19 replies to this topic

[Rogerdodger]

Net worth of U.S. households skyrockets
By JEANNINE AVERSA, AP Economics Writer Thu Mar 8, 5:27 PM ET

WASHINGTON - The net worth of U.S. households climbed to a record high in the final quarter of last year, boosted mostly by gains on stocks, the
Federal Reserve reported Thursday.

Net worth — the difference between households' total assets, such as houses and bank accounts, and their total liabilities, such as mortgages and credit card debt, totaled $55.6 trillion in the October-to-December quarter.
That marked a 2.5 percent growth rate from the third quarter, the previous quarterly record high. Stocks gains helped fuel the increase in net worth, although real-estate gains played a role, too.

For all of last year, households' net worth rose by 7.4 percent, a slower pace than the 7.9 percent increase registered in 2005.

Household debt, meanwhile, grew by 8.6 percent in 2006, down from a 11.7 percent increase in the prior year. The Fed said this deceleration "was accounted for by much slower growth of home mortgage debt."

Home mortgage debt growth slowed to a 8.9 percent last year, compared with a 13.8 percent increase in 2005. This year's growth in home mortgage debt was the smallest increase in six years.

After a five-year boom, the housing market fell into a deep slump last year. Sales cooled. So did home prices, which had been galloping ahead, making consumers feel more wealthy and more inclined to spend.

Economists said Thursday's report suggest households' finances are holding up fairly well to any strains caused by the troubled housing market and well as some sluggishness in overall economic growth. Analysts said that's because the jobs climate remains in good shape and income growth has picked up.

"Slower growth in some of the nation's high-flying housing markets was not enough to send net worth south in the fourth quarter," said Gina Martin, economist at Wachovia. "Instead, household balance sheets continued to improve, as growth in liabilities continued to slow, while growth in assets held steady."

One risk facing the economy is that the housing slump will take an unexpected turn for the worse, a development that likely would cause consumers to clamp down. That could spell trouble for overall economic activity.

[pdx5]

$55.6 Trillion boils down to $185,300 for every person in the United States, including men, women & children. Not bad!

[Russ]

"$55.6 Trillion boils down to $185,300 for every person in the United States, including men, women & children. Not bad!" I don't think it is being political to point out that economist Martin Armstrong told me personally that those debts will never be paid off. They will likely have to create new currencies, perhaps one for each of the main regions of the world, the America's, Asia and Europe, all this after a major crisis, the timing of which is unknown as far as I have heard. Perhaps after 2032.

[TradeMark]

55.6 Trillion, But then you have to subtract the unfunded liabilities of the Federal Government of 55 Trillion and who knows what the unfunded liabilities of States and Municipalities are. No matter how you slice it, you get liabilities > assets. Equals BK, broke, toast. Don't ya just love it? Good thing our elected officials don't work in the private sector....They'd all be in jail. TM

[bullshort]

I guess I'm a glass-is-half-empty cynic: 1) Isn't $55 trillion about the same figure cited as unfunded entitlements and other liabilities that don't even show up as "household liabilities?" If so, that pretty much takes care of all that net worth. 2) I wonder what the official statistic was for the increase in household net worth from 1927 to 1928. 3) I wonder whether the 7.4 percent "increase" in household net worth for 2006 is in reality simply a reflection of the loss in purchaseing power of our fiat currency (aka inflation). 4) If one believes that the cumulative rate of inflation was about 20 percent from the year 2000 to now, which I believe is close to or even less than the official figures, and since the Dow, the S&P and the Nasdaq are not even back to their levels of 2000 when such inflation is taken into account (heck, the Naz isn't even back to 50% without adjusting for inflation), how in the world can all this fantastic buildup in net worth be attributable to the stock market? I wonder these things because we've seen discussions on this board about topics such as the prices of homes in Sacramento, and my general impression is that the standard of living is decreasing rather than increasing, contrary to the implications of the above article. Setting aside your trading gains, of course ( ), does anyone feel like their net worth is truly increasing at the pace cited in this article (California residents not eligible to respond [just kidding])?

[pdx5]

You can not subtract future liabilities from current assets to come up with real net worth. If you owe $10,000 total on your mortgage for the next 30 years in total payments and you have $10,000 in the bank earning interest, your net worth is NOT ZERO. If the US Govt owes $55 Trillion in payments for future retirees, some of them just starting out at 20 something, but US citizens have $55 Trillion in assets RIGHT NOW, the net worth is NOT ZERO. The $55 Trillion will grow (supposedly) over the next many decades. Does that mean I like the $55 Trillion in entitlement liabilities? Heavens NO! But the basic economics must be computed correctly.

Edited by pdx5, 08 March 2007 - 10:46 PM.

[Rogerdodger]

You guys seem to be arguing economics! That's a "dismal" endeavor. Relax, have "half a glass" and enjoy some good news...While it lasts.

[TradeMark]

The Government liability of 55 Trillion is a present value statement of future liabilities. GAAP does not allow you to leave liabilities off you balance sheet just because they are not due now. Unless you do accounting like the Feds, that is. Sort of like the so called Social Security "Trust Fund". Great name for a file cabinet full of paper IOUs. Think of it this way: If you take money out of your wallet and spend it, write an IOU to yourself for the amount you just spent, and put it in your wallet, this does not mean that you have an asset of any value. TM

[pdx5]

My understanding of the great entitelment debate is that the $55 trillion is the total payments in FUTURE OBLIGATIONS, not $55 trillion due TODAY. Please provide a link so I can clear my cobwebs.

[TradeMark]

I had an article or the issue, maybe even a link. I will look for it, no promises. I have had bunch of computer problems since last fall and lost tons of stuff. So no promises. Check back later. You are right however, it is not due now. Else, ^&*# would be hitting fan now. TM