8 ms·

Fed: Americans' wealth dropped 40 percent

60 points by adventureful 14y ago

zwieback 14y ago
...wealth we never really possessed.
- fennecfoxen 14y ago
  I don't know how much economic sense that statement makes exactly; it's a little simplistic. Consider: Some people bought new homes for the first time at the top of the bubble, trading real dollars and real future liabilities for a house. The fact that the house can no longer be sold for nearly as much materially impacts what they will be able to do with their future: they have lost wealth. And at any time, many individuals could have sold their home to another person, in exchange for real tangible wealth which could have been put in a lasting form. That's an opportunity cost and represents a tangible loss as well. It's true that not every individual could have done this, though, yes. It's a complicated picture, really, and we oughtn't simplify it too far in either direction.
  - tomp 14y ago
    they haven't really lost anything - they still own the same house, and no money, just as before(at the height at the bubble)
    - fdr 14y ago
      They haven't lost anything, in the sense that savings appreciating slower than inflation is not losing anything, although few would suggest that this is not "losing" something. What has been lost is choice and opportunity for an easily identified class people (homeowners in areas that could not sustain the demand for homes) on a relatively large scale. I, on the other hand, a renter who has most of his wealth in securities am not so much impacted: I only lost some liquidity in the few years it took for the stock market to bounce back.
    - SwellJoe 14y ago
      A house that was purchased with $250k of debt, that is now only worth $150k, has cost the buyer $100k, for nothing. That is $100k of lost wealth to the buyer. The buyer purchased $250k worth of house, using future earnings, and now only owns $150k worth of house (but still owes $250k of future earnings). That is a devastating economic blow to a middle class family, and to dismiss it as "they haven't really lost anything" is simplistic and cruel.
- _delirium 14y ago
  In modern economics, there isn't really any distinction between "real" and "nominal" wealth. Value is value, measured by current market prices. There are heterodox economic systems that do make a distinction; for example, Marxian economics distinguishes between "exchange value" (current market price) and other kinds of value, such as "use value" (e.g. the usefulness of your copper pan for cooking does not decrease even if the price of copper crashes). But those aren't too popular among modern economists.
- tgrass 14y ago
  If you have all your wealth in cash and there's inflation...did you ever really possess it?
lincolnwebs 14y ago
This seems hugely misleading as an economic barometer. Isn't it the case that real estate wealth was surging absurdly [in 2007], obscuring a rise in debt? If debt growth has leveled off, it seems like the story is Americans getting their shit together and stopping their debt accumulation, not "losing" bubble wealth. No? //edit: 2010?? Did they forget to hit 'publish' when this was still timely?
- ChuckMcM 14y ago
  I was going to say the same thing, basically that article notes that house prices have tumbled 40% and that is the biggest asset most people have, and if you're leveraged (which is to say you have a mortgage) then the contribution of your house toward your net worth probably went away, and so now you are 'less wealthy'. That reasoning completely sidesteps the fact that houses should not have ever risen to the prices they did. The sudden 'house wealth' bubble was directly attributed to extremely bad fiscal policy pretty much throughout the ranks. And while a number of us in Silicon Valley have already learned the lesson 'your not really rich if your wealth is all in a bubble asset' the rest of the country got to learn this too. It sucks, but its more like "you know what your house will be worth in another 15 to 20 years when it would have gotten there based on a reasonable fiscal policy and a 2% economic growth rate. (and yes it appears to be a story from 2 yrs ago, just when the real estate market crash was in everyone's mind, although this reporter seems to have picked it up today for a few hits during an election year.)
  - anamax 14y ago
    > It sucks, but its more like "you know what your house will be worth in another 15 to 20 years when it would have gotten there based on a reasonable fiscal policy and a 2% economic growth rate. Any reason for using 2% growth instead of something closer to the US average (which is around 4%)? http://visualizingeconomics.com/2010/11/04/log-scale-long-term-real-growth-in-us-gdp-1871-2009/ http://visualizingeconomics.com/2010/11/04/log-scale-long-te...
    - arethuza 14y ago
deleted 14y ago
[deleted]
adventureful 14y ago
As others have noted, it was wealth Americans never really possessed. The data point that I'd find most interesting is how much debt was accumulated on the back of that phony wealth. That is, how much more debt were Americans able to accrue specifically because of the bubble (than they otherwise would have been able to). Losing bubble wealth is bad enough (the psychological impact alone), losing it when you've stacked debt against it is a very real problem. The fake wealth was used to create very real debt. Suddenly you've got 1/3 of all home owners under water on their mortgages.
- geogra4 14y ago
