« Another VA Hospital Horror Story | Main | Liberal La-la Land »

Net Worth of US Households skyrockets

And it's due much to the gains made in the stock market:

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.

This is quite impressive and shows that, in spite of media reports to the contrary, the economy really is strong. It also is an important reminder that when Democrats try to push through bills that they think are helping the little guy, such as the windfall taxes that they say will "even the playing field" among companies in the energy and pharmaceutical industries, they would be only hurting the American people who have investments in stock market because heavy tax burdens and regulation on companies can adversely affect their stock price. And as we have seen from the article above, American households are affected by the success or decline in the markets.


Comments (32)

"It also is an important r... (Below threshold)
Rob LA Ca.:

"It also is an important reminder that when Democrats try to push through bills that they think are helping the little guy"

They think? Democrats don't think , they poll. They when they gain power and do push through bills or their sick agenda and the shit hits the fan , they have their lame ass excuse.

"We were just doing the will of the PEOPLE"

Bullshit , anyone hear the mass idiots chanting in the streets screaming "RAISE MY TAXES!" "take my money!"? Anyone? Bueller? Bueller?


Democrats are the ones pretending they have now been given a clean slate to obstruct and undermine President Bush even more than they have already done so.

There's only one problem wi... (Below threshold)

There's only one problem with this logic. That is the falling value of the US dollar in 2006 relative to the major currencies. Click here to see a chart of the dollar against the Euro.

Assets denominated in the US dollar are only "worth" what they can purchase in the world marketplace (and Lord knows--nearly everything we purchase these days is made overseas). If the value of my US dollar-denominated assets increase by 10% in a year, but the dollar falls by that same amount against foregin currencies then I am, in effect, standing still. It's a net gain of 0.

What we have seen in the last 6 years is an inflation in the value of assets but it has come at the cost of a debased currency that continues to fall in value due to the "easy money" policies of the Fed and the borrow-and-spend mentality of the Republicans.

In short, you think you're getting richer but you're not. You're essentially standing still.

Jan 2003 Dollar to Euro 1.0... (Below threshold)

Jan 2003 Dollar to Euro 1.06

Jan 2007 Dollar to Euro 1.29

Standing still, eh Larkin? Debased currency?

Larkin can't stand the good... (Below threshold)
Jo:

Larkin can't stand the good news. Soooooo obvious.

Whoooo hoooo! You go George!!!

wavemaker,LOL.... (Below threshold)
Jo:

wavemaker,

LOL.

"(and Lord knows--nearly ev... (Below threshold)
RicardoVerde:

"(and Lord knows--nearly everything we purchase these days is made overseas)"

The only problem with this argument is that it is not true for the average American. Look in your garage? Is it a Ford, or Chevy? Do you have a Whirlpool washer? The lumber you bought might be from Canada, but more likely from the US. How about your bread, beer, and Pepsi? Even a Toyota truck has more US sourced parts than it did 20 years ago.

Another metric you may try is the "disappearing middle class". The (inflation adjusted) percentage of Americans considered middle class fell by something like two percent. But, the percentage listed as poverty stayed the same. Now just where did those middle class Americans go?

The other part of the argum... (Below threshold)
RicardoVerde:

The other part of the argument about the overseas stuff is that, other than oil and cars, prices for plasma screens, computer parts, and even shirts and shoes have not risen at the rate of overall inflation. My TV (that I did not want) cost about 60% as much this year as it would have cost last year. If you are driving a BMW and buying Italian wines then maybe this doesn't apply

Jan 2003 Dollar to Euro ... (Below threshold)

Jan 2003 Dollar to Euro 1.06

Jan 2007 Dollar to Euro 1.29

That means that in 2003 it took $1.06 to buy 1 Euro. In 2007, it takes $1.29.

That means it takes more dollars (and cents) to buy a single Euro now than it did in 2003. That's the result of a dollar that has fallen steadily in value since late 2000.

"Debasing" a currency means that a government pursues a policy that decreases the value of its own currency. Governments do this as a short-term stimulus to economic growth and as a means for reducing the debt burden. It is much easier to repay our debts if we cheapen the value of the dollar in which our bonds are denominated.

What's less obvious to the average American is how this debasement of our currency drains the value of the assets we hold in this country and in our own currency. We tend to think a dollar is a dollar, but it's not. A dollar is only worth what people will give you in exchange. Whether its oil, gold, Euros or Yen, people are giving us less and less for our dollars these days. This makes us less wealthy in the long run despite the rise we may see in our dollar-denominated assets.

