Thursday, June 9, 2016

The U.S. is richer than ever

Today the Fed released its latest estimate of the balance sheet of U.S. households. Collectively, our net worth reached a new high in nominal, real, and per capita terms. We are living in the weakest recovery ever, and things could and should be a lot better, but it is still the case that today we are better off than ever before.

As of March 31, 2016, the net worth of U.S. households (including that of Non-Profit Organizations, which presumably exist for the benefit of all) reached a staggering $88.1 trillion. To put that in perspective, it's about 40% more than the value of all global equity markets, which were worth $62.8 trillion at the end of March according to Bloomberg.

On a real, per capita basis, the net worth of the average person living in the U.S. reached a new all-time high of $273,560. This measure of wealth has been rising, on average, about 2.4% per year since records were first kept beginning in 1951. Life in the U.S. has been getting better and better for generations. If you're hungry for more details of the steady march of progress, check out Human Progress, a worthwhile project of Cato, my favorite think-tank.

The ongoing accumulation of wealth is not a house of cards built on a bulging debt bubble either, regardless of what you might hear from the scaremongers. The typical household has cut its leverage by over 30% (from 22% to 15%) since the onset of the Great Recession in 2008. Household liabilities today are the same as they were in early 2008 (about $14.5 trillion), but financial assets have increased by one-third since then, thanks to significant gains in savings deposits, bonds, and equities. Since the peak of the housing market in 2006, the value of households' real estate holdings has not only fully recovered, but has grown by almost 4%. Moreover, the Federal Reserve calculates that owners' equity in real estate has returned to its 2006 high ($13 trillion), having more than doubled since its mid-2009 low. 

The debt/net worth ratio of non-financial corporate business stands at 57%, up from a post-recession low of 51% in late 2010, but down considerably from its all-time high of 82% in 1989. Meanwhile, the debt/net worth ratio of non-financial non-corporate business has fallen from 57% in 2010 to 43%. The federal government has leveraged up in the past 7 years, but not the private sector. 

Income inequality is not a factor either in the ongoing rise in wealth. As the chart above shows, the share of total income earned by the top 5% and top 20% of households has been essentially unchanged for many years. 


Benjamin Cole said...

Not only that, corporate profits are at all-time highs relatively and absolutely, easily dwarfing levels of the 1980s and 1990s.

For Corporate America and households, these are the best of times....

So why Hillary and Don?

Rob said...

Yes, why if the rising tide is lifting all boats, is there such impoverishment in the political arena, or presidential candidates? And why are there so many documentaries and articles talking about the shrinking middle class, replaced by a more polarised society of winners and losers ? Thanks.

Benjamin Cole said...


Treasuries at 1.66% on the 10-years.

I do not think there is a path forward for the Fed in tightening monetary policy. As Milton Friedman noted, low interest rates are a sign of tight policy.

If the Fed tightens, we just see Treasury 10-year yields go lower. But the Fed is always talking about tightening, and sometimes tightening, as they think monetary policy is loose. plus, they are central bankers, and central bankers have become obsessed with inflation in recent decades.

Yields hitting record lows in UK and Germany too. Japan already into the negative rates. The Swiss have negative rates too. Wholesale prices falling steadily in China and Japan.

Well, at least it is interesting. I can remember Volcker and 18% rates.

The Cliff Claven of Finance said...

Net worth almost always sets records at/near the top of financial asset bubbles.

So what?

Net worth can also fall a large percentage, as it did in the past two stock bear markets.

Meanwhile, the median stock is setting new records for several important valuations, such as the Price / Sales Ratio.

Total debt is very high as a percentage of GDP.

Bonds are at high valuations (low interest rates).

This central bank financial engineering didn't work in the late 1990s, or in the mid-2000's.

If financial engineering makes us prosperous, then why is the Real GDP growth rate only 2% since 1999?

We are in the third financial asset price bubble since 1999, and this will not end well, like every other bubble.

A nation grows "rich" , and creates good jobs, from building its capital stock -- not from temporary financial asset valuation bubbles caused mainly by companies leveraging up to buy back their own stocks.

