1242.3 1242.3 615.6 615.6 626.7 626.7 5.9 10.8 39.4 10.8 79.0 10.8 189.8 470.7 198.5 530.5 47.1 198.5 530.5 38.1 42.6 1086.1 42.6 39.7 -9.0 177.7 3767.8 3767.8 619.2 619.2 206.1 206.1 291.4 291.4 54.9 422.0 422.0 13.3 1172.5 1172.5 340.0 340.0 28.8 358.2 358.2 48.0 115.9 115.9 32.7 242.5 242.5 25.9 47.6 47.6 4.5 179.3 396.0 26.1 476.2 325.8 29.3 495.4 11.3 5.4 264.6 L Floats and discrep ancies 626.7 -8.6 15.8 A 1733.8 301.0 268.6 14.1 18.3 0 AU sectors 1 8324.4 1840.9 73.1 7.7 Private nonbank finance 1065.0 26.5 1242.3 24.3 615.6 2.1 626.7 .9 .9 22.2 22.2 405.3 367.8 18.5 19.0 Commercial banking 156.2 218.7 * 1.6 13.1 19.0 1192.7 568.1 624.6 65.3 65.3 L A 156.2 11.7 18.7 31.2 31.2 L A 222.1 3173.8 719.5 18.7 19.0 L Monetary authority -70.2 3.2 19.2 Introduction to Flow of Funds 12 Time and savings accounts.................. 13 At commercial banks........................ 14 At savings institutions..................... A 3349.1 10.7 222.1 222.1 For notes see facing page. L A 185.5 363.3 2972.5 8 Demand deposits and currency .... 9 Private domestic................................. 10 U.S. government.............................. 11 Foreign................................................ 31 Security credit....................................... L A Sponsored agencies and mortgage pools Total 358.0 Gold 2................................................... SDRs2................................................... I.M.F. position.................................... Official foreign exchange..................... Treasury currency................................. 32 Trade credit7....................................... 33 Taxes payable....................................... 34 Miscellaneous.......................................... U.S. government Rest of the world Amounts outstanding in billions of dollars Sector Transaction category Savings and loan assns. Total A L 1 Total financial assets............................................................. 1840.9 2 Total liabilities...................................................................... 1733.8 3 Demand deposits and currency.......................................... 4 Time and savings accounts................................................... 5 At commercial banks......................................................... 6 At savings institutions...................................................... 20.3 26.5 24.3 2.1 7 Fed funds and security RPs................................................ 8 Money market fund shares................................................... 12.0 9 Life insurance reserves......................................................... 10 Pension fund reserves............................................................ 11 Corporate equities 4............................................................ 626.7 A L 523.6 L A 431.0 5.9 142.6 142.6 431.0 9.0 L A 58.4 . 1.0 3.0 .9 2.1 . 147.3 2.2 .7 .7 Life insurance companies Credit unions 161.2 494.6 1.6 7.2 7.2 626.7 5.9 10.8 Mutual savings banks 53.6 A 42.6 12 Credit market instruments................................................... 1460.6 13 U.S. Treasury securities5................................................... 64.5 14 Federal agency securities6................................................ 73.3 15 State and local government securities.............................. 78.3 16 Corporate and foreign bonds.......................................... 339.1 17 Mortgages........................................................................... 666.2 18 Consumer credit.................................................................. 129.1 19 Bank loans n.e.c................................................................... 16.4 20 Open-market paper............................................................ 21 Other loans........................................................................ 93.5 177.7 22 Security credit........................................................................ 17.8 23 Trade credit7......................................................................... 24 Taxes payable........................................................................ 25 Miscellaneous........................................................................ 11.3 57.1 54.9 13.3 28.8 48.0 32.7 L A L .... 153.0 133.3 .... .... 96.1 145.7 359.2 153.0 .... 1.8 10.3 10.3 .... .... .... 2.8 .... 2.6 .... 4.4 432.9 12.2 2.0 10.7 A A L A 6.8 141.1 Open-end investment companies L A 42.6 . 42.6 11.5 .7 Money market funds Security brokers and dealers L 10.8 .... .... 10.8 28.6 .1 5.3 5.3 .... .... .... .9 .... 10.8 142.6 5.0 13.4 3.3 21.6 95.2 3.8 54.5 1.4 3.8 . . . 3.3 45.9 . . .... 198.6 .... 153.0 35.5 107.9 .... 33.3 .... 19.4 .... 318.7 4.8 6.5 6.4 158.5 105.9 73.3 17.5 4.7 .... .... .... 48.0 j.l .... .... 116.9 10.5 12.4 4.0 81.4 8.7 .... .... .... .... .... .... 100.0 10.7 5.1 62.5 21.4 .4 .... .... .... .... .... .... 31.4 141.3 .4 6.3 30.1 32.7 119.6 5.9 9,7 10.5 1.6 5.1 1.5 .... .... L 26.0 1.6 2.5 5.5 5.9 51.3 10.8 67.1 63.3 4.9 .6 20.8' 47.4 3.4' 3.2 42.6 6.7 3.1 .9 2.8 3.7 25.9 4.5 179.3 A A 53.0 3.1 2.7 L Real estate investment trusts 3.0 17.8 20.9 1.3 7.9 7.9 4.7 21.7 1 Excess of total assets (line 1) over total liabilities (line 2) consists of gold, special drawing rights, and corporate equities not included in liabilities minus total floats and discrepancies on line 1 in adjacent column. 2 Rest of world total holdings of gold and special drawing rights appear as assets and are included in totals, because in flow tables transactions in these categories are treated as purchases and sales of existing assets without associated liabilities. 