Household Wealth? Easy Come, Easy Go

The mainstream media has been all over a report by the Federal Reserve showing that median household net worth fell almost 40% between 2007 and 2010. Here's the Wall Street Journal's take on the report—

Families’ median net worth fell almost 40% between 2007 and 2010, down to levels last seen in 1992, the Federal Reserve said in a report Monday.

As the U.S. economy roiled for three tumultuous years, families saw corresponding drops in their income and net wealth, according to the Fed’s Survey of Consumer Finances, a detailed snapshot of household finances conducted every three years.

Median net worth of families fell to $77,300 in 2010 from $126,400 in 2007, a drop of 38.8%— the largest drop since the current survey began in 1989, Fed economists said Monday. Net worth represents the difference between a family’s gross assets and its liabilities. Average net worth fell 14.7% during the same three-year period.

Much of that drop was driven by the housing market’s collapse. Families whose assets were tied up more in housing saw their net worth decline by more. Among families that owned homes, their median home equity declined to $75,000 in 2010, down from $110,000 three years earlier.

Between 2007 and 2010, incomes also dropped sharply. In 2010, median family income fell to $45,800 from $49,600 in 2007, a drop of 7.7%. Average income fell 11.1% to $78,500, down from $88,300. That was a departure from earlier in the decade. During the preceding three years, median income had been constant, while the mean had climbed 8.5%.

Easy come, easy go, the Case-Shiller home price index from Tim Iacono

Based on data from the Fed report, from Jake's The End Of The Middle Class

If you had asked Americans in 1992 what their net worth would be in 20 years, I seriously doubt many people would have said just about the same as it is now. But there is it is. And the world has changed a lot in those 20 years. College tuitions and health care costs have soared. Inflation has proceeded apace, even understated "official" CPI-U inflation. Oil routinely costs over $100/barrel, and sometimes much more. If your net worth (in nominal terms) was about $77,000 in 1992, and that's what it is now, you are much worse off than you were 20 years ago.

According to Bloomberg Business Week's Peter Coy, Americans are worse off than they were in 1989, not 1992, in real terms (2010 dollars).

The deterioration in American families’ wealth is even worse than you would know from this morning’s headlines about the Fed's survey of consumer finances. According to my calculations, the inflation-adjusted median net worth of American families was lower in 2010 than in 1989.

Here are my calculations, which are not officially endorsed by the Fed. I explain below how I got them.

Median family net worth in 2010 dollars:

1989: $79,600
1992: $75,400
1995: $81,200
1998: $95,500
2001: $106,100
2004: $107,200
2007: $126,400
2010: $77,300

To get a better understanding of how bad things actually are, I dug back through old surveys on the Fed website and adjusted their figures into 2010 dollars. For inflation, I used the “Consumer Price Index Research Series Using Current Methods,” which is the one the Fed itself uses for this purpose.

America has had its Bubble Era (1995-2007). We now are living in the aftermath. The Bubble Era hasn't really ended, however. It has merely moved to markets overseas (e.g. China). And in Japan, their Bubble Era ended in 1989. If you've stayed current on the situation in Japan, you will not be surprised to learn that they've been doing just fine there ever since

Naturally we turn to the future. What will the median net worth of the now deceased middle class be 20 years from now? I'll bet if we took a survey, the answers would differ considerably than they would have if such a survey had been conducted in 1992, at least among the cognoscenti (all 17 of them in a survey of 2000). I think the most realistic prediction states that in nominal wealth terms, most Americans will be much, much worse off in 2032 than they are now in 2012.

That's the good news—2012 is very likely as good as it gets! That's my glass-half-full take on this Fed report. I am aware that people think of DOTE as a downer, or as they used to say back in the day in the 1960s, a real bummer. So I'm trying to find the upside of the news, cheer you up a bit, attract more readers. This blog's traffic has been very slowly but very steadily declining for 6 months now. I'm trying to salvage what I can. Let's face it—humans are natually optimistic. They don't want to hear this depressing shit.

How am I doing so far?

Comments

[stu]

Dave- keep telling it like you see it. This is an invaluable service as we know you are not corrupted by money, power, etc.

We know that, on occasion, we need to filter out some excess doomerism when reading your stuff. But not a problem.

[Dave Cohen]

Re: excess doomerism

I will admit that my ever-increasing, generalized disgust with the Human Condition sometimes gets the better of me, although I am hard-pressed to think of any examples of excess doomerism right now.

Perhaps you or somebody else could point out some cases where I am likely wrong about the human future.

Or perhaps it's just my bad attitude, which I freely admit to.

-- Dave

[Fran Joseph]

There are positive, encouraging signs. Creative, progressive visions, plans, projects. Can they overcome the meta-terrible? I don't see how. But I'm happy to join forces with them. I need to. Locally based, small scale optimism. I appreciate your blog.

[Anywhere But Here Is Better]

Dave - may I please adjust the first comment on behalf of my boss Stu. He had a couple of extra tots for breakfast and he just called me up and ask me to send you the following correction:

"Keep telling it like you see it. This is an invaluable service as we know you are not corrupted by money, power, etc.

We are glad to know that, on no occasion do we ever need to filter out any excess doomerism when reading your stuff. The truth is not a problem."

Well, that's it. I will now hide under the bedclothes in case Stu is sending a drone my way.

PS - Stu, we love ya!

[Dave Cohen]

Re: my attitude

As I noted above, my attitude is bad. Very bad indeed.

For example, take household median net worth. It only dropped 38.8% in the years 2007-2010.

I mean, let's look at this without excessive doomerism. It could have dropped 45, 50, or even 60% in that same period. Household wealth is back to where it was in 1992, or 1989, depending on how you calculate it. It could be back to where it was in 1985, or 1977 or 1973.