Frozen in the North said...

amazing that after 8 years of democratic presidency America is back on the long term trend line for net worth. BTW income excludes all cap gains. So none of the top 5% income includes their cap gains from holding stocks...just saying. Since a large percentage of overall "income" as opposed to "earned income" for the top 5% includes cap gains....

Anyway. I wonder what the next 8 years will deliver.

zumbador said...

Scott…Do you periodically put out any suggested and/or recommended portfolio data/selections. I have a list from a couple years back so it is not my intent to be a real personal pest…but just thought I would ask for your current data and/or any updates….and if your answer is yes I would be highly interested in your current selections…..I have a high degree of confidence in you and your past selections. If you want me to provide for you the old list that I still have please let me know and I would be comfortable dropping you a e-mail with the list by symbol and name.
Thank you.

Hans said...

America, is certainly richer than before, especially with
a newly created underclass of tens of millions out of work
and out of hope. If they linger, this nation faces the prospect of
creating a culture of discontent, which one day will explode
with frustration and rage against the machine. (GUs)

Time is running out for economic apologists and those whom
think it is business as usual. The IOU's are coming due. Five
general election cycles or less before this society begins
to unravel.

"fractional reserve banking system, banks have to have roughly 1 dollar of reserves for every dollar of deposits."

Mr Grannis, is that not what is considered 100% banking reserve? Is your quote
wong? How could they make loans?

This describes the FRS in 1917:

"Before explaining how this process worked, it is necessary to know a few things about the Fed. The institution began operations in 1914 on the "real-bills" principle. Member banks could borrow cash from the Fed, but only by submitting "real bills" as collateral.

These bills were short-term debt instruments that were created by commercial organization to help fund their continuing operations. The bills were in turn backed by business inventories, the "real" in real bills. By discounting or lending cash to banks on real bills, the Fed could increase the money supply"

So, whether directly or indirectly, the FRS does create money.

Or do Central Banks have the magical power of a genie? The only
entity that can purchase assets without money.

And how would they deal with a institutional liquidity crisis without
cash, which was the reason for this monsters creation?

Folks, this is how the system works - the department of treasury (more debt
than treasure) offers notes and the FRS simply presses a button and purchases
them. Now the Central Governmental unit has the money to pay it's bills.
No wonder Americans believe in big and bigger government!!

And guess what, all of those unfunded liabilities, both public and private
which require 7 to 8% annual returns are growing and growing in arrears,
while the Gosbank fiddles away it's precious time.

I do agree with Mr Grannis that there is no recession on the proverbial
horizon, as long as there are expanding new home sales.

Scott Grannis said...

Why is there so much discontent despite the ongoing increase in wealth? My intuition tells me that the middle class is suffering from an onslaught of policies ostensibly designed to help the middle class. It's almost always the case that public policy that interferes with the normal functioning of markets has the opposite effect of that intended. Transfer wealth from the rich to the poor and the poor are the ones who suffer the most (because the rich leave or don't start businesses). Raise the minimum wage and you find that those most in need of jobs find it harder to get jobs. Lavish welfare money on the population and you end up with millions dependent on government programs and lacking in self esteem. Mandate the purchase of health care, arbitrarily cap prices, limit choices and you find that health care becomes more expensive and increasingly scarce. Make hundreds of billions in grants to "green" energy companies in an effort to improve the environment and you find that scarce resources are wasted, windmills kill thousands of birds, the desert is covered with mirrors that don't work and the ones who benefit most are the crony capitalists (Al Gore comes to mind).

Benjamin Cole said...

And don't forget property zoning, intended to protect residents from the ravages--gasp!--of free markets.

Frozen in the North said...


Give it a rest already with this zoning thing! Your starting to sound like The Economist and pott!

Medguy said...

Seems to be a lot of current conversation about GOLD given Soros comments etc.
How about an update on your Gold views?

Scott Grannis said...

Re gold. In my view, gold at these levels ($1200-1300) is pretty pricey, and reflects a lot of concern about the future. In other words, the current price contains a substantial premium for the protection that gold could afford if something awful were to happen. Personally, I think it's too expensive, but when dealing with events that could prove catastrophic, it is really anyone's guess as to the likelihood of them occurring.

Benjamin Cole said...