3 Rest of world asset is net of liabilities, and commercial banking liability is net of claims on rest of world. Banking liability also reflects discrepancy in the far right column. 4 Assets are shown at market value; nonbank finance liability is redemption value of shares of open-end investment companies. No specific liability is attributed to issuers of stocks other than open-end investment companies for amounts outstanding. L .... 198.6 . 4.8 48.5 Finance companies A 189.8 119.1 485.0 8.6 27.4 1.3 Other insurance companies 198.6 .... 2.4 189.8 470.7 235.5 State and local govt, retirement funds L 378.3 53.6 Private pension funds Appendix Tables Financial assets and liabilities, December 31, 1978 — continued 1.9 48.5 5.4 .... 11 3 .... .... .7 95.4 .5 21.0 25.9 .1 .8 1.8 .3 .... s Includes savings bonds and other nonmarketable debt held by the public. Postal savings system deposits are included in line 34 of Part A, All Sectors. 6 Issues by agencies in the budget (CCC, Export-Import Bank, GNMA, TVA, FHA) and by sponsored credit agencies in Financial sectors. Includes loan participation certificates. 7 Business asset is corporate only. Noncorporate trade credit is deducted in liability total to conform to quarterly flow tables. <Z> S.4 Introduction to Flow of Funds FEBRUARY 1980 PONDS RAISED IN CREDIT MARKETS PONDS RAISED IN CREDIT MARKETS 4 SUMMARY OF PONDS RAISED IN CREDIT MARKETS ANNUAL NET FLOWS 1969 ANNUAL NET FLOWS 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 CREDIT MARKET PONDS RAISED BY NONFINANCIAL SECTORS TOTAL PONDS RAISED BY NONFINANCIAL SECTORS EXCLUDING EQUITIES 1 2 U.S. GOVERNMENT TREASURY ISSUES AGENCY ISSUES ♦ MORTGAGES 3 4 5 ALL OTHER NONFINANCIAL SECTORS CORPORATE EQUITIES DEBT INSTRUMENTS 6 7 8 1 2 94.1 90.2 101. 1 95.3 153.9 142.5 176.8 166.3 203.1 195.4 191.6 187.7 210.8 200.7 271.9 261.1 338.5 335.4 400.3 398.2 394.6 390.5 3 4 5 -3.7 -1.3 -2.4 11.9 12.9 -1.0 24.9 26.0 -1. 1 15.1 14.3 .8 8.3 7.9 .4 11.8 12.0 -.2 85.4 85.8 -.4 69.0 69.1 -. 1 56.8 57.6 -.9 53.7 55.1 -1.4 37.4 38.8 -1.4 6 7 8 97.8 3.9 93.9 89.2 5.8 83.5 129.0 11.5 117.6 161.7 10.5 151.2 194.9 7.7 187.2 179.8 3.8 175.9 125.4 10.1 115.3 202.9 10.8 192.0 281.8 3.1 278.6 346.6 2.1 344.5 357.2 4.1 353.1 9 10 11 94.1 3.4 90.7 86.4 5.7 80.7 124.0 11.4 112.5 157.7 10.9 146.8 188.8 7.9 180.9 164.4 4.1 160.3 112. 1 9.9 102.1 182.0 10.5 171.5 267.9 2.7 265. 1 314.4 2.6 311.8 334.4 3.2 331.1 12 13 14 15 16 17 18 19 52.5 9.9 12.0 30.6 18.1 4.9 5.7 1.8 60.2 11.2 19.8 29.2 14.4 6.9 7.1 .8 86.7 17.4 18.8 50.5 28.0 9.9 10.2 2.4 102.1 14.7 12.2 75.2 42.5 12.7 16.4 3.6 105. 1 14.7 9.2 81.2 46.4 10.4 18.9 5.5 98.0 16.5 19.7 61.9 34.8 6.9 15.1 5.0 98.4 16.1 27.2 55.0 39.5 • 11.0 4.6 123.5 15.7 22.8 85.0 63.7 1.8 13.4 6.1 175.6 23.7 21.0 131.0 96.4 7.4 18.4 8.8 196.6 28.3 20. 1 148.2 104.5 10.2 23.3 10.2 203.8 21.3 21 .8 160.8 106.1 10.1 27.2 17.2 DEBT CAPITAL INSTRUMENTS ST.+LOC. OBLIGATIONS CORPORATE BONDS MORTGAGES HOME MORTGAGES MULTI-FAMILY RESID. COMMERCIAL FARM 12 13 14 15 16 17 18 19 20 21 22 24 38.3 10.8 15.8 1.8 9.9 20.4 5.4 7.6 2.6 4.8 25.8 14.7 7.1 -.4 4.4 44.7 19.8 17. 1 .8 6.9 75.8 26.0 37.1 2.5 10.3 62.3 9.9 32.0 6.6 13.7 3.8 9.7 -12.3 -2.6 9.0 48.0 25.6 4.0 4.0 14.4 89.5 40.6 27.0 2.9 19.0 115.2 50.6 37.3 5.2 22.2 127.3 42.3 47.1 10.9 27.0 OTHER DEBT INSTRUMENTS CONSUMER CREDIT BANK LOANS N.E.C. OPEN-MARKET PAPER OTHER 20 21 22 23 24 25 26 27 94.1 10.7 34.5 86.4 11.3 25.2 124.0 17.7 44.9 157.7 14.5 65. 1 188.8 13.2 80.1 164.4 15.5 51.3 112. 1 13.7 49.7 182.0 15.2 90.5 267.9 20.4 139.9 314.4 23.6 162.6 334.4 18.0 160.4 28 29 30 31 32 33 49.0 3.0 7.4 38.6 35.2 3.4 49.9 2.3 6.9 40.7 35.0 5.7 61.4 4.5 11.7 45.2 33.8 11.4 78.1 5.8 14. 1 58.2 47.2 10.9 95.5 9.6 12.9 73.0 65.2 7.9 97.6 8.0 7.4 82.1 78.0 4.1 48.6 8.8 2.0 37.9 28.0 9.9 76.3 10.9 4.7 60.7 50.2 10.5 107.6 14.7 12.9 79.9 77.2 2.7 128.2 18.1 15.4 94.7 92.2 2.6 156.0 26.8 16.1 113.1 109.8 3.2 34 35 36 37 38 39 40 3.7 .5 3.2 1.0 -.3 .3 2.1 2.9 .1 2.8 .9 -.2 .8 1.3 5.1 * 5. 1 .9 2.0 .3 1.8 4.0 -.4 4.4 1.0 3.0 -1.0 1.5 6.1 -.2 6.3 1.0 2.7 .9 1.7 15.4 -.2 15.7 2.1 4.7 7.3 1.6 13.3 .2 13.2 6.2 3.9 .3 2.8 20.8 .3 20.5 8.6 6.8 1.9 3.3 13.9 .4 13.5 5.1 3. 1 2.4 3.0 32.3 -.5 32.8 4.0 18.3 6.6 3.9 22.9 .9 22.0 5.0 2.8 11.2 3.0 23 41 .5 2.8 3.2 -.3 -1.7 -4.6 2.9 3.2 1.1 42 43 93.7 -4.1 98.3 9.1 150.8 21.7 177.1 15.4 204. 8 9.9 196.1 16.4 207.9 82.5 268.8 65.9 337.4 55.7 PRIVATE DOMESTIC NONFINANCIAL SECTORS CORPORATE EQUITIES DEBT INSTRUMENTS BY BORROWING SECTOR: ST.+LOC. GOVERNMENTS HOUSEHOLDS NONFINANCIAL BUSINESS FARM NONFARM NONCORPORATE CORPORATE DEBT INSTRUMENTS EQUITIES FOREIGN CORPORATE EQUITIES DEBT INSTRUMENTS BONDS BANK LOANS N.E.C. OPEN-MARKET PAPER U.S. GOVERNMENT LOANS 3.8 .1 MENO: U.S. GOVT. CASH BALANCE TOTALS NET OF CHANGES IN U.S. GOVT. CASH BALANCES-TOTAL FUNDS RAISED 396.6 394.5 BY U.S. GOVERNMENT 49.9 37.3 9 10 11 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 CREDIT MARKET PONDS RAISED BY FINANCIAL SECTORS TOTAL FUNDS RAISED BI FINANCIAL SECTORS 1 32.5 17.9 14.4 25.8 44.8 39.2 12.7 24.1 54.0 81.4 86.9 2 3 4 5 9.5 9.1 .7 -.3 9.8 8.2 1.6 - 5.9 1. 1 4.8 8.4 3.5 4.9 - 19.9 16.3 3.6 - 23.1 16.6 5.8 .7 13.5 2.3 10.3 .9 18.6 3.3 15.7 -.4 26.3 7.0 20.5 -1.2 41.4 23.1 18.3 - 52.4 24.6 27.8 - U.S. GOVT. RELATED SPONSORED CR. AG. SEC. MORTGAGE POOL SECURITIES LOANS FROM U.S. GOVERNMENT 2 3 4 5 6 7 23.0 6.3 8. 