Fed: US Family Net Worth Down 40% Since 2007

This Fed report is getting huge play on the interwebs right now, and I don't quite get why. Everyone knows we've gone through a HUGE re-alignment in home values, and a home is the largest component of the net worth of the vast majority of Americans. I'm frankly more concerned about the income disparity in the US than I am about cyclical declines in family net worth. Perhaps they go hand-in-hand, but I think stagnant and/or declining real wages are the greater problem. How concerned are you guys over such a significant drop in family net worth?

 

You only care about this if your leveraged to the hilt which i would reckon most people in this country are. I'm not sure why people continue to think that just because you have a bunch of money on paper that translates to real world spending power. It really shouldn't. I mean obviously it is there but until you actually sell your damn house and clear that amount after costs and the mortgage you probably have, it is only a paper gain. That's like me doing an awesome trade in a biotech, it running up 100%, borrowing against it and then freaking out when that phase III trial actually turned out awful and it dives on me. It's just dumb. We were never as rich as we thought we all were in the first place. People need to get that through their heads.

As far as being concerned? Sure, because the wealth effect has a dramatic impact on this country. If people feel poor and start saving money (even though that is what needs to freaking happen) you will see increased economic contraction assuming the government doesn't just spend for them. Oddly, it doesn't seem that this massive drop in net worth has translated into a massive pullback in spending all things considered. Sure most of that spending is coming from "rich" people, but I'm still trying to figure out where the line between "rich" and "middle class" begins. I don't think 250K is a great deal of money anymore, but that's just me.

 

Like you said, a huge component of net worth is the value of a house. In 2007, home values were severely inflated, and there were many people who had homes (and 2nd and 3rd houses/properties) who likely should never have purchased one in the first place.

I also agree with you that the focus should be on real wages, especially given the trend of globalization and the rapid increases in competition from developing countries. Americans need to increase competitiveness against not only developed nations, but countries like India and China.

My problem with sensational reports and articles like the one you mentioned is that, they are sensational. People see numbers released by the federal reserve and have no idea what they mean. We have no idea how that net-worth figure has changed from 2010 to 2012. With the state of bipartisanship in our country, many people (judging by the comments on money.cnn.com's article yesterday) are taking this to be as a political issue.

Addinator:
If people feel poor and start saving money (even though that is what needs to freaking happen) you will see increased economic contraction assuming the government doesn't just spend for them.

Why is spending more beneficial than saving? Saving is just as much of a component of GDP as spending is.

My WSO Blog "Unbelievably Believable" -- RG3
 
21 Lives:
Like you said, a huge component of net worth is the value of a house. In 2007, home values were severely inflated, and there were many people who had homes (and 2nd and 3rd houses/properties) who likely should never have purchased one in the first place.

I also agree with you that the focus should be on real wages, especially given the trend of globalization and the rapid increases in competition from developing countries. Americans need to increase competitiveness against not only developed nations, but countries like India and China.

My problem with sensational reports and articles like the one you mentioned is that, they are sensational. People see numbers released by the federal reserve and have no idea what they mean. We have no idea how that net-worth figure has changed from 2010 to 2012. With the state of bipartisanship in our country, many people (judging by the comments on money.cnn.com's article yesterday) are taking this to be as a political issue.

Addinator:
If people feel poor and start saving money (even though that is what needs to freaking happen) you will see increased economic contraction assuming the government doesn't just spend for them.

Why is spending more beneficial than saving? Saving is just as much of a component of GDP as spending is.

I didn't mean it as a better or worse statement, I was pretty much just throwing thoughts out there. Though I do think that a super high savings rate would end up being a temporarily bad thing as the economy is driven by consumer spending. Then again, Too much spending and debt accumulation by people isn't exactly promising either. Sometimes I swear finance and economics drives me crazy. haha.

 

I believe the system shouldn't encourage people to resort to asset price appreciation for the means of accumulating wealth. We've seen enough how the system is fragile. Whether or not Ben learned a lesson from the recent history is a different matter. What really bothers me is, yeah, stagnant real wages. But that alone shouldn't be a real problem; when that issue is combined with longevity is a real disaster. If our life expectancy is 70 or so, flat real wages are not a real problem, at least for the whole society. There will be little burden and pressures for the governement to provide social safety net. But now, there are just so many senior citizens in the country that we have to provide assistance. Medicare, Medicade, and Social Security all didn't take into account of the lengthened life expectancy of people. There is in no way the people retiring on this point will live a happy life unless they ammassed about at least 500,000 dollars. And I believe most of the middle income citizens in this country haven't saved that enough.

If we assume a person retires at 65 and lives until 90, then the person has 25 more years to live with very little money; and we call this a true disaster and misery.

And there is in no way most of the people can save enough, unless one has at least an annual income over 100k.

