
Fed: Americans' wealth dropped 40 percent - adventureful
http://www.washingtonpost.com/business/economy/fed-americans-wealth-dropped-40-percent/2012/06/11/gJQAlIsCVV_story.html
======
minimax
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.p...](http://www.federalreserve.gov/pubs/bulletin/2012/PDF/scf12.pdf)

------
lincolnwebs
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
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
> 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-
te...](http://visualizingeconomics.com/2010/11/04/log-scale-long-term-real-
growth-in-us-gdp-1871-2009/)

~~~
ChuckMcM
When I'm doing armchair economic analysis I use the 2% growth rate as its one
that pretty much everyone agrees is the 'floor' of all estimates. So if you
read my comment and did the math, and 15 to 20 years from now looked at your
house value, you may find I exactly called it, but you may find that it was a
bit under as the economy grew better than that. The chance that you would see
lower than 2% growth is small (but non-zero!). There was a time (pre-2000 btw)
when I would use the more optimistic numbers when planning ahead :-)

------
gordonbowman
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-1...](http://finance.yahoo.com/news/family-net-worth-drops-
level-185603451.html)

~~~
cluda01
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...](http://www.washingtonpost.com/blogs/college-
inc/post/student-loans-surpass-auto-credit-card-
debt/2012/03/06/gIQARFQnuR_blog.html)

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

~~~
adventureful
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>

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-t...](http://economix.blogs.nytimes.com/2012/01/17/measuring-the-top-1-by-
wealth-not-income/)

~~~
debacle
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
I'll be even more bold and declare that the top 1% has no more ability to
effect the median than any other 1% of the population.

Using the median isn't strange at all for this kind of calculation.

~~~
planetguy
I would suggest that the median is taken, in this case, because it provides
the biggest and sexiest headline number.

The average (and by extension the total) wealth has gone down by a much
smaller percentage since 2007. The fluctuations just happened to have hit the
people around the _middle_ particularly hard. The people at the bottom haven't
seen their net wealth decline at all, because they never had any. The people
at the top have seen their net wealth decline substantially, but since it was
largely in other asset classes less so [percentage-wise] than the people right
in the middle, whose net wealth was dominated by home equity.

Bottom line: recessions suck. They happen every decade or so. Plan with this
in mind.

------
zwieback
...wealth we never really possessed.

~~~
fennecfoxen
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
they haven't _really_ lost anything - they still own the same house, and no
money, just as before(at the height at the bubble)

~~~
SwellJoe
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.

------
mark_l_watson
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/>

This movie is on Netflix under documentaries.

------
carsongross
Wealth: I'm not sure that word means what you think it means.

[http://drduru.com/onetwentytwo/wp-
content/uploads/2011/02/11...](http://drduru.com/onetwentytwo/wp-
content/uploads/2011/02/110218_SP500vsGold.jpg)

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

------
adventureful
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
>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
> rings true to me

The problem with complex macroeconomics and popular politics summarized in one
phrase.

~~~
jlgreco
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.

~~~
guelo
Well, that was the reason for the creation of the Fed in the first place, the
idea that you could have technocrats setting macroeconomics policy without
political influence. But then Allan Greenspan happened, an ideologue disciple
of Ayn Rand. When the federal budget was running a surplus in 2000 he told
congress that budget surpluses were dangerous, then he pushed for Bush's tax
cuts and then he helped inflate real estate and ignored everybody that was
saying it was an out of control bubble.

So no, unelected elites aren't going to save us either.

~~~
rubashov
The Fed was founded because in fly-over country the financial system was
rickety. Off the coasts, banks were regularly going bust and taking people's
savings with them. This almost always happened during harvest season when
demand for currency was high. In the urban centers the banking system was
working fine. The problem to solve was a ridiculously inefficient and inept
banking sector in large swathes of the country.

As soon as the idea of some sort of federal level reform got going the House
Of Morgan and friends seized control and the Fed became a tool of the major
banks, which were already working fine, to increase their profits and control.
Almost from the start it was the case the Federal Reserve Bank of New York
really ran the system, which was entirely not the original idea. The idea of
the Fed originated from a temporary problem unique to a particular period of
American history, but was immediately usurped by clever power and money hungry
people.

