Friday, September 16, 2016

We're richer than ever

Today the Fed released its Q2/16 estimate of the balance sheets 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 June 30, 2016, the net worth of U.S. households (including that of Non-Profit Organizations, which exist for the benefit of all) reached a staggering $89.1 trillion. To put that in perspective, it's about 40% more than the value of all global equity markets, which were worth $63 trillion at the end of June, according to Bloomberg. I note that household liabilities have not increased at all since their 2008 peak; the value of real estate holdings now slightly exceeds that of the "bubble" high of 2006; and financial asset holdings have soared since pre-crash levels, thanks to significant gains in savings deposits, bonds, and equities. 

In real terms, household net worth has grown at about a 3.6% annualized rate for the past 65 years. 

On a real per capita basis (i.e., after adjusting for inflation and population growth), the net worth of the average person living in the U.S.has  reached a new all-time high of $277K, up from $62K in 1950. 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. 

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 early 2009. Households have been prudently and impressively strengthening their balance sheets over the past seven years. Unfortunately, our Federal government has more than doubled its debt burden over that same period, as I noted in a post earlier this week.


Benjamin Cole said...

It is good to ponder the good news as well as the bed.

I think the globe is on the cusp of long-term moderation in energy prices, and possibly even "cheap" energy.

While I am for sensible regulations, we may see even cleaner fuels and energy sources dominate.

Why tax working or investing? Taxing pollution actually makes sense.

The future could be cleaner and more-prosperous.

Kirk Otis said...

Is this in nominal or real (inflation adjusted) amounts?

Scott Grannis said...

The first chart is in nominal terms and the second and third charts are in real terms

Unknown said...

Hi Scott - I read your blog with great interest from Australia. Always very interesting analysis so thank you.

I was wondering what your view would be on how evenly this increase in aggregate household wealth would effect the average American? the basis for the question is obviously around increasing inequality as a by product of fed policy by propping up asset markets that typically favour the richer. the same story is playing out down under and across the globe. It would be interesting to see the median of this kind of data?

Thanks again

RichmondG30 said...

It would be an interesting chart if you subtracted from Net Worth the roughly $20,000,000,000,000 we have borrowed as a people from future generations. We could actually see the change over time of our real net worth.

zumbador said...

Thank You….as always…for the excellent charts, data and commentary that you provide, It is ALL helpful and interesting so I really appreciate the time and effort put into the datat that you provide on your site.

Thinking Hard said...

“The ongoing accumulation of wealth is not a house of cards built on a bulging debt bubble…”

What is wealth? What is money? What happens to the inflation outlook if total debt levels across all sectors goes down for a significant period of time? Seems to me that a continually increasing debt load is a necessary condition of growth.

Households and Nonprofit Organizations; Credit Market Instruments; Liability, Level
1981 (Q4) - $1.521T
2015 (Q2) - $13.988T

Federal Debt; Total Public Debt
1981 - $1.03T
2016 (Q2) - $19.382T

Nonfinancial corporate business; debt securities; liability, level
1981 – $492B
2016 Q2 - $5.761T

10 year treasury constant maturity rate
9/1981 – 15.32%
8/2016 – 1.56%

That’s a big drop in interest rates to allow for a big upswing in total debt levels. Now we appear to be near the end of the interest rate supercycle. Interest rates can’t go much lower and the Fed seems jealous of the powers granted to the BoJ and ECB.

We really need fiscal policy reform favoring growth. Trump talks a good talk and will increase the deficit in order to cut taxes and stimulate growth.

Scott- I'm curious as to how you see the accumulation of wealth going up without total debt levels also rising? Without debt, most of our current "wealth" doesn't exist.

Marc Sargen said...

It be interesting if they have the net worth tracked subtracting the top 1% or 10%. We know that most of the growth has gone to the richest, they have the stocks & property where a lot of the growth has gone. But it would be good to see it the growth holds up w/o the gains by the richest.

Scott Grannis said...

