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:
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.