1 4.8 8.5 3.5 17.4 2.8 24.9 1.5 16.2 .3 -.8 .6 5.5 1.0 27.7 .9 40.0 1.7 34.5 1.6 PRIVATE FINANCIAL SECTORS CORPORATE EQUITIES 6 7 8 9 10 11 12 13 16.7 .8 .2 1.3 10.3 4.0 3.3 2.7 .7 -. 1 -1.3 1.3 5.0 3.8 2. 1 1.9 -. 1 -2.7 14.7 5.1 1.7 6.0 1.9 * 23.4 3.5 -1.2 9.0 4.9 7.2 15.9 2.1 -1.3 4.6 3.8 6.7 -1.4 2.9 2.3 -3.7 1.1 -4.0 4.4 5.8 2. 1 -3.7 2.2 -2.0 26.9 10.1 3.1 -.3 9.6 4.3 38.3 7.5 .9 2.8 14.6 12.5 32.9 7.0 -1.2 -.5 18.4 9.2 DEBT INSTRUMENTS CORPORATE BONDS MORTGAGES BANK LOANS N.E.C. OPEN-MARKET PAPER LOANS FROM FHLB'S 8 9 19 11 12 13 14 15 16 32.5 8.8 .7 17.9 8.2 1.6 14.4 1.1 4.8 25.8 3.5 4.9 44.8 16.3 3.6 39.2 17.3 5.8 12.7 3.2 10.3 24.1 2.9 15.7 54.0 5.8 20.5 81.4 23. 1 18.3 86.9 24.6 27.8 TOTAL, BY SECTOR SPONSORED CREDIT AGENCIES MORTGAGE POOLS 14 15 16 17 18 19 20 21 22 23 24 23.0 -.2 4.3 4.1 .5 7.8 1.5 4.9 8.1 .2 -1.9 1.8 .4 2.6 2.2 2.8 8.5 1.5 -.4 -. 1 .6 2.7 2.9 1.3 17.4 2.3 .7 1.7 .5 6.6 6.3 -.5 24.9 1.2 2.2 6.0 .5 9.5 6.5 -1.2 16.2 1.2 3.5 4.8 .9 6.0 .6 -.7 -.8 1.2 .3 -2.3 1.0 .5 -1.4 -.1 5.5 2.3 -.8 . 1 .9 6.4 -2.4 -1.0 27.7 1.1 1.3 9.9 .9 17.6 -2.2 -.9 40.0 1.3 6.7 14.3 1.1 18.6 -1.0 -1.0 34.5 1.1 4.5 9.8 1.0 19.5 -.6 -.9 PRIVATE FINANCIAL SECTORS COMMERCIAL BANKS BANK AFFILIATES SAVINGS ♦ LOAN ASSNS. OTHER INSURANCE COMPANIES FINANCE COMPANIES REITS OPEN-END INVESTMENT COS. 1 17 18 19 20 21 22 23 24 TOTAL CREDIT MARKET FUNDS RAISED, ALL SECTORS, BY TYPE 1 2 3 126.6 4.9 5.2 119.0 2.8 7.7 168.4 1.3 13.7 202.6 -.5 13.8 248.0 -1.2 10.4 230.8 -.7 4.8 223.5 -. 1 10.8 296.0 -1.0 12.9 392.5 -.9 4.9 481.7 -1.0 4.7 481.5 -.9 6.6 4 5 6 7 8 116.4 6.2 9.9 13.8 30.7 106.4 21.7 11.2 23.3 29.9 153.4 30.9 17.4 23.5 52.5 189.3 23.6 14.7 18.4 76.8 238.8 28.3 14.7 13.6 79.9 226.7 34.3 16.5 23.9 60.5 212.8 98.2 16.1 36.4 57.2 284.1 88.1 15.7 37.2 87. 1 388.5 84.3 23.7 36.1 134.0 478.0 95.2 28.3 31.6 149.0 475.8 89.9 21.3 33.7 159.5 9 10 11 12 10.8 16.8 12.5 15.8 5.4 7.3 2.1 7.5 14.7 11.0 -.1 3.5 19.8 26. 1 1.6 8.4 26.0 48.8 8.3 ,9.1 9.9 41.3 17.7 22.7 9.7 -12.2 -1.2 8.7 25.6 7.0 8.1 15.3 40.6 29.8 15.0 25.2 50.6 58.4 26.4 38.6 42.3 49.5 40.5 39.2 TOTAL FUNDS RAISED INVESTMENT COMPANY SHARES OTHER CORPORATE EQUITIES DEBT INSTRUMENTS U.S. GOVERNMENT SECURITIES STATE ♦ LOCAL OBLIGATIONS CORPORATE ♦ FOREIGN BONDS MORTGAGES CONSUMER CREDIT BANK LOANS N.E.C. OPEN-MARKET PAPER OTHER LOANS 1 2 3 4 5 6 7 8 9 10 11 12 Appendix Tables S.5 FEBRUARY 1980 CREDIT MARKET SUPPLY OF FUNDS CREDIT MARKET SUPPLY OF FUNDS DIRECT AND INDIRECT SOURCES OF FUNDS TO CREDIT MARKETS 5 ANNUAL NET FLOWS ANNUAL NET FLOWS 1 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 90.2 95.3 142.5 166.3 195.4 187.7 200.7 261. 1 335.4 398.2 1979 1980 TOTAL FUNDS ADVANCED IN CREDIT MARKETS 390.5 TO NONFINANCIAL SECTORS 1 BY PUBLIC AGENCIES ♦ FOREIGN 2 3 4 5 6 16.1 .3 5.1 4.0 6.7 28.6 15.3 6.5 1.3 5.4 44.0 34.4 7.0 -2.7 5.2 19.4 7.6 7.0 * 4.7 31.8 9.5 8.2 7.2 6.9 53.7 11.9 14.7 6.7 20.5 44.6 22.5 16.2 -4.0 9.8 54.3 26.8 12.8 -2.0 16.6 7 8 9 10 3.1 9.3 4.2 -.5 2.8 10.4 5.0 10.5 2.8 5.9 8.9 26.4 1.8 8.8 .3 8.4 2.8 19.1 9.2 .6 9.8 26.5 6.2 11.2 15.1 14.8 8.5 6.1 8.9 20.3 9.8 15.2 11 9.5 9.8 5.9 8.4 19.9 23.1 13.5 18.6 85. 1 40.2 20.4 4.3 20.2 2 3 4 5 6 TOTAL HET ADVANCES, BY TYPE U.S. GOVERNMENT SECURITIES RESIDENTIAL MORTGAGES FHLB ADVANCES TO S+L'S OTHER LOANS ♦ SECURITIES TOTALS ADVANCED, BY SECTOR 20.4 11.8 23.0 U.S. GOVERNMENT 26.8 57.5 GOVT.RELATED AG. ♦ POOLS 44.6 7.1 7.0 7.7 MONETARY AUTHORITIES 39.4 37.7 -7.2 FOREIGN AGENCY BORROWING AND POOL SECURITY ISSUES NOT INCLUDED 26.3 41.4 52.4 IN LINE 1 109.7 43.9 26.5 12.5 26.9 81.0 2.6 35.5 9.2 33.8 7 8 9 10 11 PRIVATE DOMESTIC FUNDS ADVANCED 12 13 14 15 16 17 18 83.6 5.8 9.9 12.5 17.9 41.5 4.0 76.5 6.4 11.2 20.0 14.7 25.5 1.3 104.4 -3.6 17.4 19.5 30.8 37.6 -2.7 155.3 16.0 14.7 13.1 48.1 63.4 e 183.6 18.8 14.7 10.0 48.4 98.8 7.2 157.1 22.4 16.5 20.9 26.9 77.1 6.7 169.7 75.7 16.1 32.8 23.2 17.9 -4.0 225.4 61.3 15.7 30.5 52.7 63.3 -2.0 276.5 44.1 23.7 22.5 83.3 107.3 4.3 330.0 51.3 28.3 22.5 88.2 152.2 12.5 361.9 87.3 21.3 27.2 80.7 154.6 9.2 12 13 14 15 16 17 18 TOTAL NET ADVANCES U.S. GOVERNMENT SECURITIES STATB * LOCAL OBLIGATIONS CORPORATE ♦ FOREIGN BONDS RESIDENTIAL MORTGAGES OTHER MORTGAGES + LOANS LESS: FHLB ADVANCES PRIVATE FINANCIAL INTERMEDIATION 19 20 21 22 23 57.5 19.0 14.6 13.2 10.8 77.0 35.7 17.4 17.0 6.9 109.4 50.4 39.4 13. 6 6. 1 148.3 70.3 47.3 16.9 13.9 161.3 84.6 35.1 23.7 17.9 125.7 66.8 24.2 29.8 4.8 122.5 29.4 53.5 40.6 -1.0 190.1 59.6 70.8 49.9 9.8 257.0 87.6 82.0 67.9 19.6 296.9 128.7 75.9 73.5 18.7 297.0 120.6 54.4 76.8 45.3 CREDIT MARKET FUNDS ADVANCED BY PRIVATE FINANCIAL INSTS. COMMERCIAL BANKING SAVINGS INSTITUTIONS INSURANCE ♦ PENSION FUNDS OTHER FINANCE 24 25 26 57.5 4.5 16.7 77.0 57.6 3.3 109.4 90.3 5.0 148.3 102.3 14.7 161.3 97.3 23.4 125.7 67.5 15.9 122.5 92.0 -1.4 190.1 124.6 4.4 257.0 141.2 26.9 296.9 142.5 38.3 297.0 129.5 32.9 24 SOURCES OF FUNDS PRIVATE DOMESTIC DEP. ♦ RP'S 25 CREDIT MARKET BORROWING 26 27 28 29 30 31 36.2 14.0 • 11.0 11.2 16.0 -7.5 2.9 12.7 7.9 14. 1 -4.5 2.2 8.8 7.6 31.4 3.8 .7 11.8 15. 1 40.6 3.0 -1.0 18.4 20.2 42.3 10.3 -5.1 26.2 10.8 32.0 -8.7 -1.7 29.7 12.7 61.0 -4.6 -.1 34.5 31.2 89.0 1.2 4.3 49.4 34.1 116.0 6.3 6.8 62.7 40.3 134.6 26.8 -.1 57.8 50.0 32 33 34 35 36 37 42.8 17.7 8.4 5.4 7.9 3.6 2.9 -7.3 -1.3 9.5 -2.0 4. 1 * -10.9 .8 8.8 -1.9 3.2 21.6 4.2 3.0 5.0 1.3 8.2 45.7 18.8 5.4 2.0 9.8 9.7 47.3 18.9 9.4 5.1 5.8 8.0 45.8 24.1 8.4 8.4 -1.3 6.2 39.8 16.1 3.8 5.8 1.9 12.1 46.4 23.0 2.6 -3.3 9.5 14.6 71.4 33.2 4.5 -1.4 16.3 18.7 97.8 56.0 -.6 3.3 11.4 27.6 38 39 40 41 42 43 44 7.3 2.2 -2.2 -17.2 6.6 8.4 61.1 -3. 