  >As others have noted, it was wealth Americans never really possessed This is one thing that definitely rings true to me. I grew up in a wealthy community that abutted many, many poorer ones. I would often ride my bike through all of these places, especially the most impoverished ones and lament to myself "So this is the richest country in the world?" Later, after I graduated college and started looking for places to live it was amazing to me how much wealth was caught up in places I don't think I'd ever want to live. Nearly identical tract housing for 10s of miles in all directions. Nothing walkable at all, even sidewalks were just an afterthought. "So, is this is what wealth looks like?" I thought to myself. Obviously it wasn't wealth. That money never existed, but the debt people signed contracts for is real.
  - guelo 14y ago
    > rings true to me The problem with complex macroeconomics and popular politics summarized in one phrase.
    - jlgreco 14y ago
      I wonder if we are best served by a democracy when, with perhaps the most important political issue there is, common sense and anecdotes provide little value and a higher education in a particular field is required to make an informed decision.
      - 14y ago
debacle 14y ago
How the hell is the median wealth of Americans 77k?! Does this not factor in debt?
- adventureful 14y ago
  The Fed tags American wealth at around $58 trillion total, last I recall. I suspect the median is a bizarre way to calculate American wealth. That includes equities, real estate, precious metals, homes, bonds, etc. The stock market rebounding back upward nearly 100% added trillions to that no doubt. I would think it'd be far better to take the middle 80% of Americans and find an average wealth value (lop off the top 10% and bottom 10%). That would give you a perspective on how most of the nation is doing, especially since the very top radically skews the data upward. http://en.wikipedia.org/wiki/Wealth_in_the_United_States http://en.wikipedia.org/wiki/Wealth_in_the_United_States Interesting data point on the top 1% wealth wise: "They [the 1%] controlled nearly a third of the nation’s financial assets (investment holdings) and about 28 percent of nonfinancial assets (the value of property, cars, jewelry, etc.). These measures will be particularly interesting to revisit when the new, post-recession data arrives." "The Times had estimated the threshold for being in the top 1 percent in household income at about $380,000, 7.5 times median household income, using census data from 2008 through 2010. But for net worth, the 1 percent threshold for net worth in the Fed data was nearly $8.4 million, or 69 times the median household’s net holdings of $121,000." http://economix.blogs.nytimes.com/2012/01/17/measuring-the-top-1-by-wealth-not-income/ http://economix.blogs.nytimes.com/2012/01/17/measuring-the-t...
  - debacle 14y ago
    The 1% has a very limited ability to drive change in the median wealth. The average wealth is very likely much much higher (probably closer to a half million) than the median, signaling vast income inequality. The median is a much more useful statistic when dealing with this kind of distribution, as it applies to a much larger population than the average, which is useless for ~80% of the population as an indicator.
    - aggronn 14y ago
minimax 14y ago
The report they are attempting to summarize covers the period from 2007 to 2010. It was just released by the Fed yesterday. It's publicly available, so I'm puzzled as to why they didn't link directly to the source material from the article. Here it is anyway: http://www.federalreserve.gov/pubs/bulletin/2012/PDF/scf12.pdf http://www.federalreserve.gov/pubs/bulletin/2012/PDF/scf12.p...
deleted 14y ago
[deleted]
gordonbowman 14y ago
At least credit card debt has fallen across the board. "The survey also confirmed that Americans are shifting the kinds of debts that they carry. The share of families with credit card debt declined by 6.7 percentage points to 39.4 percent, and the median balance of that debt fell 16.1 percent to $2,600." http://finance.yahoo.com/news/family-net-worth-drops-level-185603451.html http://finance.yahoo.com/news/family-net-worth-drops-level-1...
- dredmorbius 14y ago
  What I found interesting was that about a quarter of Americans never had credit cards -- 23% as of 2007. I'd love to see deeper stats on who does/doesn't carry a revolving credit account. I've become increasingly convinced they're among the most dangerous financial instruments you can present someone with. Others (housing, student debt) are at least backed by assets and/or earning power, however much they may be subject to bubble inflation.
- cluda01 14y ago
  This has recently shifted to student loan debt however. The effects of this type of debt are a lot subtler and nastier because you can't get student loan debt discharged in bankruptcy proceedings. http://www.washingtonpost.com/blogs/college-inc/post/student-loans-surpass-auto-credit-card-debt/2012/03/06/gIQARFQnuR_blog.html http://www.washingtonpost.com/blogs/college-inc/post/student...
carsongross 14y ago
Wealth: I'm not sure that word means what you think it means. http://drduru.com/onetwentytwo/wp-content/uploads/2011/02/110218_SP500vsGold.jpg http://drduru.com/onetwentytwo/wp-content/uploads/2011/02/11...
zopa 14y ago
That's a pretty misleading headline. "Americans' wealth" /= "wealth of the median American".
mark_l_watson 14y ago
I just watched a documenry tonight that partially explains this: contains fairly obvious stuff that intellectually we know is true, but, the last 15 minutes suggest a few things that sheepal (that is, ordinary sheep/people) can do to improve our situation like not buying from misbehaving corporations. Yeah, maybe. One thing that is really interesting in the first part of the movie is how psychology was used to control consumers. Buy, baby buy, because it will make you FEEL better! Another main message of the movie, that war = profit for corporations is obvious, but worth thinking about. They also cover the fact that the corporate controlled news media is not to be trusted. So, really obvious stuff, but well presented. http://www.ethosthemovie.com/ http://www.ethosthemovie.com/ This movie is on Netflix under documentaries.