Back to my original point, if the value of my portfolio goes up by 10%, but the dollar falls by 6%, I'm really only 4% ahead. If you don't take this into account, you're not seeing the whole picture.

<a href="http://www.freetra... (Below threshold)

These guys explain it better than I can.

Policy-makers in Washington believe a stronger yuan and a weaker dollar are just the tonic we need to spur manufacturing and job growth. In the past year, many U.S. manufacturers and trade watchers have cheered as the dollar has depreciated 7 percent against a basket of major foreign currencies, and a whopping 27 percent since March 2002.

But a weaker dollar comes at the expense of millions of American consumers and a broad swath of U.S. industry. For consumers, a weaker dollar means higher prices than they would otherwise pay for imported food, shoes and clothing, toys, sporting goods, consumer electronics, medicines and cars. For Americans traveling abroad, a weaker dollar means more expensive vacations and business trips.

So, which is funnier? wavem... (Below threshold)

So, which is funnier? wavemaker not understanding the nature of the information he was presenting or Jo for trying to jump onto his broken bandwagon? Now that's a question for the ages.

In case you needed a little more evidence that Larkin's interpretation was correct:
"The dollar, which began January 2006 at 88.86 on the FOREX international currency index ended the year at 83.67, a drop of approximately 6 percent. For the year, the dollar fell approximately 11.5 percent versus the euro, 13.6 percent versus the British pound, and by 7.3 percent versus the Swiss franc."

Net worth and quality of li... (Below threshold)

Net worth and quality of life are not interchangeable terms. My family has three homes and probably a net worth far in excess of $1 million dollars.

Do we live like millionaires? Not by a long shot. I drive a 1973 AMC Gremlin with 259,000 miles on it and struggle with day to day life.

Damn Hooson you must be a a... (Below threshold)
jhow66:

Damn Hooson you must be a awful poor money manager.

joe yangtree. p'p'. naaw.</... (Below threshold)
jhow66:

joe yangtree. p'p'. naaw.

I don't disagree with what ... (Below threshold)
RicardoVerde:

I don't disagree with what your links are saying. I disagree with what you are trying to make them say. Purchasing power for the average American is greater than it was 8 years ago. If the dollar devalues, sure it make foreign goods cost more than they would have without the devaluation, but do things cost more than they did last year? The answer is they don't. The arguement you are making is the equivalent of when people say they lost money yesterday in the stock market. Do you have less money than you put in or just less money than you could have had if you sold yesterday.

The bottom line is if real purchasing power rises, and it has, then net assets are real gains.

For consumers, a ... (Below threshold)
Jumpinjoe:
For consumers, a weaker dollar means higher prices than they would otherwise pay for imported food, shoes and clothing, toys, sporting goods, consumer electronics, medicines and cars. For Americans traveling abroad, a weaker dollar means more expensive vacations and business trips

And......

"Debasing" a currency means that a government pursues a policy that decreases the value of its own currency. Governments do this as a short-term stimulus to economic growth and as a means for reducing the debt burden. It is much easier to repay our debts if we cheapen the value of the dollar in which our bonds are denominated

Why would a liberal argue that higher prices for "IMPORTED" goods are bad?

Whenever the dollar is devalued against other currencies than other countries can better afford what we "EXPORT". Thus increasing U.S. manufacturing production.

Dollar devaluation. After Baker became Treasury Secretary, the Reagan administration also launched an initiative to devalue the dollar with the other G-7 countries at a summit conference in New York. During the next three years, the dollar declined by over 40% on a trade-weighted basis and encouraged a major revival of US exports. In fact, it was an export boom that helped to spur the recovery from the 1987 stock market crash

When I was stationed in Germany in the early 80's I was getting up to 3.65 Marks to a dollar. I bought everything I possibly could because German products were so affordable.

I bought a BMW and German made furniture to bring back to the States. These were major purchases for an enlisted man.

It later dropped to below 2 marks for a dollar. I never would have purchased German products on those rates. I would have bought American products from the PX.

I have to laugh at the econ... (Below threshold)

I have to laugh at the economic illiterates attempting to discuss economics.

It is true that a falling dollar makes imported goods more expensive. That means domestically produced competing goods become relatively cheaper. That's a good thing.

A lower dollar also makes our exports more competitive abroad. Our economy has been fueled by exports for the last thirty years. That's a good thing.