Re: the gains of the rich. The wealth of the U.S. is its productive capacity: machinery, software, knowledge, infrastructure, etc. Whether the ownership of that wealth is skewed towards the rich doesn't make much difference to the lives of ordinary people. We all enjoy the fruits of the wealth that has been created by the likes of Steve Jobs and Bill Gates. We all enjoy the fruits of the infrastructure and the factories. Perhaps the rich have gotten richer the the middle class, but we have all gotten richer, even the poor. What's the problem with that? It's a distraction from what is really happening, which is progress and rising living standards for nearly everyone on the planet. One man gets rich because he starts a company and invents a spectacular new product. Has his increase in wealth subtracted from anyone else's (other than competitors who had an inferior product of course)? The super-rich are rich on paper only, because they hold the vast bulk of their wealth in the form of land and productive companies that create jobs for millions and generate cheap food and incredible smartphones for the rest of us.

It's time to leave envy behind and celebrate the rich, not despise them.

Scott Grannis said...

I hasten to add that monetary policy cannot create growth or prosperity out of thin air. Even if it were the case that the Fed is artificially depressing interest rates (and I don't think they are), and if low interest rates were inflating the prices of some assets (although I don't see any evidence of that), that still doesn't mean that the Fed is generating wealth for the privileged few. Whatever "wealth" is created by creative (i.e., stimulative) monetary policy is ephemeral, not lasting. True wealth comes only from saving, creating, building and managing productive assets.

Marc Sargen said...

My question was how much of the wealth growth held out when you take away the top. It would help show whether the less wealthy were seeing improvement or whether it's stalled & there is some justification for the felling that things are not improving for some. This current period of grow has been skewed towards those people who already own while wealth grow do to savings and accumulation has been more difficult. I wanted to see how much is hype & hubris and how much is supported. There is plenty of evidence that the middle class has thinned because there were plenty of winners going up. We've now got a million plus penta millionaires & over 13 million millionaires. Most are not the 1% but their wealth is climbing. They are all probably part of the 10%.

You have two fallacies in you assertions because you're taking an economic vs. social view. You assume that having more will mean that peoples lives are better. It's a well proven fact that negatives have significantly more impact on outlook than positives. People might have more things but less of the things they value deeply. Security & relevance have often been casualties of the internet age. In the end it's less about better or worse & more about more or less satisfied.
You assume that there is one monolithic society. But great things in San Francisco might have no or negative impacts on Akron. Uganda can stall as Germany rises. Urban blue collar workers can find they're being price out of the gentrified neighborhood they've lived the last 15 years in. If the gains are too concentrated, there will be plenty of sub-cultures that see little reason for the current order.

It's not a matter of envy but worry. Things blow up when too many feel like the world is pressing them down & sorry but your cheap food & incredible smartphones sounds way too much like bread & circuses to me.

steve said...

Marc, I have no idea what the hell you're talking about. This is an economics blog not some bs NYT "I want to feel good about being better off than my parents" rant. Seriously, grow up.

Marc Sargen said...


How many dollars is a job that you can count to continue for 3 years worth? Is it equal to 5 iPhones and 4 Big Macs? This is an economic issue. Is an issue that everyone has been trying to factor in since we've been including more services & more soft good into GDP. How much does a free YouTube video with three million hits add to the GDP?

Economics is a SOCIAL SCIENCE. Macro numbers are filled with placeholders & guestimates which can be refined decades later. The degrees of certainty on its data & statistic are way below those of hard sciences so questioning the data is needed to verify that the results are not manufactured.

I'm making 3 comments with Scott Grannis. My initial comment & the ones based on his reply.
1. Does the growth in Net Worth hold up if you remove the top tail end outliers. This is a very common analysis for an data spread that has a long outlier tail. It's what I want to know not some view about monetary policy.
2. He makes a blanket assertion that we're better. I'm questioning that. We have more stuff & better access to services but we have costs that are not accurately reflected in the economic data. Is our health care better than 2008? Almost any data you use to make an assertion can be picked apart in the age of ObamaCare & $600 Epipins.
We're better has nothing to do with economic, but is a personal opinion. We're wealthier as a society is a true statement. I am wealthier is true or false on case by case basis.
3. I disagree that at growing pool of wealth that is controlled by an elite minority is guaranteed to help society as a whole. Yes it can trickle down & we can see growth for everyone. It is a nice theory but so far has been about a accurate as a coin flip If it's too unequal for too long then you'll see what's seems to be increasingly happing now. War, terrorism, riots, and deliberate acts of destruction. All of a sudden that accumulation of capital is an accumulation of rubble. That's sort of what I'm worried about.