US treasuries at 1.60% 10 year

William McKibbin said...

"The US is richer than ever." Just ask a Puerto Rican.

William McKibbin said...

Regarding gold and silver, I advise holding onto your cash until we see gold at $600-750 and silver at $8-9. Of course, I'm still looking for a DJIA at 8000-9000. Be patient. Cash is king right now. At this point, every accredited investor should have 7 or 8-digits ready to move quickly into a bear market.

Lawyer in NJ said...

Forty-six percent of adults say they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money.

31 percent, or approximately 76 million adults, are either “struggling to get by” or are “just getting by.”

El Gringo said...

I call BS on the #'s from Cato.

First, there's something funny going on with household net-worth if you are including assets from Non-profits. I mean, wouldn't the Clinton Foundation fall under that umbrella? What other funny stuff goes into that calculation? I'd like to see the breakdown in those actual numbers.

Since the peak in '09, per capita real debt has increased 14% (aggregate real consumer debt up 33% from peak.) Full time jobs have increased only 1% since the '09 peak. Hard to see where/how household assets made up the difference to show that kind of asset gain.

Scott Grannis said...

Gringo: The numbers in my chart come from the Fed, not Cato. Household liabilities peaked in Sep. '08 at $14.6 trillion, and they were $14.5 trillion at the end of Mar. '16. On a real per capita basis, therefore, there has been a significant decline in household debt over the past 8 years. According to the BLS, full-time private sector jobs have increased by 4.8% (4.7 million) since their pre-recession peak in late 2008. There has been genuine improvement in the financial health of U.S. households, and non-profit organizations only make up a small portion of these numbers. In any event, the wealth held by non-profits is wealth that is available to all of us in the form of jobs, capital, etc.

Don't know where you're getting your numbers.

Hans said...

Benjamin Cole said...

German government bonds went to negative yields today, and US 10-year Treasuries at 1.59%. Japanese money flowing into US munis.

I just do not see a path forward for the Federal Reserve to higher IOER and rates.

At this point, a legitimate question is whether Fed IOER is artificially high.

If 10-year Treasuries are at 1.59%, what should short-term rates be?

I am beginning to wonder the Fed won't be comfortable until they see negative yields in America too. This seems to be the goal of developed world central bankers.

Bonds are hitting all-time record highs.This is an epic market in bonds, and has been for years.

Oddly enough, gold might hold up, as there are not negative interest rates on gold.

Funny how gold has eclipsed silver as the money metal, or the desired monetary standard. When the Spaniards returned from the New World, it was silver bullion that became the mainstay of coinage. In China, silver was coin also.

Today no one calls for the silver standard. Lots of calls for a gold standard.

I guess the Fed will stand pat on rates.

William McKibbin said...

Benjamin, watch for negative interest rates to come to America in 2016 -- the Fed will not have a choice...

William McKibbin said...

PS: Keeping significant amounts of cash in a safe may be prudent at this point...

steve said...

Willian, my experience is that it is extraordinarily hard to call tops. That said, when MSFT buys LNKD for a 40% premium and THEN finances it with debt even though they have $100B, it is time to take serious note.

William McKibbin said...

Steve, calling tops is really impossible -- however, my check of earnings tells me that we are unlikely to see an "earnings surprise" in the 5-10 years, and more likely to see a severe correction -- but that's just me -- everyone should do what they think is best...

William McKibbin said...

PS: I am stacking cash...

Matthew Grech said...

I did a rough calculation:

At the end of the year 2000, the per capita net worth bought 584 ounces of gold.

In 2016? 213 ounces.

Richer than ever, you say?

Johnny Bee Dawg said...

Gold IS expensive....but its also hitting 2 year highs again today.
New highs for miners.
It goes up whenever Janet Yellen says, "Just kidding!!!"
Long Zero Coupon Treasuries getting close to January highs.
Those are expensive, too.
Foreign negative yields are creating another kind of US QE.

Lawless government keeps on rolling and creating risk aversion.
This time its another threat of gun grab.
Best time to disarm the public is when terrorist attacks heat up.

Brexit public polls say lemme outta here.
Bettors markets know the bosses are never going to allow that.
Bettors know who counts the votes.