This came about when the Euro debuted. It was projected at a "fair market" or "par" value of $1.18, but quickly sank to about 87 cents. The Euro=peons panicked, and immediately began dumping dollars and yen to buy euros to boost the price. They assumed that the US would counter by buying dollars, and having our Japanese friends buy dollars, to support the dollar because this had always been our response in the past.

Faced with a sluggish economy, Bush didn't play the usual card. He let the dollar "float" on the open market. Sure enough, our exports again lifted us out of the doldrums into growth which has led the industrialized world.

So, has the "falling dollar" hurt our ability to attract foreign investors to our government and corporate bonds? On the contrary, it has made our currency and debt ever more attractive to international investors. That gives us the continuing source of capital others lack, ensuring our advantages will continue.

In the meantime, Europe is a mere spectator. Even as we and our Japanese allies retained our ability to intervene in currency markets by staying out, the Euro=peons have used their own capital up to support the euro. They have no significant foreign currency reserves left to affect markets. They have become spectators of the game in which their own future is at stake, while the US and Japan hold all the cards.

The brilliance of the strategy is that the dollar can "float" as low as it will, but will still be the currency of preference for foreign investors because our economy is not only the world's biggest and best, it is pretty well guaranteed to remain the leader of industrialized nations as long as we don't allow the Democrats to screw it up.

What these dumbasses don't understand is that a low dollar makes our equities a huge bargain at today's prices. When the dollar inevitably rebounds, those equity values will increase with it.

Over any long term, betting against the US economy has always been a sucker bet. Naturally, the naysayers aren't putting their money where their loud mouths are, because they typically don't have any money anyway.

Kim,What % of Amer... (Below threshold)
Allen:

Kim,

What % of Americans hold stocks? What is the average income of these stock holders? You never mentioned that and I was just wondering.

Jim,I'm glad to se... (Below threshold)

Jim,

I'm glad to see that you're getting some laughs at the economic illiteracy of wavemaker and Jo, too. It truly is sad when people jump into a discussion with absolutely no idea what they're talking about.

The falling dollar, is always both curse and blessing. Imported goods cost more and exports increase as their relative price falls overseas. Daniel Griswold of the Cato Institute (quoted above by Larkin) points out that your analysis of imports and exports would be correct, if the trade deficit was actually falling as a result of the weak dollar. Let me add his additional analysis:

"Consider the meager results of the recent slide in the dollar. Even though the dollar has depreciated sharply since 2002 against the euro and the Canadian dollar, our bilateral trade deficits with both the countries that have adopted the euro as their currency and Canada, as well as our overall deficit, have continued to rise. For all the same reasons, a weaker dollar against the yuan will not be a magic bullet for the $200 billion bilateral deficit with China."

So, in reality, the weaker dollar hasn't helped our balance of imports vs. exports all that much, at least this time around. The bottom line is that we're paying more for imports and getting less, more than offsetting any export benefit.

I'll certainly agree that the low dollar makes American equities attractive and that the dollar is the currency of preference for foreign investors (and will be for the forseeable future). However, it being low and having foreign investors buy up the equities means that the foreign investors will also reap the benefits of the rising dollar, when and if that occurs. American companies are essentially selling their equity low so that foreign investors can sell high at a later date. Of course, this is also true of domestic investors, but it's the foreign money that is being attracted by the low dollar as you point out, so they are getting the greatest marginal benefit. Certainly, the current dollar depression is keeping foreign money flowing into the stock market, and boosting the US economy, in the short term.

joe yangtree. p'p'. naaw... (Below threshold)

joe yangtree. p'p'. naaw.

I'm sure that this coded message was received, transcribed, and deciphered by faithful minion of jhow66 who also speaks tin-foil-hat-ese. Someday, perhaps I will understand my significance in his master plan. Until then, I'll just ignore it.

I blame Bush!This ... (Below threshold)
Mitchell:

I blame Bush!

This whole Multinational thing is getting OUT of control.

And the unemployment rate is down to 4.5% this am.

Bush, BUUUUUUUUUUUUUUUUUUUUUUUUUUSH!!

This is SAVAGE capitalism. Power to the People!

Mr. Verde is closer to the ... (Below threshold)
Mitchell:

Mr. Verde is closer to the truth than the Larkin lefties.

One glaring omission--China. China has artificially debased its currency, and allowed us to import huge amounts of goods at very low prices we can't buy anywere else, at the same price.