And I also said this is likely to be as good as it's going to get. Now, that's way over the top right there.

So you can readily see just how bad my attitude is.

-- Dave

[Jim Bethel]

As Harry Truman used to say, "People think that I give them Hell. I don't give them Hell, I just tell them the truth and they think it is Hell". Keep up the good work, Dave. More truth. Your readership decline just proves again that no good deed goes unpunished.

[NoHype]

Whenever I find myself starting on that downward spiral of crippling despair, I remind myself of the following and all is well again in my world:

Mother Nature will not be mocked. She casts a cold eye on our wailing supplications as we harvest what we sowed so many springs ago. She laughs to hysteria as she beholds the obese and tottering uberbeasts (overlords) rushing hither and thither furiously waving their fat little hands at the ends of their fat little arms. As she rears back to shake humanity loose from our complacent suckling, engorged from drinking six million years of sunlight in six hundred, it behooves us (the 17 of 2000) to remember that love can be tough. Even from an indulgent mother who refuses to be mocked.

This is when I indulge myself in a little back-to-the-future schadenfreude, and ... ahhhhh ... feel oh-so-much-better.

[james]

You're doing just great, Dave. No-one talks the truth like you do.
Thank you.

[spynetkilla]

For readers who need it diluted, try reading it in an soothing NPR Kindergarten teacher "time for your milk and cookies" voice. They make everything sound so smart and cool! And calm, so calm.

Keep it real. I don't come here for candy-coated bullshit. I have to say though, every time I see the "sarcastic face" emoticon, I hear a little rim-shot sound. "Japan is fine (badumbump!)".

What's found here is based on the same data available to everyone, yet with a much different interpretation than is found in the mainstream. The same information leads to a very different and (generally correct imo)conclusion.

I can accept my own mortality, and the likely upcoming end of our race, but it's frustrating that we are so stupid. Wisdom has always been around but largely ignored. And as a few people analyze recent events and we discover more about psychology, etc., it's clear that those who seek money and power for their own sake are dangerous to the rest of us.

Science has gone out the window. One's stand on Global Warming can be inferred by one's party affiliation. In order to pull out of this dive it would require a change of consciousness on a level that does not seem possible.

I have come to many of the same conclusions on my own. Dave articulates them much better than I could, and I myself don't have the inclination to do it.

[eugene12]

I don't see this site as doomer at all. It's a welcome voice in the land of irrational optimism. Personally, I'll take reality any time. I've spent enough of my life working hard to avoid it.

[Dave Cohen]

@Eugene

Re: I don't see this site as doomer at all

Good for you! You have completely gotten the point that so many clueless people have missed.

best,

-- Dave

[John Andersen]

Irrational optimism of the common people is what keeps the magistrates in control.

Not a good thing in my book.

[Raintonite]

Dave, have you considered that the number of declining hits may be due to other factors as well?

Many people can no longer afford internet connections. I went to the local library a few days ago to research some info on plants. It was the first time I visited the reference room where 10 computers are set up for the internet. They were all occupied and when I spoke to librarian she said user traffic, limited to 1 hour a day per member, was through the roof. In 2008, you wouldn't have found a soul in the same room.

Similarly, many of the lumpen middle classes are so fatigued by their efforts to swim against the rip-tides of our economies that they just vegitate these days. They're tuning out. They can't cope. They're drained as they circle the drain. (Some psychopath stole the plug.)

They don't want to know. They know deep down this party is over. Most aren't willing to confront the fact. They're frantically searching for even the most feeble of parties to join, but they'll never realise they haven't been invited to the party. They are the paid staff. They mistook their servant garb for tuxedos and ball gowns.

Their only response, so far, is to take some meagre comfort from those worse off than themselves. They find virtue in their roles as servants. They are hard workers. The party givers will recognise this and save them.

Yeah, and the gas I individually produce is enough to reverse peak oil.

When danger arrives you either respond by fight, flight or freeze.

Doom, doomed or doomerism is when you freeze.

For the suped-up simian the ice age has arrived.

[Anywhere But Here Is Better]

@Spynetkilla re. I can accept my own mortality.

Agree. It astonishes me how free I feel now that I have badumbumped any fear of dying. We've always known we can only die once, yet people seem to spend so much time worried about death that they forget to live. Now that it's utterly clear that the ruling elite is hastening the death of our species en masse, I remain as calm as that kindergarten teacher's siren voice.

WTF, I think the Facebook preeners call it. Whether I go tomorrow or years from now, I care only to keep listening to and learning from sapience, of the type presented by Dave and a very few others I've encountered.

I've said it before, but watch the movie Dark Star if you get a chance. It's shown me that The End's gonna be accompanied by a universe-shaking belly laugh. Now that would be a fitting epitaph for Homo sapiens falsehopus.

[Mike Roberts]

John Michael Greer has a good post this week with several links to idiotic thinking by humans (in America). Some would have made my jaw drop several years ago, but Dave's blog has hit home - these things don't surprise me at all, now.

As a taster, there is this link: N.C. Senate approves law that challenges sea-level science which includes this line: "The practical result of the legislation would be that for the purposes of coastal development, local governments could only assume that the sea level will rise 8 inches by 2100, as opposed to the 39 inches predicted by a science panel."

[stu]

Just a note-

I did not intend to label Dave's stuff as doomerism. He is right on the money most of the time.

Oh- and no drones to my fellow commenters- unless you are uncivil like my evil rightwing Catholic brother-in-law who has just been accepted for SSI Disability after spending his whole life decrying BIG Government as a vicious social conservative. Then again its pretty standard for the tough conservatives to grab for the gubbermint welfare money whenever they can get a hold of it.