Decisive Week and a Delayed Z.1
Doug Nolan
To call last week “historic” seems, at this point, rather trite.
I’ll say instead that it was a “decisive” week within a historic period.
It certainly stirred those foreboding feelings that things are on the cusp of spiraling out of control – geopolitically, politically, and socially.
January 5 – The Hill (Max Rego):
“The State Department on Monday echoed President Trump’s rhetoric on U.S. authority in the Western Hemisphere.
‘This is OUR Hemisphere, and President Trump will not allow our security to be threatened,’ the department wrote…”
January 8 – Financial Times (David Pilling and Leslie Hook):
“Donald Trump’s boast that he will ‘run’ Venezuela and that the money from selling millions of barrels of oil ‘will be controlled by me, as President’ has pushed the world into a new era of geopolitics.
But his deployment of US military might to seize Venezuelan oil smacks not so much of a lurch to the future as a return to a past.
For hundreds of years, the world was divided into spheres of influence when competition over resources… led to the colonisation of nations and the determination of national boundaries.
It is only in the postwar period that international law and global trade rules have held a tenuous sway.
Now that order appears to be breaking down and reverting to a former age characterised by resource imperialism.
‘Suddenly the 19th century and the period before both world wars are beginning to echo much more loudly as the world moves away from confidence in globalisation, open borders and relatively free trade,’ says Daniel Yergin…, vice-chair of S&P Global.
‘We’ve left the era [when] there was fundamental confidence that markets would work pretty well and now it’s one in which the visible hand of governments is, I guess, much more visible’.”
January 7 – Financial Times (Editorial Board):
“It says a lot that the stunning capture of Venezuela’s president Nicolás Maduro is, for European leaders, only Donald Trump’s second-most alarming act this week.
More concerning are his renewed assertions that the US ‘needs’ Greenland — which, like Venezuela, is part of the western hemisphere that Trump’s America claims as its own.
Whether for security, access to the Arctic or mineral deposits, the US president clearly covets the world’s largest non-continental island.
The White House said… it was exploring ways of acquiring Greenland, and ‘utilising the US military is always an option’.”
It's difficult for me to believe that the expropriation of Venezuelan oil doesn’t end badly.
And would the administration really risk blowing up NATO and key alliances to expropriate Greenland?
Having gleefully watched the implosions of Hamas, Hezbollah, Assad’s Syria - and seeing the mullahs of Iran at the precipice - is the administration now determined to ensure similar fates for U.S. adversaries in our hemisphere?
This is all too much.
Outrageous.
White House advisor Stephen Miller (CNN January 6, 2026):
“Without giving anything away, I want to be very clear, very clear.
The government has sent messages… to the Secretary of State, to our senior U.S. government negotiators – they have sent message after message, making clear that they will meet the terms, demands, conditions, and requirements of the United States…”
CNN’s Jake Tapper:
“The question about who is now running Venezuela is one that even members of Congress, who are big Trump supporters, say they’re not quite sure about… Can you tell us what the President means when he says – is acting president Delcy Rodriguez in charge, is she running Venezuela or not?"
Miller:
“What the President said is true.
The United States of America is running Venezuela - by definition that’s true.
Jake, we live in a world in which you can talk all you want about international niceties and everything else.
But we live in the world, in the real world Jake, that is governed by strength, that is governed by force, that is governed by power.
These are the iron laws of the world since the beginning of time.”
Tapper:
“In terms of day-to-day operations in Venezuela, that is acting president Rodriguez, right?
It’s not some sort of American emissary?
Miller:
“What I’m saying is, we’ll keep going here, Jake… But what I’m saying is one level above that.
By definition, we are in charge.
Because we have the United States military stationed outside the country, we set the terms and conditions.
We have a complete embargo on all of their oil and their ability to do commerce.
So, for them to do commerce, they need our permission.
For them to be able to run an economy, they need our permission.
So, the United States is in charge.
The United States is running the country during this transition period.”
Tapper:
“Can you rule out that the U.S. is ever going to try to take Greenland by force?”
Miller:
“Let me go back a step.
The President has been clear for months now… that the United States should be the nation that has Greenland as part of our overall security apparatus…
It has been the formal position of the U.S. government, since the beginning of this administration – frankly, going back to the previous Trump administration, that Greenland should be part of the United States.
The President has been very clear about that…”
Tapper:
“But can you say that military action against Greenland is off the table?”
Miller:
“Greenland has a population of 30,000 people, Jake.
The real question is by what right does Denmark assert control over Greenland?
What is the basis for their territorial claim?
What is their basis for having Greenland as a colony of Denmark?
The United States is the power of NATO.
