The latest flow of funds report shows more private sector de-leveraging. The risk of deflation remains well intact. The dreaded balance sheet recession is not over yet:
“Household debt contracted at an annual rate of 2½ percent in the first quarter, the seventh consecutive quarter of decline. Home mortgage debt fell at an annual rate of 3¾ percent, a significantly faster decline than in the fourth quarter, while consumer credit contracted at an annual rate of 1½ percent.
Nonfinancial business debt was flat in the first quarter, after four consecutive quarters of contraction. Bank loans and commercial mortgages continued to decline, while corporate bonds and commercial paper expanded.”