The disconnect between household wealth and GDP growth
Americans' wealth has shrunk so much that, in 2010, median family net worth was no more than it had been in 1992 after adjusting. According to the Fed's report, two decades of accumulated prosperity had vanished, mainly due to falling home prices.
Americans' wealth has shrunk so much that, in 2010, median family net worth was no more than it had been in 1992 after adjusting. According to the Fed's report, two decades of accumulated prosperity had vanished, mainly due to falling home prices.
Twenty years of going nowhere! Where are we, Hokohama?
Dear Reader鈥nd anyone who has been paying attention鈥ou already knew there was something wrong. The world鈥檚 leading economy, in the most dynamic, inventive period in human history, failed to make people a penny richer.
GDP went up. But real wages did not. In fact, people got nowhere financially 鈥� if they were lucky. And many families got caught in the credit/housing bubble. When it blew up they got knocked back鈥ctually losing wealth.
We鈥檒l give you the conclusion before we give you the facts: the 鈥済rowth鈥� in the last 20 years was largely phony. The wheels on the economy spun around faster and faster. The shopping malls were full. Houses were built on nearly every vacant lot. Wall Street cashed big checks. But, overall, it was an illusion. Compared to a real boom, it was a counterfeit. Nobody got anywhere.
Here鈥檚 the story from The New York Times:
You might be tempted think that this is just a temporary setback鈥hat when things return to normal the typical household will recover two decades of financial progress too.
Don鈥檛 count on it. Household wealth in the US rests on housing and wages. Housing prices might stop dropping; they are unlikely to enter a new bull market. Instead, they will probably track GDP growth, just like they always did. Nor can you expect to see wages rise substantially. Why? Because there are 15 million people who don鈥檛 have jobs. It will be a long time 鈥� practically forever at the current rate 鈥� before they are absorbed into the labor force again. Until this huge inventory of willing and able labor is put to use, don鈥檛 expect wages to go up.
In other words, when things return to normal they will be what they are now鈥� The bubble was an illusion. The current, dismal situation is real.
The New York Times continues, pointing out that if the feds had let Mr. Market do his work in 鈥�08/鈥�09 the rich wouldn鈥檛 be so rich鈥�
Isn鈥檛 that what we鈥檝e been saying? First, the feds made the rich richer by creating a phony, credit-fueled economy, where the amount of credit grew 50 times over the last 50 years. Then, when the credit bubble blew up, the feds stepped in to prevent the rich from losing money. And now the feds moan about the 鈥榠nequality鈥� in our society鈥nd how they have to do something about it. Haven鈥檛 they done enough already?
Bill Bonner
听蹿辞谤 The Daily Reckoning