Solution : Either there should be a meaningful increase in real wages or we all have to live shorter.

 

Considering that the drop in average value since 2007 basically HAPPENED in 2007, I'm not too concerned. Since then, home prices have been relatively flat and more affordable for first time buyers like me. I'm more curious to see how inflated the average at 2007 was vs the preceding decade...my personal guess is that we're basically right back where we started circa 2002, and the last decade will become the "popped bubble decade". Lots of short term gains that, at best, just cost the country time and at worse will have a long term penalty.

If it's not obvious, I fucking hated the last president and can't take anyone who would vote GOP seriously until the party is dismantled or brings in some new blood.

EDIT: almost forgot...

LOL @ people who criticize Bush but then say they're a "libertarian" who's voting for Romney.

Get busy living
 
I think stagnant and/or declining real wages are the greater problem.
Regarding wage growth, someone recently posted an interview with Edward Conrad that makes me wonder. I don't have it here, but I did find this: "...his contention that there have been substantial gains in wages over the last three decades....by showing substantial wage gains for African American men and women and white men and women."

In the interview that I'm referring to, he argues that you account for the rapid growth in the hispanic portion our labor force, that we've actually had strong wage growth.

Is this bullshit? I honestly haven't looked into it hard enough.

 

And I don't necessarily agree with the notion that our system is tilted toward systematically making middle income people to be worse off. The idea that everyone can become rich if one works hard enough was developed when the U.S. was growing very fast. But the fact is that, we will never witness that kind of growth for the foreseeable futrure unless there is a huge breakthough, something that has an impact large enough as the industrial revolution. Less growth means less opportunity. And less opportunity means that there will be less doors opened to middle income people to become rich. As a result, most of the people's life will be determined at the point when one is born. Parents' occupation, family wealth, alma mater, etc. will have a larger impact on one's success. I honestly think that actually the American system provides the best system of fairness, but the problem is that there are just too little growth.

 
melvvvar:
the American consimer is realizing that far from the engine of the world economy, he is actually its biggest drag. it's good that his net worth is adjusting to that fact.
In some areas, yes. Systemically....dead wrong. America's economy and the industries revolving around it are dragging half of the world out of the stone age. It's not flattering, but rather than rearrange the interpretation of reality, just accept it and run with it.

The goal isn't to beat us and I don't think that's possible: it's to OUT DO us. Then everyone wins. ...and don't worry about us, we tend to do just fine.

Get busy living
 
UFOinsider:
melvvvar:
the American consimer is realizing that far from the engine of the world economy, he is actually its biggest drag. it's good that his net worth is adjusting to that fact.
In some areas, yes. Systemically....dead wrong. America's economy and the industries revolving around it are dragging half of the world out of the stone age. It's not flattering, but rather than rearrange the interpretation of reality, just accept it and run with it.

The goal isn't to beat us and I don't think that's possible: it's to OUT DO us. Then everyone wins. ...and don't worry about us, we tend to do just fine.

who's talking about US industry?

what i am talking about is the $70BB trade deficit we run with the world every year, which means we are consuming much more than we are producing. we do the world no favors when we run up debts on vendor financing and dilute the hell out of the dollars we created the debt with. if there is an unflattering portrait it is that of US.

 
Addinator:
I didn't mean it as a better or worse statement, I was pretty much just throwing thoughts out there. Though I do think that a super high savings rate would end up being a temporarily bad thing as the economy is driven by consumer spending. Then again, Too much spending and debt accumulation by people isn't exactly promising either. Sometimes I swear finance and economics drives me crazy. haha.

Gotcha. There is definitely a balancing act between saving and spending. I currently think household saving is too low ~3.5% but that is definitely better than 2005-2007 when rates ranged ~1%-2.5%. Household saving was dropping dramatically as the bubble was building, then when it popped, people had no safety net to rely on given their lower incomes/high debt.

Check out this table by the St. Louis Fed. It shows saving rates on a monthly basis from January 1, 1959 to June 1 2012.

My WSO Blog "Unbelievably Believable" -- RG3
 
21 Lives:
Addinator:
I didn't mean it as a better or worse statement, I was pretty much just throwing thoughts out there. Though I do think that a super high savings rate would end up being a temporarily bad thing as the economy is driven by consumer spending. Then again, Too much spending and debt accumulation by people isn't exactly promising either. Sometimes I swear finance and economics drives me crazy. haha.

Gotcha. There is definitely a balancing act between saving and spending. I currently think household saving is too low ~3.5% but that is definitely better than 2005-2007 when rates ranged ~1%-2.5%. Household saving was dropping dramatically as the bubble was building, then when it popped, people had no safety net to rely on given their lower incomes/high debt.

Check out this table by the St. Louis Fed. It shows saving rates on a monthly basis from January 1, 1959 to June 1 2012.