All currencies debase, just at differing rates. The Yen has greatly suffered over the last several years, yet it is the biggest Asian economy. So the argument is not as simple as our faux economists here allege.

Verde's point is valid, you have to look at inflation, and the mix of goods you actually purchase, to arrive at a measure of the effects the dollar exchange rate has on the consumer.

Notice all those Made in China labels? That's a major countervailing force, as well as our ability to forgo purchase of British and Euro goods.

By the way, I have a CFP, and honors in Economics, so don't try the cheap shots. If you can't follow this, don't try to come up with some flimsy argument contra.

Verde's point is valid, ... (Below threshold)

Verde's point is valid, you have to look at inflation, and the mix of goods you actually purchase, to arrive at a measure of the effects the dollar exchange rate has on the consumer.

That's certainly true but what is the best measure of inflation? If you understand (which I'm sure you do) how the government calculates CPI and PPI you know that there's lot of guesswork involved.

The best way to measure real inflation is to look at charts for market prices of commodities (in dollar terms) over the last 5 years. Gold, silver, copper, oil, etc. All these charts look the same in that prices for commodities continue to increase in terms of dollars. Market prices are much better indicators of what's happening than statistics put out by government bureaucrats. Markets don't lie; the price is the price.

These are more reliable indicators than CPI in my estimation. I will accept however that moderating influences such as the influx of cheap Chinese-made goods and the productivity boom created by the Internet have kept prices lower in this environment.

However, as we all know, the Chinese currency must eventually float on the world markets. When it does, it will go up versus the dollar and the cost of all those goods we import from them will also go up.

Back to my main point: to look at net worth without considering currency effects doesn't give you the whole picture. It just stands to reason that if your net worth is all denominated in dollars it really hasn't gone up as much as you think (which is why I have over 50% of my equities in overseas assets and a healthy position in oil and precious metals).

Take a look at the British economy. Steady growth, increasing asset values AND a strong currency. That's truly the best of all worlds. We don't have that here. I'm not arguing that things are terrible, but I have a hard time celebrating an economy where the dollar I hold in my pocket is worth less and less every year.


Thanks for the econ lesson ... (Below threshold)

Thanks for the econ lesson gents.

Jim said:What t... (Below threshold)

Jim said:

What these dumbasses don't understand is that a low dollar makes our equities a huge bargain at today's prices. When the dollar inevitably rebounds, those equity values will increase with it.

I guess you consider Warren Buffet a dumbass too then? He has been warning about the falling dollar for years and he has put his money where his mouth is.

Then Jim said:

Naturally, the naysayers aren't putting their money where their loud mouths are, because they typically don't have any money anyway.

On the contrary, I do put my money where my mouth is. I have around $300,000 in the markets and I have about 55% of that in overseas stocks as a way to hedge against the falling dollar. I've got 12% in precious metals and 11% in oil/gas which also tend to move inversely to the dollar. I've beaten the S&P in 3 of the last 4 years following this strategy. I got into gold early on and my only mistake was taking profits there too early.

Jim, you do appear to know a lot about economics. You must also know that it is considered the "dismal science" and that there are often conflicting viewpoints. Yours is certainly the majority viewpoint in this country but only time will tell if you are right and I'm wrong. Meanwhile, Warren and I will be following investment strategies that hedge against a falling dollar until our government comes to its senses, balances its books and stops pursuing a weak dollar policy.

Larkin, you still sticking ... (Below threshold)

Larkin, you still sticking to your idea that the U.S. economy is headed for a recession? You seemed so sure of it after that Dow Jone correction not too long ago, yet as we speak, the unemployment level has dropped again and as of right now, the Dow is up nearly 30 points.

Larkin:To me the eco... (Below threshold)
RicardoVerde:

Larkin:
To me the economy is like a large puzzle with a lot of tiny pieces that affect the overall health of the system. There are several large pieces that bear watching and you have hit on ONE of these. Parts of the puzzle are not what they should be for best growth/personalwealth/etc. But what you are saying is to not look at the overall picture (which is generally good)instead look a a single piece and use that to broad brush the entire economy. Bottom line is the average American is better off today than he was 8 years ago. Not everyone is better off, but that is always the case.

Does this mean we shouldn't work on some of the poorer performing segments? Of course we should! Should we get gloom and doom because some things aren't what we wish they were? I think everyone knows the answer to that.

Steve,I am bearish... (Below threshold)

Steve,

I am bearish on the short-term prospects but I tend to follow the Warren Buffet approach of investing for the long term. So unlike many people I wasn't dumping shares when the market took a dive last week.

