Thursday, June 07, 2012

Household Wealth Increases in Q1 By $2.8T

The Federal Reserve reported today that U.S. household net worth increased in the first quarter of 2012 to $62.85 trillion, the highest quarterly level since the last quarter of 2007 when the recession started.  Household wealth increased $2.82 trillion during the January to March period this year, which was the largest quarterly increase in more than five years, going back to the last quarter of 2004.

Here are news reports from Bloomberg and Fortune.  

27 Comments:

At 6/07/2012 2:35 PM, Blogger morganovich said...

of course, that's only 40.84 tn in 2000 dollars.

(cpi went from 174.6 to 229.1)

this new figure leaves us at about 2002 levels.

of course, population is up about 11% from 2000, so the per capita figures fall off quite a bit more and take us back into the 90's in terms of savings.

an inflation and population adjusted version of this chart would be interesting.

 
At 6/07/2012 2:58 PM, Blogger PeakTrader said...

Morganovich, you still don't understand.

When income (equals output) rises over time, net wealth also has to rise over time to maintain the long-run trendline ratio, which is 491% of income since 1952.

In the two asset bubbles, from 1995-00 and 2002-07, net wealth increased faster than income and rose well above 491%, to over 600% (that's what the two bubbles represent).

******

US household net wealth rises
But remains below the record level set in Q3 2007.
15 June 2010

"At the end of Q1 2010, the value of US household assets amounted to $68.53 trillion.

At the end of Q1 2010, the level of US total household debt was $13.97 trillion.

US net wealth now represents a very respectable 491% of household disposable income. The current ratio is actually exactly in-line with the long-term ratio, which dates back to 1952, although there have been times when the ratio has risen over 600%.

Overall the US consumer remains extremely wealthy by historical and international standards; despite the high level of debt."

 
At 6/07/2012 3:09 PM, Blogger Jet Beagle said...

I get different numbers, morganovich.

First, the CPI values:

CPI-All Urban Consumers
Dec2000 ..... 174.0
Mar2012 ..... 229.4

1980-1982 = 100

First, we need to convert $62.85 trillion back to 1980-1982 dollars:

62.85 / (229.4/100) = 27.40

Then, convert the 1980-1982 forward to 2000 dollars:

27.40 * (174.0/100) = $47.67 trillion

Show me how you got $40.84 trillion.

 
At 6/07/2012 3:17 PM, Blogger Jet Beagle said...

morganovich,

I think PeakTrader is correct. The asset bubble of 2000 did not represent real wealth. You can continue to compare today's household wealth to that artificial figure. All that shows is that wealth on paper in 2000 was not sustainable. It was artificial.

 
At 6/07/2012 3:18 PM, Blogger Buddy R Pacifico said...

The recovery in household wealth is quite impressive -- considering that most household wealth was a house in 2007.

 
At 6/07/2012 3:20 PM, Blogger morganovich said...

no peak, you do not understand.

we have actual numbers here.

we have net wealth and we have cpi to use to create a constant dollar figure.

that is ALL you need to do this math.

you have been endlessly trying to find some way to obfuscate and complicate this.

income does not = output.

that's not even close to true.

you are trying to use a complex proxy because the simple data does not go along with your view.

 
At 6/07/2012 3:30 PM, Blogger morganovich said...

jet-

i am using jan 2000 and the cpiaucsl series from FRED.

why use 1982 dollars? that's just compounding error bars.

that said, i made a mistake in my math.

cpi was up 31.2%.

so we take 62.85/1.312 = 47.9tn.

however, population grew 14% in that period (1999-2012) and this is an aggregate wealth figure, so per capita net real wealth is:

47.9tn/311mm people = $154k

vs 1999 figure of 42.544/272mm = $156k

so, per capita real wealth looks to have been flat since 1999 to now.

 
At 6/07/2012 3:39 PM, Blogger morganovich said...

"he asset bubble of 2000 did not represent real wealth. You can continue to compare today's household wealth to that artificial figure. All that shows is that wealth on paper in 2000 was not sustainable. It was artificial."

that's not really a valid argument.

neither was 2006.

that has been my whole point all along: that the wealth that the greenspan bernanke bubble era has created has all been fake and has all wound up going away.

oddly, i think you just agreed with me.

we have been trying to print prosperity for 15 years and it has failed.

that was my whole point when this discussion started.

instead of prosperity we have gotten poor growth, no real per cpaita wealth increases, and a big debt burden (and do not forget that leverage matters. net wealth of 150k and no debt is far different from 300k in assets and 150k in debt if anything bad happens).

my whole argument is that these polices and attempts to control the business cycle have been a dramatic failure.

we just get bubbles and busts that keep piling into one another and getting bigger.

the .com bubble was the easiest kin of bubble to clean up. like the railroad bubble, it was a bubble in productive assets funded by equity.

we swapped it for the hardest kind of bubble (debt funded non productive assets) in the housing bubble.

we are now running one in federal debt that is the kind of thing that can wreck a whole society.

this is what i am railing against and peak is supporting.

he claims that the fed has done a great job controlling the business cycle and creating prosperity and wealth.

i think the evidence argues otherwise.

we have never seen concatenated bubbles like this. it's coming from somewhere. with money supply growing at 2X nominal gdp, i think it's pretty easy to see where.