It's amazing how much people live in the here and now in this county. Right as everything is falling apart only then do people begin to think and start saving some as it spikes to 8% in '08. Pretty wild to look at. Its somewhat concerning as well when you start pulling up charts of consumer credit and debt loads combined with the varying savings rates.

 

These things happen, but the trend cannot continue forever. Chinese wages are going up and the jobs are going to slosh back to the US.

We can help limit the growth of developing world jobs by passing an export tax on grain. Middle class voters may or may not be a drag on the global economy, but we control the channels to get the world's food supply to the rest of the world, In the 1950s and 1960s, we basically carried the world economy, and we can do it again.

We are already seeing bread riots in MENA and they are starting to spread to Greece and Europe. There is also a lot of unrest in China. I think a lot of it goes back to food prices. Why not help accelerate the inevitable? It will help raise the value of labor in the US and give a nice boost to our middle-class.

 
IlliniProgrammer:
We are already seeing bread riots in MENA
They're revolutions / civil wars, not bread riots. There's more than enough resources to go around there, it's a question of who gets them / controls them. Other than that, agree with your post.
Get busy living
 
melvvvar:
what i am talking about is the $70BB trade deficit we run with the world every year, which means we are consuming much more than we are producing.

The thing about bashing the trade deficit, is that imports benefit the US individuals more than exports do. What do we get when we import? Products we can not produce efficiently at home. Importing allows nations to focus on industries that they have a comparative advantage in, instead of wasting inputs on non-competitive industries.

Importing from China allows consumers to pay $400 for an HDTV instead of $600 (arbitrary math there, the point is that it would be more expensive to produce in the US), that is a gain of $200 (or whatever the price difference would be) to consumers. That gain is then used by consumers to buy/save more, increasing the overall utility from the purchase of 1 HDTV.

My WSO Blog "Unbelievably Believable" -- RG3
 
21 Lives:
melvvvar:
what i am talking about is the $70BB trade deficit we run with the world every year, which means we are consuming much more than we are producing.

The thing about bashing the trade deficit, is that imports benefit the US individuals more than exports do. What do we get when we import? Products we can not produce efficiently at home. Importing allows nations to focus on industries that they have a comparative advantage in, instead of wasting inputs on non-competitive industries.

Importing from China allows consumers to pay $400 for an HDTV instead of $600 (arbitrary math there, the point is that it would be more expensive to produce in the US), that is a gain of $200 (or whatever the price difference would be) to consumers. That gain is then used by consumers to buy/save more, increasing the overall utility from the purchase of 1 HDTV.

the chinese worker isn't slaving away to make tvs for us because he wants little green portraits of ben franklin. he wants actual goods and services and when we dilute the hell of the money we pay him with, we aren't doing him any favors. i don't even see what your point is, if you even have one. i say that the US consumer is a fucking parasite. UFO begs to differ by citing US industry. i say that US industry is not the issue here and even then US industry (presumably peopled by US consumers) doesn't produce nearly enough to cover what we consume from foreign industry. and you're talking about comparative advantage. well so fucking what? comparative advantage doesn't mean shit when you are perpetually running in the red against your trade partners.

take the fucking IQ 164 guy on here recently. suppose he is trading with a IQ 100 guy. smart boy is the US and mr. average is the world. who cares that mr. high IQ can potentially run circles around the IQ 100 guy who has to do smart boy's mopping and cleaning, because smart boy is better off using his time inventing cures for disease and building space rockets. if he doesn't actually do any of that all that comparative advantage doesn't mean shit.

 
melvvvar:
the chinese worker isn't slaving away to make tvs for us because he wants little green portraits of ben franklin. he wants actual goods and services and when we dilute the hell of the money we pay him with, we aren't doing him any favors. i don't even see what your point is, if you even have one. i say that the US consumer is a fucking parasite. UFO begs to differ by citing US industry. i say that US industry is not the issue here and even then US industry (presumably peopled by US consumers) doesn't produce nearly enough to cover what we consume from foreign industry. and you're talking about comparative advantage. well so fucking what? comparative advantage doesn't mean shit when you are perpetually running in the red against your trade partners.

take the fucking IQ 164 guy on here recently. suppose he is trading with a IQ 100 guy. smart boy is the US and mr. average is the world. who cares that mr. high IQ can potentially run circles around the IQ 100 guy who has to do smart boy's mopping and cleaning, because smart boy is better off using his time inventing cures for disease and building space rockets. if he doesn't actually do any of that all that comparative advantage doesn't mean shit.

My point was that a trade deficit is not necessarily a bad thing.

I think you are trying to say that the American consumer is a net consumer vs. a net producer. If that is the case, I don't think its a problem with American productivity. It would be a problem with using debt to purchase beyond ones income.