60 points by adventureful 14y ago

zwieback 14y ago

...wealth we never really possessed.

fennecfoxen 14y ago
I don't know how much economic sense that statement makes exactly; it's a little simplistic. Consider: Some people bought new homes for the first time at the top of the bubble, trading real dollars and real future liabilities for a house. The fact that the house can no longer be sold for nearly as much materially impacts what they will be able to do with their future: they have lost wealth. And at any time, many individuals could have sold their home to another person, in exchange for real tangible wealth which could have been put in a lasting form. That's an opportunity cost and represents a tangible loss as well. It's true that not every individual could have done this, though, yes. It's a complicated picture, really, and we oughtn't simplify it too far in either direction.
- tomp 14y ago
  they haven't really lost anything - they still own the same house, and no money, just as before(at the height at the bubble)
  - fdr 14y ago
    They haven't lost anything, in the sense that savings appreciating slower than inflation is not losing anything, although few would suggest that this is not "losing" something. What has been lost is choice and opportunity for an easily identified class people (homeowners in areas that could not sustain the demand for homes) on a relatively large scale. I, on the other hand, a renter who has most of his wealth in securities am not so much impacted: I only lost some liquidity in the few years it took for the stock market to bounce back.
  - SwellJoe 14y ago
    A house that was purchased with $250k of debt, that is now only worth $150k, has cost the buyer $100k, for nothing. That is $100k of lost wealth to the buyer. The buyer purchased $250k worth of house, using future earnings, and now only owns $150k worth of house (but still owes $250k of future earnings). That is a devastating economic blow to a middle class family, and to dismiss it as "they haven't really lost anything" is simplistic and cruel.
_delirium 14y ago
In modern economics, there isn't really any distinction between "real" and "nominal" wealth. Value is value, measured by current market prices. There are heterodox economic systems that do make a distinction; for example, Marxian economics distinguishes between "exchange value" (current market price) and other kinds of value, such as "use value" (e.g. the usefulness of your copper pan for cooking does not decrease even if the price of copper crashes). But those aren't too popular among modern economists.
tgrass 14y ago
If you have all your wealth in cash and there's inflation...did you ever really possess it?

lincolnwebs 14y ago

This seems hugely misleading as an economic barometer. Isn't it the case that real estate wealth was surging absurdly [in 2007], obscuring a rise in debt? If debt growth has leveled off, it seems like the story is Americans getting their shit together and stopping their debt accumulation, not "losing" bubble wealth. No? //edit: 2010?? Did they forget to hit 'publish' when this was still timely?