1 55.3 26.7 11.9 16.6 93.7 .8 79.1 12.2 27.3 39.6 106.7 1.6 83.6 14.0 24.2 45.4 101.2 11.0 75.7 37.5 9.8 28.5 73.8 -2.2 2.4 65.4 32.4 11.3 21.8 98. 1 .2 1.3 84.0 -15.8 40.3 59.4 131.9 2.3 * 113.5 -13.2 57.6 69.1 149.5 2.2 .2 121.0 23.0 29.0 69.0 151.8 7.5 6.9 115.2 45.9 8.2 61.1 137.2 4.1 34.4 84.5 2.7 38.0 43.8 45 46 47 7.3 4.5 2.8 8.9 5.4 3.5 13.7 10.4 3.4 21.5 17.1 4.4 14.5 10.6 3.9 8.2 1.9 6.3 12.6 6.4 6.2 16.1 8.8 7.3 26.1 17.8 8.3 22.2 12.9 9.3 14.2 6.5 7.7 48 50.1 64.0 93.7 128.3 146.9 121.1 143.9 171.7 195.9 223.2 235.0 49 50 51 17.9 68.8 13.5 30.0 100. 6 2.9 30.9 104.8 22.0 11.6 95.5 12.2 16.3 87.9 3.6 28.6 80.0 21.5 22.2 72.2 -2.6 20.8 84.3 10.6 25.4 93.0 40.5 27.5 90.0 44.0 20.8 82.1 19.6 OTHFR SOURCES FOREIGN FUNDS TREASURY BALANCES INSURANCE ♦ PENSION RES. OTHER, NET 19 20 21 22 23 27 28 29 30 31 PRIVATE DOMESTIC NONFINANCIAL INVESTORS DIRECT LENDING IN CR. MARKETS U.S. GOVERNMENT SECURITIES STATE ♦ LOCAL OBLIGATIONS CORPORATE ♦ FOREIGN BONDS OPEN-MARKET PAPER OTHER 32 33 34 35 36 37 DEPOSITS ♦ CURRENCY SECURITY RP'S HONEY MARKET FUND SHARES TIME ♦ SAVINGS ACCOUNTS LARGE AT BANKS OTHER AT BANKS AT SAVINGS INSTITUTIONS 38 39 40 41 42 43 44 MONEY DEMAND DEPOSITS CURRENCY 45 46 47 TOTAL OF CREDIT MARKET INSTRU MENTS, DEPOSITS ♦ CURRENCY PUBLIC HOLDINGS AS X OF TOTAL PVT. FINAN. INTERMEDIATION (X) TOTAL FOREIGN FUNDS 48 49 50 51 CORPORATE EQUITIES NOT INCLUDED ABOVE 1 2 3 10. 1 4.9 5.2 10.5 2.8 7.7 15.0 1.3 13.7 13.3 -.5 13.8 9.2 -1.2 10.4 4.1 -.7 4.8 10.7 -. 1 10.8 11.9 -1.0 12.9 4.0 -.9 4.9 3.7 -1.0 4.7 5.6 -.9 6.6 4 5 12.2 -2.0 11.3 -.8 19.3 -4.3 16.4 -3.2 13. 1 -3.9 5.8 -1.7 9.6 1.1 12.3 -.4 7.4 •3.4 7.6 -3.8 16.8 -11.2 Line 1. 2. TOTAL NET ISSUES MUTUAL FUND SHARES OTHER EQUITIES 1 2 3 ACQ. BY FINANCIAL INSTITUTIONS OTHER NET PURCHASES 4 5 Page 2,, line 2. 30. Excludes net investment of these reserves in corporate equities. Sum of lines 3-6 or 7-10. 31. Mainly retained earnings and net miscellaneous liabilities. Line 12 less line 19 plus line 26. Includes farm and commercial mortgages. 32. Credit market funds raised by Federally sponsored credit agencies. Includes all GNMA-guaranteed security issues backed by mortgage pools. 33-37. Lines 13-17 less amounts acquired by private finance. includes mortgages. 12. Line 1 less line 2 plus line 11. Also line 19 less line 26 plus line 32. Also sum of lines 27, 32, and 38 less 47. 39-46. See line 25. 47. Mainly an offset to line 9. 17. Includes farm and commercial mortgages. 48. Lines 32 + 38 or line 25. Lines 39 + 40 + 41 + 46 or line 38 less line 47. 49. Line 2/line 12. 26. Excludes equity issues and investment company shares. 18. 50. Line 19/line 12. 28. Foreign deposits at commercial banks, bank borrowings from foreign branches, and liabilities of foreign banking offices to foreign affiliates, net of claims on foreign affiliates and deposits by banking in foreign banks. 51. Line 10 plus line 28. 6. 11. 29. Demand deposits at commercial banks. Includes line 12 less line 27 plus line 47. Corporate Equities Line 1 and 3. Includes issues by financial institutions. Line 37 S.6 Introduction to Flow of Funds FEBRUARY 1980 CREDIT MARKET DEBT CREDIT MARKET DEBT SUMMARY OF CREDIT MARKET DEBT OUTSTANDING 6 YEAR-END OUTSTANDINGS 1969 1970 YEAR-END OUTSTANDINGS 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 CREDIT MARKET DEBT ORED BY NONFINANCIAL SECTORS TOTAL CREDIT MARKET DEBT ORED BI NONFINANCIAL SECTORS 1 U.S. GOVERNMENT TREASURY ISSUES AGENCY ISSUES ♦ MORTGAGES 2 3 4 1 1387.8 1482.9 1624.7 1791.6 1987.3 2172.6 2374.9 2636.1 2971.8 3368.5 3759.9 2 3 4 289.0 278.4 10.6 300.8 291.2 9.6 325.7 317.3 8.5 340.8 331.5 9.3 349.1 339.4 9.6 360.8 351.5 9.4 446.3 437.3 9.9 515.8 506.4 9.3 572.5 564. 1 8.4 626.2 619.2 7.0 663.6 658.0 5.6 5 6 7 8 9 10 11 12 13 1049.9 719.5 133.1 147.6 438.8 280.2 51.5 78.1 29.0 1130.4 779.7 144.4 167.3 468.0 294.6 58.4 85.2 29.8 1242.8 866.4 161.8 186.1 518.5 322.6 68.3 95.4 32.2 1389.4 968.5 176.5 198.3 593.7 365.1 81.0 111.8 35.8 1570.5 1073.6 191.2 207.5 674.9 411.5 91.4 130.7 41.3 1730.6 1171.3 207.7 227.1 736.5 446.1 98.3 145.8 46.3 1834.3 1271.5 223.8 254.3 793.3 485.6 98.9 157.9 50.9 2005.4 1395.6 239.5 277.2 879.0 549.6 102.7 169.6 57.0 2270.8 1571.6 263.2 298.1 1010.3 646.2 110.1 188.2 65.7 2576.8 1768.2 291.4 318.3 1158.5 751.2 120.4 210.9 76.0 2912.5 1973.7 312.7 340.0 1321.0 858.8 130.5 238.3 93.4 14 15 16 17 18 330.4 125.5 137.7 7.6 59.5 350.7 133.1 143.1 10.2 64.3 376.4 140.7 157.8 9.9 68.1 420.9 157.6 177.6 10.6 75.0 496.9 194.7 203.7 13.1 85.5 559.3 226.8 213.6 19.8 99.2 562.8 214.2 223.3 17.2 108.2 609.8 217.2 248.8 21.2 122.6 699.2 243.9 289.4 24.3 141.6 808.6 279.4 340.0 25.4 163.8 938.7 329.3 382.3 36.3 190.8 19 20 21 1049.9 137.9 456.1 1130.4 149.2 481.2 1242.8 166.9 526.6 1389.4 181.4 591.5 1570.5 193.7 671.7 1730.6 209.2 722.8 1834.3 222.9 772.3 2005.4 238.2 863.3 2270.8 258.5 1003.4 2576.8 282.1 1164.8 2912.5 300.1 1326.9 BY BORRORING SECTOR: STATE ♦ LOCAL GOVERNMENTS HOUSEHOLDS 19 20 21 22 23 24 25 455.9 44.6 69.8 341.4 500.1 46.9 76.8 376.4 549.3 51.4 88.5 409.5 616.5 57.2 102.6 456.7 705.1 67.0 116.3 521.8 798.6 75.1 123.7 599.8 839.1 83.9 125.8 629.5 904.0 94.8 130.3 678.9 1008.8 109.4 143.3 756.2 1129.8 127.6 156.6 845.7 1285.5 154.5 172.7 958.3 NONFINANCIAL BUSINESS FARM NONFARM NONCORPORATE CORPORATE 22 23 24 25 26 27 28 29 30 48.9 13.2 6.0 3.2 2 6.5 51.6 14.1 5.8 4.0 27.8 56.2 15.0 7.3 4.3 29.6 61.3 16.0 10.4 3.2 31.7 67.7 17.0 13.1 4.2 33.4 81.1 19.1 17.8 11.4 32.8 94.3 25.3 21.6 11.7 35.7 114.9 33.9 28.4 13.6 39.0 128.5 38.9 31.4 16.1 42.1 165.5 42.9 49.9 26.6 46.0 183.9 47.9 49.2 37.8 48.9 FOREIGN CREDIT MARKET DEBT