If you want US monetary policy to tighten up, restricting the amount of available dollars, the value of the dollar will increase. The amount of imports will increase as foreign goods become cheaper. Conversely, exports will decrease because they will be more expensive to foreign buyers. The trade deficit continues or increases.

2011 US Imports: 2.7 trillion source 2011 US GDP: ~15 trillion source>

We are producing significantly more than we are consuming from foreign countries.

My WSO Blog "Unbelievably Believable" -- RG3
 
dabanobo:
melvvvar, what's your point? The average American worker -- if employed -- works more hours annually than workers of most other developed countries. Work ethic is definitely not one of the USA's problems.

and what are we doing in all of those working hours? we are re-arranging real goods that others are exporting to us out of the surplus of their production.

work ethic itself means nothing if it doesn't produce stuff that our trade partners actually want.

 
Best Response
dabanobo:
melvvvar, what's your point? The average American worker -- if employed -- works more hours annually than workers of most other developed countries. Work ethic is definitely not one of the USA's problems.
...add to that, productivity. As lazy and fucking stupid as I look at the average person here, they're several times more productive per unit of work than workers in most other places. As for the trade imbalance: we get cheap chachkies and fuzzy dice, and they get the rudimentary beginnings of capitalism that they apparently weren't able to figure out for themselves. I say that's a fair trade, what's the problem? If it were so bad, why is there a huge fucking line in front of every new factory that opens up over there? This topic has been covered on this forum a million different ways and yes, it's FAR from perfect. But given the total shit that a lot of places are starting from (or in Europe's case...are becomming) I don't understand the animosity. I just see it as people blaming America for their own problems....MENA leaders have been doing it for decades, and some started to believe their own bullshit (aka BinLaden). Americans are far from perfect, but the system here is much less far from perfect than most.

The rest of the world looks at our houses and workers as overpaid and over valued...but have you really taken an honest look at what they're being compared to? Given that participation in our system pulls people forward faster and more humanely than every other major power in history...I fail to see the problem.

Get busy living
 
UFOinsider:
dabanobo:
melvvvar, what's your point? The average American worker -- if employed -- works more hours annually than workers of most other developed countries. Work ethic is definitely not one of the USA's problems.
...add to that, productivity. As lazy and fucking stupid as I look at the average person here, they're several times more productive per unit of work than workers in most other places. As for the trade imbalance: we get cheap chachkies and fuzzy dice, and they get the rudimentary beginnings of capitalism that they apparently weren't able to figure out for themselves. I say that's a fair trade, what's the problem? If it were so bad, why is there a huge fucking line in front of every new factory that opens up over there? This topic has been covered on this forum a million different ways and yes, it's FAR from perfect. But given the total shit that a lot of places are starting from (or in Europe's case...are becomming) I don't understand the animosity. I just see it as people blaming America for their own problems....MENA leaders have been doing it for decades, and some started to believe their own bullshit (aka BinLaden). Americans are far from perfect, but the system here is much less far from perfect than most.

The rest of the world looks at our houses and workers as overpaid and over valued...but have you really taken an honest look at what they're being compared to? Given that participation in our system pulls people forward faster and more humanely than every other major power in history...I fail to see the problem.

we're getting a lot more fuzzy dice. look on the "made in ...." label on the computer you're typing on.

yeah it's good that they are getting off the ground but you're making a virtue out of necessity. we are the violent deadbeats of the world economy, not Economic Jesus.

 

Well, the trade defecit isn't bad for us as long as we keep printing to by more stuff. If people are willing to continue selling to us without increasing prices to compensate for the amount our currency could devalue, well, cool. It is awful for our trade partners (I.e. china) because they are left holding the bag when out currency devalues.

 
Addinator37:
Well, the trade defecit isn't bad for us as long as we keep printing to by more stuff. If people are willing to continue selling to us without increasing prices to compensate for the amount our currency could devalue, well, cool. It is awful for our trade partners (I.e. china) because they are left holding the bag when out currency devalues.
Given that they're leveraging unfair trade imbalances by maintaining an artificial ratio...closer to the truth is that we're just reducing things to par. Without that imbalance, they'd see massive unemployment to boot, so who's really winning here?
Get busy living
 
UFOinsider:
Addinator37:
Well, the trade defecit isn't bad for us as long as we keep printing to by more stuff. If people are willing to continue selling to us without increasing prices to compensate for the amount our currency could devalue, well, cool. It is awful for our trade partners (I.e. china) because they are left holding the bag when out currency devalues.
Given that they're leveraging unfair trade imbalances by maintaining an artificial ratio...closer to the truth is that we're just reducing things to par. Without that imbalance, they'd see massive unemployment to boot, so who's really winning here?

Oh absolutely. The world needs our consumption as much as we 'need' their ability to provide us with cheap goods to buy. If we want the lowest prices we simply have to accept trade imbalances, or start exporting something else like cars or whatever.

 

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