For the United States to secure the Artic region, to protect and defend NATO and NATO interests, obviously Greenland should be part of the United States.
That’s a conversation that we’re going to have as a country.
It’s a process we’re going to have as a community of nations…
The United States should have Greenland as part of the United States.
There’s no need to even think or talk about this in the context… of a military operation.
Nobody is going to fight the United States militarily over the future of Greenland.”
Tapper:
“Should there be an election [in Venezuela]?”
Miller:
“If you can give me the floor for 30 seconds, let me tell you what we are doing…
This is sort of foundational: the United States is using its military to secure our interests unapologetically in our hemisphere.
We’re a superpower. And under President Trump, we are going to conduct ourselves as a superpower.
It is absurd that we would allow a nation in our own backyard to become the supplier of resources to our adversaries, but not to us; to hoard weapons from our adversaries to be able to be positioned as an asset against the United States rather than on behalf of the United States.”
Tapper:
“A sovereign country shouldn’t be able to do what they want to do?”
Miller:
“The Monroe Doctrine and the Trump Doctrine is all about securing the national interest of America.
For years, we sent our soldiers to die in deserts in the Middle East to try to build them parliaments, to try to build them democracies, to try to give them more oil, to try to give them more resources.
The future of the free world, Jake, depends on America being able to assert ourselves and our interests without apology.
This whole period that happened – after World War II – where the West began apologizing and groveling, and begging, and engaging these mass reparation schemes…”
Tapper:
“I asked you if there should be an election…”
Miller:
“The object is security and stability for the people of Venezuela.
With our help and leadership, that country will become more prosperous than it has ever been in its whole history.
Venezuelans will be richer, and safer and more secure and better off…
The reason why I was giving you that speech, which I knew you didn’t want to hear, is because you’re approaching this from the wrong frame – this neoliberal frame that the United States’ job is to go around and demanding the immediate elections be held everywhere immediately, all the time right away…”
Tapper:
“No, that’s not what I think, but you went into the country, and we seized the leader of Venezuela…”
Miller:
“Damn straight we did!
The point, Jake, is that we’re not going to let tinpot communist dictators send rapist into our country, send drugs into our country, send weapons into our country, and we’re not going to let a country fall into the hands of our adversaries.
The future of Venezuela, working with America, is going to be so bright, and so incredible, and so positive – and we’ll have a conversation about everything that you raised.
The priority right now, as the President has made clear, is a judicious, thoughtful, careful transition process to secure a great future for Venezuela and to secure a great future for America.
Let’s just take a moment and acknowledge, Jake, what we witnessed under President Trump’s leadership, last week was one of the biggest foreign policy and military victories this country has ever had.”
The administration has grown quite comfortable flaunting power and taking enormous risks.
Power is intoxicating.
And for officials across the globe – Latin America, Europe, and China, in particular – it was a decisive week.
No longer will the administration’s bombastic rhetoric be dismissed as buffoonery.
We should expect a fundamental shift in how governments interact with the administration.
Beijing, in particular, must see its huge investments and influence throughout Latin America at high risk.
There will be pushback.
What little trust left is gone.
And I increasingly worry about accidents.
Minneapolis.
The horrible tragedy of Nicole Good.
Inject thousands of heavily armed ICE agents into emotionally charged cities, and there will be accidents, as our nation becomes only more deeply and irreparably divided.
And calling Nicole Good a “domestic terrorist” and blatantly lying about the circumstances of the killing are reprehensible.
It’s at the point where much of the U.S. population doesn’t believe anything said by Kristi Noem, Stephen Miller, JD Vance or President Trump – or the administration more generally.
I saw several references this week to “The Party told you to reject the evidence of your eyes and ears.
It was their final, most essential command” — George Orwell, 1984.
January 9 – Bloomberg (Josh Wingrove, Scott Carpenter and Katy O'Donnell):
“US President Donald Trump is directing Fannie Mae and Freddie Mac to purchase $200 billion in mortgage bonds, a move he cast as his latest effort to bring down housing costs ahead of the November midterm election.
Trump announced the move…, saying ‘This will drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable.’
He added that his decision not to sell Fannie Mae and Freddie Mac during his first term allowed them to amass ‘$200 BILLION DOLLARS IN CASH’ and that he was making his announcement ‘because of that’.”
The (reflationary) push to the midterms has begun in earnest.
Fannie and Freddie unhinged.
Caps on Credit card rates at 10%?
A 50% boost to the defense budget?
They will leave no stone unturned.
And unless the bond vigilantes have been snuffed out, the administration is playing with fire – something they relish.
The escalating risk of geopolitical and domestic accidents is shared by overheated Bubble markets at home and abroad.