ORED TO U.S. BONDS BANK LOANS N.E.C. OPEN-MARKET PAPER U.S. GOVERNMENT LOANS 26 27 28 29 30 PRIVATE DOMESTIC NONFINANCIAL SECTORS DEBT CAPITAL INSTRUMENTS STATE ♦ LOCAL OBLIGATIONS CORPORATE BONDS MORTGAGES HOME MORTGAGES MULTI-FAMILY RESID. COMMERCIAL FARM OTHER DEBT INSTRUMENTS BANK LOANS N.E.C. CONSUMER CREDIT OPEN-MARKET PAPER OTHER 5 6 7 8 9 10 11 12 13 14 15 16 17 18 ____ _________ _________ ___________________ __________ _____________________________ _________ _________ ____________ _______ CREDIT MARKET DEBT ORED BY FINANCIAL SECTORS 1 103.0 116.1 127.0 150.3 193.6 232.1 244.3 267.5 319.6 399.3 486.1 TOTAL CREDIT MARKET DEBT ORED BY FINANCIAL SECTORS 1 2 3 4 5 33.8 30.6 3.2 - 43.6 38.9 4.8 - 49.5 40.0 9.5 57.9 43.5 14.4 77.9 59.8 18.0 100.9 76.4 23.8 .7 114.5 78.8 34.1 1.6 133.1 82.1 49.8 1.2 158.5 88.2 70.3 199.9 111.3 88.6 253.8 135.9 118.0 - U.S. GOVT.-RELATED SPONSORED CR. AG. SEC. MORTGAGE POOL SECURITIES LOANS FROM U.S. GOVERNMENT 2 3 4 5 6 7 8 9 10 11 69.1 17.2 2.9 12.5 27.2 9.3 72.4 19.9 3.6 12.4 25.9 10.6 77.5 23.7 5.7 14.3 25.9 7.9 92.3 28.8 7.4 20.4 27.8 8.0 115.8 32.3 6.1 29.5 32.7 15.1 131.2 34.4 4.9 33.6 36.5 21.8 129.8 37.4 7.2 29.9 37.5 17.8 134.4 43.2 9.3 26.4 39.7 15.9 161.1 53.3 12.3 26.0 49.2 20.2 199.4 60.8 13.3 28.8 63.9 32.7 232.3 67.8 12.1 28.3 82.3 41.8 PRIVATE FINANCIAL SECTORS CORPORATE BONDS MORTGAGES BANK LOANS N.E.C. OPEN-MARKET PAPER LOANS FROM FHLB'S 6 7 8 9 10 11 12 13 14 103.0 30.6 3.2 116.1 38.9 4.8 127.0 40.0 9.5 150.3 43.5 14.4 193.6 59.8 18.0 232.1 77.1 23.8 244.3 80.3 34.1 267.5 83.3 49.8 319.6 88.2 7-0.3 399.3 111.3 88.6 486.1 135.9 118.0 TOTAL, BY SECTOR SPONSORED CREDIT AGENCIES MORTGAGE POOLS 12 13 14 15 16 17 18 19 20 69.1 2.0 4.3 12.3 49.0 1.5 72.4 2.1 2.3 14.1 51.7 2.2 77.5 3.0 2.0 14. 1 54.3 4. 1 92.3 4.1 2.6 15.7 61.1 8.8 115.8 4.1 4.9 21.7 70.7 14.4 131.2 4.3 8.3 26.S 76.2 15.8 129.8 4.5 8.7 24.2 76.7 15.7 134.4 5.2 7.9 24.3 83.4 13.8 161.1 5.7 9.1 34.2 100.8 11.3 199.4 5.9 15.8 48.5 119.6 9.7 232.3 6.1 20.4 58.3 139.0 8.4 PRIVATE FINANCIAL SECTORS COMMERCIAL BANKS BANK AFFILIATES SAVINGS ♦ LOAN ASSNS. FINANCE COMPANIES REITS 15 16 17 18 19 20 TOTAL CREDIT MARKET DEBT OUTSTANDING,, ALL SECTORS, BY TYPE 1 2 3 4 5 1490.7 321.2 133.1 178.0 443.2 1599.0 343.0 144.4 201.3 473.1 1751.7 373.8 161.8 224.8 525.7 1941.8 397.4 176.5 243.1 602.4 2180.9 425.7 191.2 256.8 682.3 2404.7 459.9 207.7 280.6 742.5 2619.2 558.1 223.8 317.0 801. 5 2903.6 646.7 239.5 354.2 889.2 3291.4 730.1 263.2 390.4 1023.5 3767.8 825.3 291.4 422.0 1172.5 4246.0 916.7 312.7 455.7 1333.7 6 7 8 9 137.7 144.0 38.1 95.3 143.1 151.2 40.1 102.7 157.8 162.2 40.0 105.6 177.6 188.5 41.6 114.7 203.7 237.3 50.0 134.0 213.6 278.2 67.6 154.5 223.3 265.7 66.4 163.3 248.8 272.0 74.6 178.6 289.4 301.4 89.5 203.9 340.0 358.2 115.9 242.5 382.3 406.8 156.4 281 .6 10 11 12 13 25.7 175.4 48.3 866.4 24.9 185.2 47.6 859.4 28.7 196.7 56.7 1003.7 37.4 221.2 59.8 1138.1 29.5 263.9 46.5 901.4 24.7 210.9 34.1 641.7 28.5 223.4 42.2 84 9.5 41.1 246.8 47.0 1059.7 47.2 273.8 42.8 996.6 47.6 325.8 42.6 1043.5 50.7 394.9 46.2 1198.3 TOTAL CREDIT MARKET DEBT U.S. GOVERNMENT SECURITIES STATE ♦ LOCAL OBLIGATIONS CORPORATE ♦ FOREIGN BONDS MORTGAGES 1 2 3 4 5 CONSUMER CREDIT BANK LOANS N.E.C. OPEN-MARKET PAPER OTHER LOANS 6 7 8 9 SELECTED CLAIMS NOT INCLUDED ABOVE: SECURITY CREDIT TRADE CREDIT INVESTMENT COMPANY SHARES OTHER CORPORATE EQUITIES 10 11 12 11 S.7 Appendix Tables FEBRUARY 1980 CREDIT MARKET SUPPLY OF FUNDS CREDIT MARKET SUPPLY OF FUNDS DIRECT AND INDIRECT SOURCES OF FUNDS TO CREDIT MARKETS YEAR-END OUTSTANDINGS YEAR-END OUTSTANDINGS 1 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1387-8 1482.9 1624.7 1791.6 1987.3 2172.6 2374.9 2636.1 2971.8 3368.5 3759.9 1980 TOTAL CREDIT MARKET DEBT CLAIMS AGAINST NONFINANCIAL SECTORS 1 BY PUBLIC AGENCIES ♦ FOREIGN 2 3 4 5 6 166.9 69.8 21.7 9.3 66.0 195.4 85. 1 28.3 10.6 71.4 238.7 119.6 35.3 7.9 75.9 258.7 127.2 42.3 8.0 81.2 290.7 136.6 50.6 15.1 88.4 342.2 148.5 65.3 21.8 106.6 386.8 171.0 81.5 17.8 116.5 441.1 197.8 94.3 15.9 133.2 526.4 238.0 114.7 20.2 153.5 636. 1 281.9 141.2 32.7 180.4 718.5 284.5 178.1 41.8 214.0 7 8 9 10 55.1 33.3 57.2 16.3 57.8 48.7 62.2 26.7 59.9 54.5 71.1 53.2 62.4 63.4 71.3 61.6 65.5 82.5 80.6 62.2 73.1 109.0 86.7 73.4 88.2 123.9 95.3 79.5 97.2 144.2 105. 1 94.7 109.1 171.0 112.2 134. 1 129.5 215.6 119.2 171.8 152.4 274.6 126.9 164.6 11 33.8 43.6 49.5 57.9 77.9 100.9 114.5 133. 1 158.5 199.9 253.8 TOTAL HELD U.S. GOVERNMENT SECURITIES RESIDENTIAL MORTGAGES FHLB ADVANCES TO S*L'S OTHER LOANS ♦ SECURITIES BY AGENCY: U.S. GOVERNMENT GOVT-RELATED AG. ♦ POOLS MONETARY AUTHORITIES FOREIGN AGENCY DEBT AND MORTGAGE POOL SECURITIES NOT IN LINE 1 2 3 4 5 6 7 8 9 10 11 PRIVATE DOMESTIC HOLDINGS 12 13 14 15 16 17 18 1254.8 251.4 133.1 158.7 311.5 409.2 9.3 1331.2 257.8 144.4 178.7 326.3 434.6 10.6 1435.6 254.3 161.8 198. 