 
At 6/07/2012 4:21 PM, Blogger Jet Beagle said...

morganovich: "why use 1982 dollars? that's just compounding error bars."

The CPI index is actually a ratio of current dollars to some base period. When you use a CPI of 229 for 1Q2012, you are actually using a base of 1982-1984 (I mistyped 1980-1982 in my comment above).

The base for 1982-1984 is 100. I have made no "compounding error bars."


From the Bureau of Labor Statistics website:

Consumer Price Index - All Urban Consumers

Series Id: CUUR0000SA(Not Seasonally Adjusted)
Area: U.S. city averageItem: All items
Base Period: 1982-84=100

 
At 6/07/2012 4:27 PM, Blogger Jet Beagle said...

morganovich: "oddly, i think you just agreed with me."

Not at all.

I do not at all agree that the wealth created in the past 12 years was fake. I do believe that the value of financial assets in 2000 was not real. And I do not believe that Greenspan created that internet bubble.

 
At 6/07/2012 4:27 PM, Blogger Mark J. Perry said...

Q1 2012 net worth of $62.865 trillion is above 2004 net worth of $62 trillion, adjusted for inflation in today's dollars, and below 2005 net worth of $67.3 trillion in 2012 dollars.

 
At 6/07/2012 4:59 PM, Blogger Larry G said...

in other words FLAT ?

 
At 6/07/2012 5:17 PM, Blogger Jet Beagle said...

Larry G,

Yes, pretty much flat. But the components of household wealth have been anything but flat. Real estate assets have plunged. Financial assets have increased.

Also, the change - or lack of change - in household wealth has not been uniform across the nation.

 
At 6/07/2012 5:49 PM, Blogger rjs said...

for whatever it's worth, there was a benchmark revision at year end from $58.5 trillion to $60 trillion; we got rich quick...

http://research.stlouisfed.org/fred2/series/TNWBSHNO

 
At 6/07/2012 5:55 PM, Blogger PeakTrader said...

U.S. "Real" Net Wealth doubled from the 1991 trough to the 2007 peak:

http://www.advisorperspectives.com/dshort/charts/index.html?Z1/Real-TNWBSHNO.gif

 
At 6/08/2012 4:48 AM, Blogger juandos said...

"When income (equals output) rises over time, net wealth also has to rise over time to maintain the long-run trendline ratio, which is 491% of income since 1952"...

Well that's going to change...

Courtesy of previous Zero Hedge disclosures, namely that the CBO has been in the past both perpetually and grossly overoptimstic (their 2001 forecast of 2011 public debt was negative $2.4 trillion; instead the real number was positive $10.4 trillion, a delta of only $12.8 trillion) as well as explicitly biased by political and financial interests as exposed by whistleblowers, are two things most of our readers are well aware of. What they however may not know, is that when it comes to the most recent forecast of US public debt as released hours ago, the CBO has officially run out of charting space...

06/05/2012

 
At 6/08/2012 8:44 AM, Blogger morganovich said...

mark-

yes, but not per capita.

it looks to me like the average person has had no wealth gain since 1999.

all the gains are based on population.

 
At 6/08/2012 8:49 AM, Blogger morganovich said...

jet-

yes, you are compounding error bars.

every cpi figure has them.

thus, the more times you multiply and divide, add or subtract them, the more error you get.

you are not dealing in pure numbers. you are dealing in estimates with error bars.

this is basic statistics.

http://en.wikipedia.org/wiki/Propagation_of_uncertainty

when dealing with numbers with significant error bars, you want to do as few a calculations as possible, or you will likely wind up with a result that has such a wide confidence interval that you lose any statistically valid trend.