Q3 2025 Z.1 Analysis
Non-Financial Debt (NFD) expanded a blistering $1.711 TN (nominal), or 8.8% annualized, during Q3 to a record $79.671 TN – driven by a $1.053 TN jump in outstanding Treasury Securities.
This was the strongest quarterly NFD growth since massive covid Q2 2020 Treasury issuance.
NFD inflated $3.208 TN y-o-y and $6.709 TN over two years.
For comparison, NFD expanded $2.468 TN during pre-covid 2019 (2000-2019 avg. $1.839 TN).
NFD ended September at a non-covid record 256% of GDP.
Household Sector Debt expanded at a 4.07% rate, the strongest pace of borrowing since Q3 2022.
Corporate debt growth was down slightly q-o-q to 4.50% - but was up from Q3 2024’s 3.64%.
Federal Reserve Assets were little changed (down $6bn) during Q3 at $5.731 TN (down $495bn y-o-y).
Treasury holdings increased $20 billion to $3.831 TN, while Agency Securities declined $19 billion to $1.805 TN.
However, there were notable changes in Fed Liabilities.
Reverse Repos (where money funds and financial institutions park short-term funds with the Fed) sank $412 billion to $49 billion, the low back to Q4 2000 – and was down from Q4 2022’s peak of $2.554 TN.
Meanwhile, the Liability “Treasury General Deposit Account” jumped $434 billion to $891 billion (high since Q1 2021).
Total system Repo Assets contracted $411 billion to $6.298 TN, a decline explained by the drop in Fed “reverse repos.”
And while system Repo Liabilities declined $272 billion from Q2’s record level to $7.828 TN, Repo Liabilities were still up $486 billion y-o-y (6.6%).
The Q3 Repo slowdown and Q4 funding market tightening/instability are not coincidental.
The expansion of repo funding for levered speculation creates liquidity, while deleveraging is a drag on liquidity.
At this point in the cycle, even a slowdown in new leveraging will be felt in funding markets.
Broker/Dealer Assets inflated another $108 billion, or 7.2% annualized, to a record $6.126 TN, with one-year growth of $618 billion, or 11.2% annualized.
The asset “Loans” rose $49 billion (24% annualized) to a record $867 billion, with notable one-year growth of $183 billion, or 26.8%.
Loans have doubled since the end of 2019.
Broker/Dealer Debt Securities holdings dipped $24 billion from Q2’s record to $1.256 TN, while one-year growth was a potent $230 billion, or 22.5%.
Broker/Dealer Repo Assets were little changed at $1.855 TN, with Repo Liabilities slipping $14 billion from Q2’s record to $2.699 TN (up $191bn y-o-y).
Miscellaneous Assets gained $88 billion to a record $1.295 TN (up $147bn y-o-y), as Miscellaneous Liabilities rose $61 billion to a record $1.327 TN (up $151bn y-o-y).
Money Market Fund Assets (MMFA) surged $293 billion, or 15.7% annualized, during Q3 to a record $7.774 TN.
This increased y-o-y growth to $935 billion (14.3%); 12-quarter growth to $2.690 TN (53%); and 23-quarter growth to an astounding $3.772 TN (94%).
During Q3, MMFs reduced Repo holdings by $333 billion (to $2.772 TN), while boosting Treasuries by $618 billion to a record $3.232 TN.
Treasury holdings were up $573 billion, or 23.4%, y-o-y and $2.110 TN, or 188%, over 23 quarters.
MMFs increased Agency Securities holdings by $6 billion to $999 billion, with one-year growth of $205 billion (28%).
During Q3, MMFs provided key demand for outsized Treasury issuance.
Treasury Securities surged $1.053 TN (nominal) during Q3 to a record $29.572 TN, with one-year growth of $1.985 TN.
Treasuries inflated $3.941 TN (15.4%) over two years and a staggering $12.943 TN, or 78%, over the past 23 quarters.
Outstanding Treasuries have ballooned five-fold (up $25.078 TN) since 2007.
For Q3, think of it in terms of the money fund complex shifting holdings from Fed Reverse Repos to Treasury Bills, which shifted the Fed’s Liabilities from Repos (owed to MMF) to the Treasury’s General Deposit Account.
Banking system (“Private Depository Institutions”) asset growth slowed to $201 billion (2.8% annualized) – to a record $28.772 TN.
Bank Assets were up $1.095 TN y-o-y.
Total Loans expanded $165 billion, or 4.3% annualized, to a record $15.521 TN – with one-year growth of $727 billion (4.9%).
Debt Securities holdings expanded $115 billion, or 7.3% annualized, to $6.447 TN.