1 357.1 472.2 7.9 1590.8 270.2 176.5 211.3 405.2 535.6 8.0 1774.4 289.0 191.2 221.3 453.6 634.4 15.1 1931.3 311.4 207.7 242.3 480.3 711.4 21.8 2102.5 387.1 223.8 275.1 504.1 730.3 17.8 2328.0 448.9 239.5 305.6 559.1 790.9 15.9 2603.9 492.1 263.2 328.1 642.6 898.2 20.2 2932.3 543.5 291.4 350.6 731.2 1048.3 32.7 3295.2 632.2 312.7 377.8 811.8 1202.5 41.8 TOTAL PRIVATE HOLDINGS U.S. GOVERNMENT SECURITIES STATE ♦ LOCAL OBLIGATIONS CORPORATE ♦ FOREIGN BONDS RESIDENTIAL MORTGAGES OTHER MORTGAGES ♦ LOANS LESS: FHLB ADVANCES 12 13 14 15 16 17 18 PRIVATE FINANCIAL INTERMEDIATION 19 20 21 22 23 995.5 411.8 237.4 274.7 71.5 1072.4 447.4 254.8 291.7 78.5 1182.0 497.8 294.3 305.3 84.5 1330.5 568.3 341.6 322.2 98.4 1491.8 652.9 376.7 345.9 116.3 1617.0 719.7 400.3 375.7 121.2 1741.0 749.1 453.6 416.3 122.0 1930.9 808.7 524.2 466.2 131.8 2188.2 896.3 606.2 535.3 150.4 2485.5 1025.0 682.0 608.9 169.6 2781 .5 1144.8 736.4 685.4 214.9 CREDIT MARKET CLAIMS HELD BY PRIVATE FINAN. INSTITUTIONS COMMERCIAL BANKING SAVINGS INSTITUTIONS INSURANCE ♦ PENSION FUNDS OTHER FINANCE 24 25 26 995.5 560.5 69.1 1072.4 618.2 72.4 1182.0 708.4 77.5 1330.5 809.3 92.3 1491.8 906.5 115.8 1617.0 974.1 131.2 1741.0 1066.0 129.8 1930.9 1190.6 134.4 2188.2 1331.1 161.1 2485.5 1473.7 199.4 2781.5 1600.8 232.3 SOURCES OF FUNDS PRIVATE DOMESTIC DEP. CREDIT MARKET DEBT 27 28 29 30 31 36 5.9 31.8 5.1 228.9 100.1 381.8 24.3 7.9 242.4 107.2 396.1 19.8 10.2 250.2 115.9 428.9 25.6 10.9 260.8 131.6 469.5 28.7 9.9 282.0 149.0 511.7 39.0 4.8 312.8 155.1 545.2 30.3 3.1 341.5 170.3 605.9 25.7 3.0 374.2 202.9 696.0 27.6 7.3 425.9 235.1 812.4 33.9 14.1 483.8 280.6 948.4 60.5 14.0 535.9 337.9 32 33 34 35 36 37 328.4 147.5 51.9 24.8 23.1 81.1 331.2 140.2 50.6 34.3 21.1 85.1 331.1 129.3 51.4 43.1 19. 1 88.2 352.7 133.5 54.4 48.0 20.4 96.3 398.3 152.3 59.8 50.1 30.2 106.0 445.5 171.3 69.1 55.2 36.0 114.0 491.3 195.4 77.5 63.5 34.7 120.2 531.5 212.0 81.4 69.3 36.6 132.3 576.8 233.7 83.9 66.3 46.1 146.8 646.2 266.6 86.9 64.8 62.4 165.5 746.0 321.2 86.4 71.6 73.8 193.1 38 39 40 41 42 43 44 607.1 3.3 400.0 21.2 164.1 214.7 668.2 .2 455.3 47.9 176.0 231.4 761.9 1. 1 534.4 60. 1 203.3 271.0 867. 1 2.7 617.9 75.0 226.5 316.4 968.4 13.7 693.6 112.5 236.2 344.9 1042.2 11.5 2.4 759.1 144.8 248.3 365.9 1140.3 11.7 3.7 843.0 129.0 288.6 425.4 1272.2 14.0 3.7 956.5 109.9 352.1 494.5 1421.0 16.3 3.9 1077.5 132.9 381.1 563.4 1572.9 23.7 10.8 1192.7 178.8 389.3 624.6 1707.7 27.9 45.2 1275.9 173.9 433.6 668.4 45 46 47 203.8 157.2 46.6 212.7 162.6 50.0 226.4 173.0 53.4 246.6 188.7 57.9 261. 1 199.3 61.8 269.2 201.1 68. 1 281.9 207.6 74.3 298.0 216.4 81.6 323.4 233.5 89.9 345.7 246.5 99.2 358.8 251.9 106.9 48 935.4 999.4 1093.0 1219.8 1366.7 1487.7 1631.6 1803.8 1997.8 2219.1 2453.7 49 50 51 12.0 79.3 48.1 13.2 80.6 51.0 14.7 82.3 73.0 14. 4 83.6 87.2 14.6 84.1 90.8 15.8 83.7 112.4 16.3 82.8 109.8 16.7 82.9 120. 4 17.7 84.0 161.7 18.9 84.8 205.7 19.1 84.4 225.2 19 20 21 22 23 24 ♦ RP’S 25 26 OTHER SOURCES FOREIGN FUNDS TREASURY BALANCES INSURANCE ♦ PENSION RES. OTHER, NET 27 28 29 30 31 PRIVATE DOMESTIC NONFINANCIAL INVESTORS CREDIT MARKET CLAIMS U.S. GOVERNMENT SECURITIES STATE ♦ LOCAL OBLIGATIONS CORPORATE ♦ FOREIGN BONDS OPEN-MARKET PAPER OTHER 32 33 34 35 36 37 DEPOSITS ♦ CURRENCY SECURITY RP'S MONEY MARKET FUND SHARES TIME ♦ SAVINGS ACCOUNTS LARGE AT BANKS OTHER AT BANKS AT SAVINGS INSTITUTIONS 38 39 40 41 42 43 44 HONEY DEMAND DEPOSITS CURRENCY TOTAL OF CREDIT MARKET INSTRU MENTS, DEPOSITS ♦ CURRENCY PUBLIC SUPPORT RATE (%) PVT. FINAN. INTERMEDIATION («, TOTAL FOREIGN FUNDS 45 46 47 48 49 50 51 CORPORATE EQUITIES NOT INCLUDED ABOVE 1 2 3 914.6 48.3 86 6.4 907.0 47.6 859.4 1060.4 56.7 1003.7 1198.0 59.8 1138. 1 947.9 46.5 901.4 675.8 34.1 641.7 891.7 42.2 849.5 1106.6 47.0 1059.7 1039.4 42.8 996.6 1086.1 42.6 1043.5 1244.5 46.2 1198.3 4 5 141.0 773.6 150.4 756.6 195.6 864.9 244.8 953.1 201.8 746.2 146.8 529.0 196.7 695.0 236.5 870.1 222.7 816.7 235.6 850.5 287.7 956.8 TOTAL MARKET VALUE INVESTMENT COMPANY SHARES OTHER EQUITIES 1 2 3 ACQ. BY FINANCIAL INSTITUTIONS OTHER HOLDINGS 4 5 S.8 Introduction to Flow of Funds FEBRUARY 1980 HOUSEHOLDS HOUSEHOIDS SECTOR STATEMENTS OF SAVING AND INVESTMENT ANNUAL NET FLOWS 1969 ANNUAL NET FLOWS 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 HOUSEHOLDS, PERSONAL TRUSTS, AND NONPROFIT ORGANIZATIONS 1 2 745.8 115.4 801.3 115.3 859.1 116.3 942.5 141.2 1052.4 150.8 1154.9 170.3 1255.5 168.8 1381.6 197.1 1531.6 226.4 1717.4 259.0 1923.1 299.9 PERSONAL INCOME - PERSONAL TAXES ♦ NONTAXES 3 4 5 6 7 8 630.4 595.3 35.1 7.1 2.5 26.2 685.9 635.4 50.6 8.9 .9 20.2 742.8 685.5 57.3 9.5 .8 26.2 801.3 751.9 49.4 11.6 1.4 35.1 901.7 831.3 70.3 11.8 .9 41.1 984.6 913.0 71.7 12.6 .5 28.6 1086.7 1003.0 83.6 15.1 .2 26.6 1184.5 1115.9 68.6 17.9 .5 40.6 1305.1 1240.2 65.0 22.4 .6 50.9 1458.4 1386.4 72.0 27. 1 .7 57.5 1623.2 1550.4 72.8 29.8 .8 54.6 = = ♦ ♦ ♦ 9 10 11 70.9 73.4 144.3 80.6 79.9 160.5 93.8 87.1 180.9 97.6 93.6 191.2 124.2 102.8 227.0 113.3 116.8 230.2 125.6 132.6 258.2 127.5 145.8 273.3 138.8 161.0 299.9 157.3 181.0 338.3 158.1 202.0 360.1 = NET SAVING ♦ CAPITAL CONSUMPTION = GROSS SAVING 9 10 11 12 13 14 15 16 147.1 116.5 26.3 85.5 4.7 166. 1 114.2 24.5 84.9 4.8 185.9 134.7 32.4 97. 1 5.1 209.8 157.5 40.7 111.2 5.5 240.8 174. 1 45.2 123.7 5.2 246.0 170.3 42.9 122.0 5.4 282.7 181.0 43.0 132.6 5.4 310.9 220.5 57.5 157.4 5.6 334.6 260.8 76.3 178.8 5.6 380.1 298.2 92.0 200.3 5.9 393.6 314.7 95.8 212.8 6.1 GROSS INVESTMENT CAPITAL EXPEND.-NET OF SALES RESIDENTIAL CONSTRUCTION CONSUMER DURABLE GOODS NONPROFIT PLANT ♦ EQUIP. 12 13 14 15 16 17 18 30.7 62.7 51.8 76.2 51.2 99.6 52.3 123. 1 66.7 143.4 75.7 126.8 101.6 153.8 90.4 187.7 73.8 219. 1 81.9 248.3 78.8 243.0 NET FINANCIAL INVESTMENT 17 NET ACQ. OF FINANCIAL ASSETS 18 1 2 DISPOSABLE PERSONAL INCOME PERSONAL OUTLAIS PERSONAL SAVING, NIA BASIS CREDITS FROM GOVT. INSURANCE CAPITAL GAINS DIVIDENDS NET DURABLES IN CONSUMPTION 3 4 5 6 7 3 19 44.7 52.6 76.0 99.7 116.3 104.3 119.9 146.9 168.6 188.3 192.3 20 21 6.5 -2.6 52.4 8.8 79.8 12. 1 88.1 13.7 77.7 13.9 65.5 7.2 89.3 3.9 124.2 14.9 132.0 22.6 130.3 18.2 127.9 7.5 22 23 24 25 9.1 .7 8.4 - 43.6 27.0 16.6 - 67.8 28. 1 39.6 74.5 29.0 45.4 - 63.8 35.3 28.5 - 55.9 34.1 21.8 2.4 84.0 24.6 59.4 1.3 109.3 40.2 69.1 * 109.2 40.2 69.0 .2 105.2 44. 