Saturday, September 18, 2010

How big is your paper stack?

The net worth of Americans, that‘s the value of assets like homes and investments, subtracting debts like mortgages and credit cards -- fell 2.7 percent last quarter, or $1.5 trillion according to Friday’s Federal Reserve and is now at $53.5 trillion. That's above the bottom of $48.8 trillion in the first quarter of 2009. But it's far below the pre-crash peak when total wealth was $65.8 trillion.

Many economists think household wealth has ticked up in the July-to-September quarter so far, because of higher stock prices. But given last quarter's setback and expectations of scant gains ahead, some economists have pushed back the time when Americans will regain all their lost wealth until the middle of this decade. Of course they are basing this entirely on the re-inflation of the housing and stock market bubbles.

Net worth fell from April to June an average of $12,941 per household and average household wealth now amounts to $455,173. That's up from $415,185 during the recession, down from a peak of $563,438 in 2007. The bigger problem is that 93% of that wealth is held by the top 20% and most Americans don’t have a pot to piss in. The really big problem is that 43% of the wealth is held by the top one percent and they call the tune all the Republicans and not insignificant number of Democrats dance to.

Although it’s been more than a year since the recession is thought to have ended, the housing and stock markets are really still just bubbles waiting to pop. This reality hasn’t escaped most Americans at least at a gut level and they aren't spending as much as they typically do after recessions.

Consumer spending grew at an annual rate of just 2 percent for the first two quarters of this year and economists think the current quarter will be about the same.  Contrast this with aftermath of the 1981-82 recession, consumer spending averaged a robust 6.5 percent pace during 1983. Of course Ronald Reagan doubled the national debt during this period and any sane person knows stimulus works. We still had an industrial base then so Reagan spending a trillion USD, well it really pumped things up. (that would be like Obama spending four trillion on stimulus when adjusted for inflation) That is how big a hole Bush and his Wall Street buddies punched in the economy.

Overall household debt dipped to $13.45 trillion as of June and that's a 3.2%  decline from a peak in early 2008. Americans are on average carrying around $43,000 in debt counting everything from mortgages and credit cards to auto loans and home equity lines of credit. This doesn’t count the 120,000 that the average household owes courtesy of the national debt run up by the Republicans. The debt to GDP ratio is still lower than at the end of the Reagan Presidency however, so it’s not impossible to deal with.

Defaults on mortgages and other loans accounted for much of the decline in debt but a lack of credit has resulted in debt being paid down as well. The decline in net worth underscores how much household wealth is really just from the stock market bubble. About a fifth of household financial assets are in stock-market holdings and these fell 12 percent in the April-June period compared with the first quarter. U.S. real estate values ticked up a scant 0.3 percent in the second quarter but are expected to decline an average of 5 percent to 10 percent by the middle of next year.

In the old days a large percentage of Americans owned businesses and farms. Today it’s just paper wealth with the real assets being held by corporations that are in turn controlled lock stock and barrel by the top 1/10 of a percent. Even that paper wealth is mostly held by the top 20%, most of whom aren‘t really as well off as they think and most Americans’ net worth is really zero.