Treasury Holdings rose $92 billion (19.8% ann.) to a record $1.940 TN, with six-month growth of $200 billion (up $271bn, or 16.2% y-o-y).
Bank Treasury holdings have doubled since Q1 2020.
Corporate borrowings increased from a notably weak Q2 to $143 billion (3.5% ann.), with one-year growth of $465 billion, or 2.9%.
Interestingly, Corporate asset-backed securities (ABS) rose $63 billion (16.3% ann.) to a record $1.596 TN, with one-year growth of $169 billion, or 11.8%.
Mortgage Credit is slowing a pulse.
At $206 billion (3.9% ann.), Total Mortgage growth was the strongest since Q4 2022.
Growth in Home Mortgages was flat at $116 billion (3.2% ann.), while Commercial and Multifamily Mortgages expanded $45 billion (4.6% ann.) and $40 billion (6.8% ann.) – both the strongest expansions in at least two years.
The Household balance sheet remains fundamental to Bubble analysis.
Household Assets surged $6.291 TN, or 12.8% annualized, to a record $202.830 TN.
The $13.604 TN two-quarter rise was the strongest since Q1/Q2 2001 (covid crisis recovery).
With Household Liabilities increasing $227 billion during Q3, Household Net Worth inflated $6.064 TN, or 13.8% annualized, to a record $181.632 TN.
Household Net Worth to GDP rose to a non-covid record 652%.
For comparison, this ratio ended 2019 at 527%, with previous cycle peaks 487% (Q1 2007) and 443% (Q1 2000).
Net Worth inflated $12.912 TN, or 7.7%, over the past year, and $38.751 TN, or 27.1%, over three years.
For an explanation of economic resilience, look no further.
Real Estate holdings dipped $287 billion to $52.057 TN.
Meanwhile, holdings of Financial Assets surged $6.437 TN, or 19.1% annualized, during Q3 to a record $141.234 TN (non-covid record 454% of GDP).
Debt Securities holdings gained $191 billion (12.9% annualized) to a record $6.133 TN, with a three-year gain of $2.453 TN, or 67%.
Household Treasury holdings jumped $139 billion (19.8% ann.) to a record $2.961 TN, with an unprecedented three-year surge of $1.835 TN, or 163%.
Equities and Mutual Funds surged $5.037 TN, or 37% annualized, to a record $59.590 TN (3-yr gain $24.530 TN, or 70%).
Equities/Mutual Funds rose to a record 192% of GDP, compared to previous cycle peaks 105% (Q3 ’07) and 116% (Q1 2000).
Curiously, Household Money Market Fund (MMF) holdings swelled another $186 billion to a record $5.035 TN.
For comparison, Total Deposits increased only $22.4 billion during the quarter to $14.756 TN.
Over three years, MMF inflated a historic $2.104 TN (72%), while Total Deposits declined $448 billion (2.9%).
I would be curious to know what percentage of American households actually invest in money market funds.
The Rest of World (ROW) balance sheet is always intriguing.
ROW holdings of U.S. financial assets were at about $7 TN when I began to post quarterly Z.1 “flow of funds” analysis in 1999.
For Q3, ROW assets inflated $3.582 TN, or 23.7% annualized, to a record $64.121 TN.
ROW Assets ballooned $7.661 TN, or 13.6%, y-o-y, and an incredible $25.405 TN, or 66%, over 20 quarters.
ROW assets to GDP ended Q3 at a record 206% of GDP.
This compares to previous cycle peaks 119% (Q4 ‘07) and 82% (Q3 2000).
ROW Debt Securities holdings were up $345 billion (9.0% ann.) for the quarter, and $909 billion y-o-y (6.1%) to a record $15.707 TN.
Treasuries rose $142 billion (6.2% ann.) and $554 billion y-o-y (6.4%) to a record $9.269 TN.
Holdings of Corp Debt jumped $150 billion (13% ann.) and $345 billion (7.8%) to a record $4.768 TN.
Equities and Mutual Fund holdings surged $1.597 TN, or 32.5% annualized, to a record $21.235 TN, with notable one-year growth of $3.531 TN, or 20%.
ROW continues to be a major Repo market operator.
Repo Assets expanded $90 billion (23.7% ann.) during Q3 to a record $1.597 TN, with one-year growth of $198 billion (14%).
Repo Liabilities gained another $43 billion (8.6% ann.) to a record $2.047 TN, with one-year growth of $271 billion (15.2%).
Over 20 quarters, Repo Assets inflated $737 billion (86%), with Repo Liabilities ballooning $841 billion (70%).
Heck of a Bubble.
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