In the long term, the US economy has substantial strengths thanks to the entrepreneurial nature, productivity and work ethic of our people. Our success has occurred IN SPITE OF (not because of) policies that the government has followed over the past 6 years.

Our success has oc... (Below threshold)
Our success has occurred IN SPITE OF (not because of) policies that the government has followed over the past 6 years.

Gee, I felt the same way during the Clinton years. He was given all the praise in the world for the economy.

Except of course when it started to take a nose dive in April 2000.

Larkin stated "Market price... (Below threshold)
Mitchell:

Larkin stated "Market prices [of commodities] are much better indicators" of inflation. The market value of goods and services we actually by are better, when it comes to CONSUMER inflation, the issue at hand.

The price of gold rises for many reasons, including increased world demand--fueled by consumers in India and China that have been buying more jewelry and bullion than formerly.

So, that really doesn't address inflation in the US.

Actually, when inflation was going down in the US, gold was going way up, in the 1980's.

That's why we don't measure inflation through gold, but have to use a metric that more closely approximates the inflation for an average consumer buying typical goods here,

The other thing to consider... (Below threshold)
Mitchell:

The other thing to consider is, if the price of gold was the measure of inflation, and dollar weakness, what would you, Larkin, and all the rest in your camp want to do about it.

That's the $64k question, one that hasn't been answered by any Dem. politician running in the last 6 years.

I understand what you're sa... (Below threshold)

I understand what you're saying Mitchell. I agree that inflation is reflected by what the consumer pays for finished goods. However, the means by which the government comes up with that statistic is less than exact. The government isn't adding up the price of every item that the 300 million people in this country buy every day to come up with their CPI numbers. Their estimating it based on a representative "basket" of goods and services.

(For example, I believe they use average rents for the housing statistic which has been misleading over the last few years because rents haven't risen as fast as housing prices).

Market prices on the other hand are much more reliable indicators because they aren't based on someone's statistical calculation. The marketplace determines how much gold, oil, silver, wheat, etc. that a dollar will buy. And what the market has been telling us over the last 5 years is that your dollar will buy less in the marketplace for these commodities. That's an indication of the weakeness of the dollar. Since most of my assets are denominated in dollars that concerns me.

The other thing to consider is, if the price of gold was the measure of inflation, and dollar weakness, what would you, Larkin, and all the rest in your camp want to do about it.

Curb deficit spending, begin paying down the national debt, stop pursuing a weak dollar policy and raise interest rates to stop people from mortgaging their life away.


What would increasing rates... (Below threshold)
Mitchell:

What would increasing rates do to purchasing power? It would decrease it.

And cause a recession, or at best, a greatly diminished economic growth rate.

As I've stated before, things other than inflation affect gold and precious metals prices. That measure will never be a practical approach to consumer price inflation.

The deficit has come way, way down lately; and is now near a historic low.

This is why liberals are never taken very seriously in economic matters, unless you're a populist.




Advertisements









rightads.gif

beltwaybloggers.gif

insiderslogo.jpg

mba_blue.gif

Follow Wizbang

Follow Wizbang on FacebookFollow Wizbang on TwitterSubscribe to Wizbang feedWizbang Mobile

Contact

Send e-mail tips to us:

tips@wizbangblog.com

Fresh Links

Credits

Section Editor: Maggie Whitton

Editors: Jay Tea, Lorie Byrd, Kim Priestap, DJ Drummond, Michael Laprarie, Baron Von Ottomatic, Shawn Mallow, Rick, Dan Karipides, Michael Avitablile, Charlie Quidnunc, Steve Schippert

Emeritus: Paul, Mary Katherine Ham, Jim Addison, Alexander K. McClure, Cassy Fiano, Bill Jempty, John Stansbury, Rob Port

In Memorium: HughS

All original content copyright © 2003-2010 by Wizbang®, LLC. All rights reserved. Wizbang® is a registered service mark.

Powered by Movable Type Pro 4.361

Hosting by ServInt

Ratings on this site are powered by the Ajax Ratings Pro plugin for Movable Type.

Search on this site is powered by the FastSearch plugin for Movable Type.

Blogrolls on this site are powered by the MT-Blogroll.

Temporary site design is based on Cutline and Cutline for MT. Graphics by Apothegm Designs.

Author Login



Terms Of Service

DCMA Compliance Notice

Privacy Policy