1 61.1 6. 9 86.0 42.2 43.8 34.4 TIME ♦ SAVINGS ACCTS. AT COMMERCIAL BANKS AT SAVINGS INST. MONEY MARKET FUND SHRS 22 23 24 25 26 27 28 29 30 31 38.2 16.0 9.3 5.4 2.2 5.3 .3 -6.4 -.9 9.5 1.8 -3.8 -3.8 -10.2 . 1 8.8 1.3 -3.8 11.6 -.4 2.3 5.0 6.4 -1.7 38.7 18.8 5.3 2.0 3.4 9. 1 38.8 19.4 8.3 5.1 4.3 1.7 30.6 16.8 6.2 8.4 3.7 -4.4 22.7 9.5 2.5 5.8 8.0 -3.1 36.6 15.7 2.6 -3.3 11.9 9.6 58.0 27.0 3.3 -1.4 14.5 14.6 64.4 40.6 -.8 3.3 16.8 4.4 CREDIT MKT. INSTRUMENTS U.S. GOVT. SECURITIES ST.+LOC. OBLIGATIONS CORPORATE ♦ FGN. BONDS MORTGAGES OPEN-MARKET PAPER 26 27 28 29 30 31 32 33 4.9 -8.5 2.8 -4.3 1.3 -6.4 -.5 -5.1 -1.2 -5.5 -.7 -1.5 -.1 -3.5 -1.0 -2.2 -.9 -5.2 -1.0 -5.2 -.9 -11.9 34 35 5.0 16.5 5.5 18.4 6.3 21.1 6.9 22.6 7.6 25.4 6.7 29.6 8.7 34.9 8.4 44.2 11.6 53.7 12.0 65.8 12.2 70.9 36 37 38 -.2 -1.8 2.1 -.6 -.9 2.6 -1.5 .5 2.3 -3.2 .1 2.7 -1.9 -.2 2.8 -13.3 -1.0 2.7 -10.4 .6 3.8 -15.6 1.5 5.5 -16.7 1.0 6.9 -20.8 1.4 7.6 39 40 41 42 43 44 45 46 32.0 34.5 18.5 1.2 9.5 1.3 1.0 3.0 24.4 25.2 14.1 1.2 4.4 1.0 1.9 2.6 48.4 44.9 26.4 1.2 11. 1 3.6 1.2 1.4 70.8 65. 1 41.5 1.3 14.9 4.9 1.1 1.3 76.7 80.1 47. 1 1.1 21.9 4. 1 3.4 2.4 51.1 51.3 35.4 1.1 9.5 .4 1.6 3.2 52.2 49.7 38.1 1.0 7.8 1.9 -1.2 2.2 97.3 90.5 61.3 1.1 21.6 3.9 .8 1.8 145.3 139.9 93.2 1.0 34.3 6.2 2.8 2.3 47 48 49 -3.4 .6 .4 -1.8 .6 .4 2.7 .5 .3 4.5 .7 .5 -4.3 .6 .4 -1.8 .9 .7 .7 1.1 .7 4.8 1.4 .6 50 -2.8 -5.6 -5.0 -18.7 -13.9 -15.8 -24.4 -37.7 DEP. ♦ CR. MKT. INSTR. (1) INVESTMENT COMPANY SHARES OTHER CORPORATE EQUITIES 32 33 LIFE INSURANCE RESERVES PENSION FUND RESERVES 34 35 -30.6 2.6 8.4 NET INV. IN NONCORP. BUS. SECURITY CREDIT MISCELLANEOUS ASSETS 36 37 38 166.4 162.6 103.8 1.0 44.8 5.8 3.4 3.8 164.1 160.4 107.3 1.0 35.7 6.6 3.9 6.0 NET INCREASE IN LIABILITIES CREDIT MARKET INSTRUMENTS HOME MORTGAGES OTHER MORTGAGES INSTALMENT CONS. CREDIT OTHER CONSUMER CREDIT BANK LOANS N.E.C. OTHER LOANS 39 40 41 42 43 44 45 46 3.1 1.3 .9 1.4 1.4 1.1 1.3 1.4 1.1 -34.7 -41.8 -33.5 47 48 49 SECURITY CREDIT TRADE DEBT MISCELLANEOUS 50 DISCREPANCY (1) EXCLUDES CORPORATE EQUITIES. 51 52 53 54 55 56 26.3 2.3 24.0 12.1 18.5 -4.3 24.5 2.5 22.0 12.8 14.1 -2.5 32.4 3.3 29.2 13.7 26.4 -7.6 40.7 4.0 36.7 14.7 41.5 -15.5 45.2 4.4 40.8 17. 1 47.1 -19.0 42.9 3.2 39.7 19.8 35.4 -12.3 43.0 2.4 40.6 22.2 38.1 -17.3 57.5 3.1 54.4 24.4 61.3 -28.2 76.3 4.0 72.3 28.2 93.2 -45.1 92.0 4.7 87.4 32.8 103.8 -44.6 95.8 5.2 90.6 38.0 107.3 -49.5 MEMORANDA: NET PHYSICAL INVESTMENT: (A) RESIDENTIAL CONSTRUCTION EXPENDITURES MOBILE HOMES OTHER - CAPITAL CONSUMPTION - HOME MORTGAGES = EXCESS NET INVESTMENT 57 58 59 85.5 59.2 26.2 84.9 64.7 20.2 97. 1 7 0.9 26.2 111.2 76.1 35.1 123.7 82.6 41.1 122.0 93.4 28.6 132.6 106.0 26.6 157.4 116.8 40.6 178.8 128.0 50.9 200.3 142.8 57.5 212.8 158.2 54.6 (B) CONSUMER DURABLES EXPENDITURES - CAPITAL CONSUMPTION » NET INVESTMENT 60 61 10.8 15.4 5.4 14.8 14.7 11.6 19.8 15.3 26.0 15.1 9.9 18.7 9.7 17.0 25.6 15.0 40.6 10.3 50.6 6.9 42.3 12.4 62 63 64 65 4.7 2.1 1.2 1.4 4.8 2.3 1.2 1.3 5.1 2.6 1.2 1.4 5.5 2.8 1.3 1.5 5.2 3.1 1.1 1.0 5.4 3.7 1.1 .6 5.4 4.5 1.0 -.1 5.6 4.6 1.1 * 5.6 4.8 1.0 -.3 5.9 5.4 1.0 -.5 6.1 5.8 1 .0 -.7 66 67 15.5 5.6 14.4 7.4 13.5 7.7 15.0 6.2 14.3 7.8 14.7 7.3 13.4 7.7 14.3 5.8 14.8 5.0 15. 1 4.9 15.6 4.5 68 22.6 23.1 24.0 23.5 24.8 23.1 23.4 22.7 22.6 22.8 PER CENT OF DISPOSABLE INCOME ADJ. GROSS SAVING 21.8 69 70 71 72 18.2 9.8 5.0 5.4 16.4 11.0 3.5 3.6 17.9 13.2 6.4 6.0 19.3 15. 1 8.7 8.0 19.0 15.7 8.4 8.8 17. 1 12.7 5.1 5.1 16.4 14.0 4.7 4.5 18.3 15.6 8. 1 7.5 19.6 16.5 10.9 10.5 20. 1 16.7 11.2 10.9 19.0 14.7 9.9 9.7 73 640.0 695.7 753. 1 814.4 914.4 997.7 (C, 19 DEPOSITS 20 DEMAND DEP. ♦ CURRENCY 21 51 52 53 54 55 56 57 58 59 - CONSUMER CREDIT = EXCESS NET INVESTMENT 60 61 NONPROFIT PLANT ♦ EQUIP. EXPENDITURES - CAPITAL CONSUMPTION - NONPROFIT MORTGAGES = EXCESS NET INVESTMENT 62 63 64 65 PER CENT RATIOS: EFFECTIVE TAX RATE SAVING RATE, NIA BASIS 66 67 (2): CAPITAL EXPENDITURES ACQUISITION OF FINAN. ASSETS NET INCREASE IN LIABILITIES CREDIT MARKET BORROWING 1102.0 1202.8 1328.1 1486.2 1653.8 (2) DISPOSABLE INCOME ADJ. (NIA DISPOSABLE INCOME ♦ GOVT. INSURANCE CREDITS ♦ CAPITAL GAINS DIVID.) 68 69 70 71 ^2 73 Appendix Tables S.9 ’EBRUARY 1980 HOUSEHOLDS HOOSEHOIDS 9 SECTOR STATEMENTS OF FINANCIAL ASSETS AND LIABILITIES YEAR-END OUTSTANDINGS TEAR-END OUTSTANDINGS 1970 1969 1971 1972 1973 1974 1975 1976 1977 1978 19 79 1980 HOUSEHOLDS/ PERSONAL TRUSTS, AND NONPROFIT ORGANIZATIONS 1 1863.6 1926.6 2152.7 2387.1 2300.5 2200.6 2551.5 2944.4 3118.0 3422.0 3827.1 2 744.0 796.5 872.5 970.6 1087.0 1194.6 1314.5 1461.9 1628.7 1815.2 2007.1 3 4 492.1 109.0 544.5 117.8 624.3 129.8 711.0 142.2 788.7 156.1 853.9 163.0 943.2 166.9 1067.4 181.9 1198.7 203.7 1329.1 222.1 1454.6 228.4 5 6 7 8 383.1 168.4 214.7 - 426.7 195.4 231.4 - 494.5 223.5 271.0 568.8 252.4 316.4 632.6 287.7 344.9 - 688.5 322.6 365.9 2.4 772.6 347.2 425.4 3.7 881.9 387.4 494.5 3.7 991.1 427.6 563.4 3.9 1096.3 471.7 624.6 10.8 1181.0 512.6 668.4 45.2 TIME ♦ SAVINGS ACCTS. AT COMMERCIAL BANKS AT SAVINGS INST. HONEY MARKET FOND SHRS. 5 6 7 8 9 10 11 12 13 14 251.9 113.5 95.9 51.8 44.1 17.7 252.0 107.2 84.9 52.1 32.8 22.3 248.2 97.0 76.5 54.4 22.1 20.5 259.7 96.6 79.6 57.7 21,9 17.0 298.3 115.4 96.7 60.4 36.4 18.6 340.7 136.0 113.6 63.3 50.3 22.4 371. 3 152.8 133.4 67.4 66.0 19.4 394.5 162.8 139.6 72.0 67.6 23.2 430.0 177.2 149.4 76.8 72.7 27.7 486.0 203.8 166.7 80.7 86.0 37.1 552.5 243.0 189.4 79.9 109.5 53.6 CREDIT MARKET INSTRUMENTS O.S. GOVT. SECURITIES TREASURY ISSUES SAVINGS BONDS OTHER ‘TREASURY AGENCY ISSUES 9 10 11 12 13 14 15 16 17 18 46.9 24.8 51.3 15.4 46.0 34.3 52.9 11.7 46.1 43. 