ChuckMcM 14y ago
I was going to say the same thing, basically that article notes that house prices have tumbled 40% and that is the biggest asset most people have, and if you're leveraged (which is to say you have a mortgage) then the contribution of your house toward your net worth probably went away, and so now you are 'less wealthy'. That reasoning completely sidesteps the fact that houses should not have ever risen to the prices they did. The sudden 'house wealth' bubble was directly attributed to extremely bad fiscal policy pretty much throughout the ranks. And while a number of us in Silicon Valley have already learned the lesson 'your not really rich if your wealth is all in a bubble asset' the rest of the country got to learn this too. It sucks, but its more like "you know what your house will be worth in another 15 to 20 years when it would have gotten there based on a reasonable fiscal policy and a 2% economic growth rate. (and yes it appears to be a story from 2 yrs ago, just when the real estate market crash was in everyone's mind, although this reporter seems to have picked it up today for a few hits during an election year.)
- anamax 14y ago
  > It sucks, but its more like "you know what your house will be worth in another 15 to 20 years when it would have gotten there based on a reasonable fiscal policy and a 2% economic growth rate. Any reason for using 2% growth instead of something closer to the US average (which is around 4%)? http://visualizingeconomics.com/2010/11/04/log-scale-long-term-real-growth-in-us-gdp-1871-2009/ http://visualizingeconomics.com/2010/11/04/log-scale-long-te...
  - arethuza 14y ago

deleted 14y ago

[deleted]

adventureful 14y ago

As others have noted, it was wealth Americans never really possessed. The data point that I'd find most interesting is how much debt was accumulated on the back of that phony wealth. That is, how much more debt were Americans able to accrue specifically because of the bubble (than they otherwise would have been able to). Losing bubble wealth is bad enough (the psychological impact alone), losing it when you've stacked debt against it is a very real problem. The fake wealth was used to create very real debt. Suddenly you've got 1/3 of all home owners under water on their mortgages.

geogra4 14y ago
>As others have noted, it was wealth Americans never really possessed This is one thing that definitely rings true to me. I grew up in a wealthy community that abutted many, many poorer ones. I would often ride my bike through all of these places, especially the most impoverished ones and lament to myself "So this is the richest country in the world?" Later, after I graduated college and started looking for places to live it was amazing to me how much wealth was caught up in places I don't think I'd ever want to live. Nearly identical tract housing for 10s of miles in all directions. Nothing walkable at all, even sidewalks were just an afterthought. "So, is this is what wealth looks like?" I thought to myself. Obviously it wasn't wealth. That money never existed, but the debt people signed contracts for is real.
- guelo 14y ago
  > rings true to me The problem with complex macroeconomics and popular politics summarized in one phrase.
  - jlgreco 14y ago
    I wonder if we are best served by a democracy when, with perhaps the most important political issue there is, common sense and anecdotes provide little value and a higher education in a particular field is required to make an informed decision.
    - 14y ago

debacle 14y ago

How the hell is the median wealth of Americans 77k?! Does this not factor in debt?

