Friday, September 17, 2010

Household Balance Sheet update

Today the Fed released its Flow of Funds report, which includes their calculation of households' net worth (chart above). It doesn't reflect any significant improvement over the levels of last year, and indeed it shows that net worth in the second quarter declined by about $1.5 from the first quarter, largely due to the 12% decline in the stock market. It's interesting to note, however, that the value of households' real estate holdings has been increasing, albeit only modestly, since the first quarter of 2009, and that tracks with the modest increase in the Case-Shiller housing price index over the same period. Also of note is the ongoing modest deleveraging of the household sector, with liabilities in the second quarter of $13.9 trillion, down from $14.3 trillion at the end of 2008.

In addition, the report shows that the household sector has been an important source of financing for our exploding federal deficit: households increased their holdings of Treasury holdings by $820 billion between the end of 2008 and the end of Q2/10. I can't help but think that if it weren't for the huge, deficit-financed federal spending that has occurred over the past few years, households might well have put that money to more productive use. Instead, we have households today holding over $1 trillion of Treasury debt that is yielding a paltry 1.5% on average.

3 comments: said...
This comment has been removed by the author. said...

Yep, reported similar net worth decline to my banker for Q2. But, in the last two days, surpassed old high of April 21, 2010. Continued to pay down debt, and will apply for a re-finance on the house at 3.75% on a ten year amo.

marmico said...

Households swapped money market fund shares and Agency- and GSE-backed securities into Treasuries. Yield seeking and risk management.

B.100 Balance Sheet of Households and Nonprofit Organizations

It's beyond my comprehension as to how that plays into "more productive use".