 
At 6/08/2012 8:59 AM, Blogger morganovich said...

jet-

"And I do not believe that Greenspan created that internet bubble."

i don;t think he "created it" either. i think he created the sort of moral hazard in which it could flourish and threw gasoline on it with his interest rate policy.

i think the same is true of the housing bubble, which, i might add, destroyed more net wealth that the internet bubble and has left a horrible tail of debt behind.

the fed did not cause it, but their ill guided attempts to mitigate the business cycle and the over leverage and the massive moral hazard they created has taken a relatively easy bubble and turned it into a really hard one.

i see no evidence at all the the greenspan/bernake fed is in any way managing the economy to our benefit.

they have mistaken bubbles for growth and printing money for prosperity.

this is why net per capita real wealth is flat with 1999.

these busts are the inevitable result of the bubble economics they seem so enamored of (or at least oblivious to).

my end argument in all this is that the fed ought to have a single mandate: price stability.

as soon as you add in a conflicting goal like "full employment" or "smoothing the business cycle" you get disaster and we wind up here.

i don't know if you remember burns and miller, but they were disasters too.

volcker was the one guy who got it.

we need more of his school not greenspans bubble babies.

 
At 6/08/2012 9:29 AM, Blogger Jet Beagle said...

morganovich: "yes, you are compounding error bars.

every cpi figure has them.

thus, the more times you multiply and divide, add or subtract them, the more error you get."


No, you either do not understand what a base for an index is or you paid no attention at all to the caolculations I showed you.

Go back and look at what I did, bright boy. You'll see that the 1982-1984 value I used is 100. That's the same as dividing by or multiplying by one.

What I did in two steps - in order to make sure you understood the formula and made no further calculation errors - is exactly what you did in one. I didn't bother to show all the decimal points in the intermediate number I displayed in the comment.

Before you make an additional smartass reply, be sure you know what the hell you are talking about.

 
At 6/08/2012 9:55 AM, Blogger Junkyard_hawg1985 said...

"we have been trying to print prosperity for 15 years and it has failed." - Morganovich

Excellent point! Real wealth comes from work, production, innovation, and creativity. Unfortunately, our taxes, regulations, subsidies, welfare, monetary policy, etc. all work against producing real wealth.

 
At 6/08/2012 11:31 AM, Blogger morganovich said...

jet-

you are long on obnoxious snark, but short on understanding.

every value of that index has error bars. (unless you are claiming that inflation is a pure number and i'd love to see you justify that.)

taking them both back to 100 is both unneeded and causes more error to compound.

if you are going to be so strident and obnoxious "bright boy" then at least try to be right.

we can say the S+P was 100 once too. but there is no reason to go back to that to see how much it moved since 1999.

you are just adding unneeded steps into the mix.

 
At 6/08/2012 11:34 AM, Blogger morganovich said...

peak-

if by "real" you mean bubble driven equity and housing prices, perhaps.

funny how that all went away.

perhaps it was not as "real" as you think.

 
At 6/08/2012 11:35 AM, Blogger morganovich said...

peak:

also note:

those gains all came pre 2000.

since then, nope, no real gains.

 
At 6/08/2012 1:14 PM, Blogger PeakTrader said...

Morganovich, spreading the blame between Congress and the Fed is like giving tickets to both the drunk driver and the driver obeying all the laws after the drunk driver smashes into the good driver.

Also, the Fed prevented a deep depression in the 1970s, similar to the 1930s, in the bust phase of a long-wave business cycle.

Moreover, obviously, you don't understand what the $35 trillion of additional real wealth from 1991 to 2007 represents.

It was a massive increase in new and growing industries, new housing tracts, shopping malls, tech buildings, etc. (along with home improvements). It also reflected the huge real growth in high-technology, labor productivity, capital account surpluses, etc..

It was the current Administration and Congress who failed to achieve a normal V-shaped recovery, not the Fed. If you want to know where employment and wealth disappeared, look to the Administration or Congress.

 
At 6/09/2012 2:14 AM, Blogger Jet Beagle said...

morganovich: "taking them both back to 100 is both unneeded and causes more error to compound."

No, it does not cause more error, but you're so convinced of your own intellectual superiority that you refuse to be reasoned with.

Any index with a base year automatically takes the values back to the base year. The value of 174.0 for Y2000 is already introducing two data points because it is the ratio of the Y2000 price level to the Y1982 price level.

The value of 229.4 for 2012 is already introducing two data points because it is the ratio of Y2010 price level to the Y1982 price level.

As I explained earlier, I added the "unnecessary step" because you had made an error before in computing price level changes, I wanted to be certain you understood the calculation. But that was a waste because you refuse to pay attention what I write.

 
At 6/11/2012 2:16 PM, Blogger morganovich said...

http://www.calculatedriskblog.com/2012/06/fed-survey-from-2007-to-2010-median.html

of interest, MEDIAN income has plummeted.

it's down dramatically in nominal terms since 2001.

in real terms, it's WAY down.


it's also interesting that it seem like the younger you are, the worse you did in % terms.

it also looks like the poor and the rich did best with the middle taking the biggest hit.

 

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