Net Worth of Average American Household Lower Now Than In 2001

Discussion in 'Wall St. News' started by ByLoSellHi, Feb 16, 2009.


    Decade at Bernie’s

    Published: February 15, 2009

    By now everyone knows the sad tale of Bernard Madoff’s duped investors. They looked at their statements and thought they were rich. But then, one day, they discovered to their horror that their supposed wealth was a figment of someone else’s imagination.

    Unfortunately, that’s a pretty good metaphor for what happened to America as a whole in the first decade of the 21st century.

    Last week the Federal Reserve released the results of the latest Survey of Consumer Finances, a triennial report on the assets and liabilities of American households. The bottom line is that there has been basically no wealth creation at all since the turn of the millennium: the net worth of the average American household, adjusted for inflation, is lower now than it was in 2001.

    At one level this should come as no surprise. For most of the last decade America was a nation of borrowers and spenders, not savers. The personal savings rate dropped from 9 percent in the 1980s to 5 percent in the 1990s, to just 0.6 percent from 2005 to 2007, and household debt grew much faster than personal income. Why should we have expected our net worth to go up?

    Yet until very recently Americans believed they were getting richer, because they received statements saying that their houses and stock portfolios were appreciating in value faster than their debts were increasing. And if the belief of many Americans that they could count on capital gains forever sounds naïve, it’s worth remembering just how many influential voices — notably in right-leaning publications like The Wall Street Journal, Forbes and National Review — promoted that belief, and ridiculed those who worried about low savings and high levels of debt.

    Then reality struck, and it turned out that the worriers had been right all along. The surge in asset values had been an illusion — but the surge in debt had been all too real.

    So now we’re in trouble — deeper trouble, I think, than most people realize even now. And I’m not just talking about the dwindling band of forecasters who still insist that the economy will snap back any day now.

    For this is a broad-based mess. Everyone talks about the problems of the banks, which are indeed in even worse shape than the rest of the system. But the banks aren’t the only players with too much debt and too few assets; the same description applies to the private sector as a whole.

    And as the great American economist Irving Fisher pointed out in the 1930s, the things people and companies do when they realize they have too much debt tend to be self-defeating when everyone tries to do them at the same time. Attempts to sell assets and pay off debt deepen the plunge in asset prices, further reducing net worth. Attempts to save more translate into a collapse of consumer demand, deepening the economic slump.

    Are policy makers ready to do what it takes to break this vicious circle? In principle, yes. Government officials understand the issue: we need to “contain what is a very damaging and potentially deflationary spiral,” says Lawrence Summers, a top Obama economic adviser.

    In practice, however, the policies currently on offer don’t look adequate to the challenge. The fiscal stimulus plan, while it will certainly help, probably won’t do more than mitigate the economic side effects of debt deflation. And the much-awaited announcement of the bank rescue plan left everyone confused rather than reassured.

    There’s hope that the bank rescue will eventually turn into something stronger. It has been interesting to watch the idea of temporary bank nationalization move from the fringe to mainstream acceptance, with even Republicans like Senator Lindsey Graham conceding that it may be necessary. But even if we eventually do what’s needed on the bank front, that will solve only part of the problem.

    If you want to see what it really takes to boot the economy out of a debt trap, look at the large public works program, otherwise known as World War II, that ended the Great Depression. The war didn’t just lead to full employment. It also led to rapidly rising incomes and substantial inflation, all with virtually no borrowing by the private sector. By 1945 the government’s debt had soared, but the ratio of private-sector debt to G.D.P. was only half what it had been in 1940. And this low level of private debt helped set the stage for the great postwar boom.

    Since nothing like that is on the table, or seems likely to get on the table any time soon, it will take years for families and firms to work off the debt they ran up so blithely. The odds are that the legacy of our time of illusion — our decade at Bernie’s — will be a long, painful slump.
  2. When you consider that the inflation rate has been MUCH higher than "officially stated" [aka LIED ABOUT]... most people's net worth in real terms is likely signficantly less.
  3. Yes, the economy is not that great at the moment.

    WE GET IT!

    Copy and paste should be banned!
  4. You'd prefer the constant, low hum, empty chatter of the masses?

    Many articles contain fantastic information.

    We are experiencing an acute crisis.

    Saying 'things are terrible' and moving on isn't quite intellectual.

    I've noticed that many people don't want to open their eyes or accept reality - for those who don't, the solution is quite simple:

    Close your eyes and bury your head in the sand like an Ostrich.

    No one will force you to read articles or threads.

    There's even an ignore function.

    Denial is not just a river in Egypt.

    This is not directed to you, but one of the reasons I know that we're in for much tougher times (I'm speaking in terms of multiples) is that there are so many people still wanting to close their eyes and not accept the present reality, both in conversation and actions.

  5. the1


    Sometimes the truth hurts. Keep posting.

  6. Well, you got me there.

    Carry on.
  7. clacy


    I look at it like this. You have Kudlow, Kramer, stock_trad3r, CNBC, etc on one side.

    Then you have BLSH, all of the conspiracy theorists and dooms day people on the other.

    The realitiy is probably somewhere in the middle.

    If all you did was read articles posted by the OP, you'd be ready to jump off a cliff or find the nearest bunker. If you just listened to stock_trader/Kramer, etc you would be convinced that the dow is about to take off to 20,000 each and every day.

  8. I honestly take no offense at that.

    I'm not a 'CTer,' and if my posts would make someone want to 'jump off a cliff,' either I'm incredibly compelling in presenting my very pessimistic expectations for the economy, or that person is highly impressionable.

    I don't think I'm that compelling. I think the data is. All I'm doing is speaking of the very real problems vis a vis employment, consumption, exports, etc.

    The reason why we can't afford to say 'gee, things are terrible,' and move on is that the data keeps getting worse, eviscerating any argument by anyone naive enough to be bullish that ANYTHING IS BAKED IN.
  9. Stock_trader is a joker, Kramer, Kudlow, and the CNBC goons aren't actually sharing their opinions - they're doing professional pump and dumping to appease their corporate masters and keep their jobs.

    The dooms day people actually believe what they're saying.
  10. Cesko


    What planet you landed from?? I 've been numb for a while now.
    #10     Feb 16, 2009