1 54. 1 7.9 48.4 48.0 60.5 6.2 53.7 50.1 63.9 15.3 61.9 55.2 68.2 19.5 68. 1 63.5 71.9 15.1 70.6 69.3 79.8 11.9 73.2 66.3 91.8 21.6 75.0 64.8 106.2 36. 1 74.3 71.6 123.0 40.6 19 20 21 746.9 48.3 698.6 729.4 47.6 681.8 834. 1 56.7 777.4 914.1 59.8 854.3 712.7 46.5 666. 1 504.8 34.1 470.7 659.7 42.2 617.5 827.2 47.0 780.2 777.0 42.8 734.2 808.5 42.6 765.9 906.9 46.2 860.7 CORPORATE EQUITIES INVESTMENT COMPANY SHARES OTHER CORPORATE EQUITIES 22 23 125.0 218.7 130.5 239.4 136.8 275.8 143.7 322.3 151.3 310.6 158.0 302.5 166.6 365.7 175.0 427.9 186.5 465.5 198.5 530.5 210.7 622.1 LIFE INSURANCE RESERVES PENSION FUND RESERVES 22 23 3.9 36.8 SECURITY CREDIT MISCELLANEOUS ASSETS 24 25 24 25 5.2 23.8 4.4 26.3 4.9 28.7 5.0 31.3 4.9 34.1 4.5 40.6 6.3 46.0 7.3 52.9 8.8 60.5 11.3 69.0 698.3 749.3 1044.8 1210.0 1375.8 26 477.7 502.0 550.9 621.5 801.2 899.3 27 28 29 30 31 32 33 456.1 276.5 17.9 101.2 36.6 5.7 18.3 481.2 290.7 19.0 105.5 37.6 7.5 20.9 526.6 317.1 20.3 118.3 39.5 9.2 22.3 591.5 358.6 21.5 133.2 44.5 10. 1 23.6 671.7 405.7 22.6 155.1 48.6 13.5 26.2 722.8 440.9 23.7 164.6 49.0 15.2 29.4 772.3 479.0 24.8 172.4 50.9 13.7 31.5 863.3 540.6 25.8 194.0 54.8 14.6 33.4 1003.4 634.0 26.9 230.8 58.6 17.4 35.7 1164.8 738.2 27.9 275.6 64.3 19.2 39.5 1326.9 847.0 28.9 311.3 70.9 23.2 45.5 34 35 12.2 4.7 10.4 5.3 13.1 5.8 17.5 6.5 13.2 7.1 11.4 8.0 12. 1 9.1 17.2 10.5 20.3 11.8 21.7 13.2 22.9 14.6 36 4.7 5.1 5.4 6.0 6.4 7.1 7.7 8.4 9.3 10.3 11.4 1 TOTAL FINANCIAL ASSETS DEP. ♦ CR. MKT. INSTR. DEPOSITS DEMAND DEP. (1) 2 ♦ CURRENCY 3 4 ST. ♦ LOC. OBLIGATIONS CORPORATE ♦ FGN. BONDS MORTGAGES OPEN-MARKET PAPER TOTAL LIABILITIES (1) 15 16 17 18 19 20 21 26 CREDIT MARKET INSTRUMENTS HOME MORTGAGES OTHER MORTGAGES INSTALMENT CONS. CREDIT OTHER CONSUMER CREDIT BANK LOANS N.E.C. OTHER LOANS 27 28 29 30 31 32 33 SECURITY CREDIT TRADE CREDIT DEFERRED AND UNPAID LIFE INSURANCE PREMIUMS 34 35 EXCLUDES CORPORATE EQUITIES. 36 S.10 Introduction to Flow of Funds FEBRUARY 1980 NONFINANCIAL BUSINESS NONFINANCIAL BUSINESS 10 SECTOR STATEMENTS OF SAVING AND INVESTMENT ANNUAL NET FLOWS ANNUAL NET FLOWS 1969 1970 1972 1971 1973 1975 1974 NONFINANCIAL 1976 1977 1978 1979 1980 BOSINESS - TOTAL 1 2 1 2 142.4 80.9 128.6 79.6 139.8 90.8 161.7 103.8 195.6 110.4 200.9 105.9 198.5 141.9 230.4 163.4 257.8 181.9 298.1 195.6 337.2 212.0 INCOME BEFORE TAXES GROSS SAVING 3 4 5 6 7 8 9 10 75.3 112.3 102.9 91.4 .2 11.2 9.4 * 71.2 108.5 104.4 92.4 .9 11.1 3.8 .3 82.5 119.3 112.2 95.2 2.7 14.3 6.4 .7 88.0 138. 1 127.8 106.9 1.9 19.0 9.4 .9 96.0 167.7 146.6 126.0 -.3 20.9 17.9 3.2 93.6 166.1 150.7 138.9 .4 11.5 8.9 6.5 125.0 133.9 143.3 135.8 2.7 4.8 -10.7 1.3 137.0 175.6 161.6 151.5 4. 1 6.0 10.0 4.0 156.4 217.7 193.3 177.6 5.5 10.2 21.9 2.5 174.1 249.9 225.6 209.3 2.6 13.7 22.3 2.0 193.5 282.6 259.5 241.1 .5 17.9 18.4 4.7 3 GROSS INVESTMENT 4 CAPITAL EXPENDITORES 5 FIXED INVESTMENT 6 BUSINESS PLANT ♦ EQUIPMENT 7 POME CONSTRUCTION (1) 8 MULTI-FAMILY RESIDENTIAL 9 CHANGE IN INVENTORIES MINERAL RIGHTS FROM U.S.GOVT 10 11 12 13 14 15 16 17 18 19 -37.0 30.4 67.4 3.4 45.6 12.0 10.8 14.8 8.0 -37.3 17.6 54.9 5.7 44.2 19.8 14.0 5.7 4.7 -36.8 35.4 72. 1 11.4 49.9 18.9 22.9 5.9 2.3 -50.1 48.0 98.1 10.9 67.2 12.7 32.4 16.0 6.0 -71.7 65.5 137.2 7.9 87.6 11.0 33.0 33.7 10.0 -72.5 46.7 119.2 4.1 93.5 21.3 25.4 30.3 16.5 -8.9 36.2 45.1 9.9 38.7 29.8 15.9 -11.1 4.1 -38.6 49.1 87.6 10.5 65.8 25.3 22.7 3.2 14.6 -61.3 52.9 114.2 2.7 104.8 24.5 36.8 24.2 19.4 -75.7 84.6 160.4 2.6 125.6 23.3 43.3 33.9 25. 1 -89.1 107.2 196.3 3.2 152.7 25.2 52.5 43.2 31.8 NET FINANCIAL INVESTMENT NET ACQ. OF FINANCIAL ASSETS NET INCREASE IN LIABILITIES CORPORATE EQUITIES CREDIT MARKET INSTRUMENTS BONDS MORTGAGES BANK LOANS N.E.C. OTHER LOANS 20 21 21.1 -2.7 8.2 -3.2 10.5 .3 22.9 -2.9 39.4 2.4 30.1 -8.5 7.9 -11.4 16.7 -5.4 22.5 -15.9 45.5 -13.3 64.9 -24.5 22 5.6 8.5 8.2 15.8 14.4 12.2 16.9 26.4 25.5 21.4 18.5 11 12 13 14 15 16 17 18 19 20 21 TRADE DEBT OTHER LIABILITIES 22 DISCREPANCY FEBRUARY 1980 BOSINESS BOSINESS SECTOR STATEHENTS OF FINANCIAL ASSETS AND LIABILITIES TEAR-END OUTSTANDINGS 1969 1970 TEAR-END OOTSTANDINGS 1971 1972 1973 1974 NONFINANCIAL 1 2 3 4 5 6 389.8 62.0 3.7 43.9 180.8 96.1 410.3 63.1 5.3 46.7 189.1 105.8 447.3 61.7 9.5 52.8 202.5 119.6 7 8 9 10 11 12 13 638.4 455.9 147.6 144.4 119.9 44. 1 688.6 500.1 167.3 158.3 125.6 48.8 750.8 549.3 .1 186.1 181.2 131.5 50.5 14 15 155.5 27.0 163.8 24.7 174.2 27.3 < 1975 1976 1977 1978 1979 1980 BUSINESS - TOTAL 499.2 64.4 11.9 55.1 229.8 135.4 573.0 65.9 16.6 56.8 266.8 155.5 565.9 67.2 20.5 61.3 243.6 167.8 609.9 73.5 22.4 73.9 250.0 185.5 667.5 75.0 24.4 83.0 269.5 208.5 727.3 75.9 29.2 78.8 300.6 234.5 825.6 81.3 31.2 77.6 355.5 266.2 944.8 88.5 30.5 96.0 420.1 296.3 841.7 616.5 .6 198.3 213.6 147.5 56.5 977.7 705.1 2.4 207.5 246.6 181.2 67.5 1017.4 798.6 4.1 227.1 271.8 211.6 83.9 1065.9 839.1 6.7 254.3 289.5 200.5 88.0 1158.1 904.0 9.2 277.2 312.6 202.5 102.6 1287.9 1008.8 12.7 298.1 349.4 226.5 122. 1 1466.1 1129.8 15.8 318.3 392.4 260.2 143.2 1695.7 1285.5 19.2 340.0 445.1 306.1 175.0 197. 1 28. 1 236.4 36.2 177.0 41.9 184.8 42.0 201.5 52.6 224.0 55.0 271.5 64.7 336.4 73.8 TOTAL FINANCIAL ASSETS DEMAND DEPOSITS ♦ CURRENCY TIME DEPOSITS CREDIT MARKET INSTRUMENTS TRADE CREDIT MISCELLANEOUS ASSETS TOTAL LIABILITIES CREDIT MARKET INSTRUMENTS TAX-EXEMPT BONDS CORPORATE BONDS MORTGAGES BANK LOANS N.E.C. OTHER LOANS TRADE DEBT OTHER LIABILITIES 1 2 3 4 5 6 7 3 9 10 11 12 13 14 15