adventureful 14y ago
The Fed tags American wealth at around $58 trillion total, last I recall. I suspect the median is a bizarre way to calculate American wealth. That includes equities, real estate, precious metals, homes, bonds, etc. The stock market rebounding back upward nearly 100% added trillions to that no doubt. I would think it'd be far better to take the middle 80% of Americans and find an average wealth value (lop off the top 10% and bottom 10%). That would give you a perspective on how most of the nation is doing, especially since the very top radically skews the data upward. http://en.wikipedia.org/wiki/Wealth_in_the_United_States http://en.wikipedia.org/wiki/Wealth_in_the_United_States Interesting data point on the top 1% wealth wise: "They [the 1%] controlled nearly a third of the nation’s financial assets (investment holdings) and about 28 percent of nonfinancial assets (the value of property, cars, jewelry, etc.). These measures will be particularly interesting to revisit when the new, post-recession data arrives." "The Times had estimated the threshold for being in the top 1 percent in household income at about $380,000, 7.5 times median household income, using census data from 2008 through 2010. But for net worth, the 1 percent threshold for net worth in the Fed data was nearly $8.4 million, or 69 times the median household’s net holdings of $121,000." http://economix.blogs.nytimes.com/2012/01/17/measuring-the-top-1-by-wealth-not-income/ http://economix.blogs.nytimes.com/2012/01/17/measuring-the-t...
- debacle 14y ago
  The 1% has a very limited ability to drive change in the median wealth. The average wealth is very likely much much higher (probably closer to a half million) than the median, signaling vast income inequality. The median is a much more useful statistic when dealing with this kind of distribution, as it applies to a much larger population than the average, which is useless for ~80% of the population as an indicator.
  - aggronn 14y ago

minimax 14y ago

The report they are attempting to summarize covers the period from 2007 to 2010. It was just released by the Fed yesterday. It's publicly available, so I'm puzzled as to why they didn't link directly to the source material from the article. Here it is anyway: http://www.federalreserve.gov/pubs/bulletin/2012/PDF/scf12.pdf http://www.federalreserve.gov/pubs/bulletin/2012/PDF/scf12.p...

deleted 14y ago

[deleted]

gordonbowman 14y ago

At least credit card debt has fallen across the board. "The survey also confirmed that Americans are shifting the kinds of debts that they carry. The share of families with credit card debt declined by 6.7 percentage points to 39.4 percent, and the median balance of that debt fell 16.1 percent to $2,600." http://finance.yahoo.com/news/family-net-worth-drops-level-185603451.html http://finance.yahoo.com/news/family-net-worth-drops-level-1...

dredmorbius 14y ago
What I found interesting was that about a quarter of Americans never had credit cards -- 23% as of 2007. I'd love to see deeper stats on who does/doesn't carry a revolving credit account. I've become increasingly convinced they're among the most dangerous financial instruments you can present someone with. Others (housing, student debt) are at least backed by assets and/or earning power, however much they may be subject to bubble inflation.
cluda01 14y ago
This has recently shifted to student loan debt however. The effects of this type of debt are a lot subtler and nastier because you can't get student loan debt discharged in bankruptcy proceedings. http://www.washingtonpost.com/blogs/college-inc/post/student-loans-surpass-auto-credit-card-debt/2012/03/06/gIQARFQnuR_blog.html http://www.washingtonpost.com/blogs/college-inc/post/student...

carsongross 14y ago

Wealth: I'm not sure that word means what you think it means. http://drduru.com/onetwentytwo/wp-content/uploads/2011/02/110218_SP500vsGold.jpg http://drduru.com/onetwentytwo/wp-content/uploads/2011/02/11...

zopa 14y ago

That's a pretty misleading headline. "Americans' wealth" /= "wealth of the median American".

mark_l_watson 14y ago

I just watched a documenry tonight that partially explains this: contains fairly obvious stuff that intellectually we know is true, but, the last 15 minutes suggest a few things that sheepal (that is, ordinary sheep/people) can do to improve our situation like not buying from misbehaving corporations. Yeah, maybe. One thing that is really interesting in the first part of the movie is how psychology was used to control consumers. Buy, baby buy, because it will make you FEEL better! Another main message of the movie, that war = profit for corporations is obvious, but worth thinking about. They also cover the fact that the corporate controlled news media is not to be trusted. So, really obvious stuff, but well presented. http://www.ethosthemovie.com/ http://www.ethosthemovie.com/ This movie is on Netflix under documentaries.