If Scott has the data that wealth is increasing at a decent clip even w/o the top 1% or top 10%, it is very good support for his argument & is definitely something he should publish. If the data shows that wealth is pretty much flat for the bottom 90% then his statement that "we're" better off is shaky because most of us really aren't.

steve said...

Marc, firstly I agree with you the health care COSTS are certainly higher now than in '08 thanks to Ocare. My premiums have skyrocketed. To somehow come away with a cogent argument that society isn't far more wealthy or better said standards of living are not far better excluding the top 1% now than say 10 years ago is with all due respect risible.

Just think about where the average American (especially the bottom 50% in wealth) was 10 years ago. A far greater % of their income went to energy and communication than now and life is just more "convenient". The real problem is people are JADED. They either forget or are ignorant of how far we've come over just a short period of time in terms of convenience. Yes, there is more concentration of wealth but the to Bezoz, Gates, Musk, jobs etc...we are far better off now than we have ever been. All of us!

Marc Sargen said...

Ah, the problem with the middle ground is that everyone argues with you.

In general, I'm in agreement with that I think we're better off. I just don't want to follow that belief blindly & will look at the data to see if it support or contradicts that belief. I think a lot of the inequity argument is manufactured. It compares the income of largre 1970's household's to smaller 2015 households. It ignores the effects of progressive redistribution like taxes & transfer payments. It ignores the huge demographic split of a large older wealthier boomer generation & a large young cash strapped millennial generation with a smaller middle GenX generation. Wealth is harder to track than income & averages are very skewed because of the billionaire club. It's much better to cut out the noise at the top & see what happens to range of eyebalsl in debt to the merely wealthy. But I don't think we'd be having this issue if it was all manufactured & I don't want to just ignore evidence that contradicts my belief.

You are wrong that ALL of us are better. There is no change that does not have winners & losers. Those losers seem to be a pretty large pool & they see their future capped, trapped, & margnialized. Some of them are there because they made bad choice after bad choice. Some are jaded whiners. Some are there because they don't have & will never gain what it takes to get ahead in the increasingly digital brain heavy world.

In the end, if enough people think they're trapped & cheated you get violent redistribution & society change. With what I see in the new, I'm getting more concerned about that.

Bodin said...

Thank you Scott, Ben, and Marc, very interesting read ....

Marc you have discovered what happens when Hollywood televises shows like "Welcome Back, Kotter" ('75-'79) and Family Matters ('95-'98).

Liberal elites through Hollywood have glamorized ignorance and ostracized the smart kid. Thus diminishing the youths' perceptive need of an education.

This is in part attributed to the cultural and economical divisions we see today.

Glamorize intelligence, integrity, virtue and handwork and these economical divisions will dissolve.

Andy said...

Scott - one question. I've seen the chart showing the growth in net worth globally now referred to as the "elephant chart" where the poorest people globally have seen a huge increase in net worth along with the wealthy. But the minimum wage guy in Poughkeepsie hasn't seen any increase. This is possibly behind things like Trump, Brexit... I'm not sure this is relevant looking at US-only statistics but do you have any thoughts?

Scott Grannis said...

Andy: bear in mind that less than 3% of the people working in the US earn minimum wage or less, and two-thirds of those work in the restaurant industry (so many probably earn more, given tips). It may be a pittance, but it just doesn't affect a whole lot of people. It's mostly the entry-level jobs that are the first step on the wage ladder for many people. Once you have acquired some skills and disciplines, you are going to be making a lot more than minimum wage.

Of course, just about anyone these days seems able to afford a smartphone, something even the rich couldn't buy 15 years ago.

Marc Sargen said...


I think we're living "Revenge of the Nerds." As a nerd of the period, I'm pretty happy about that.

I will agree that Hollywood vilifies the corporation, the CEO, the greedy, driven businessman. These were people who used to be respected & were roll models for other the strive for.

I also remember a comment by David Brooks on NPR, discussing why he completely missed the rise of Donald Trump. He had spent too much time with others that mirrored his opinion & completely missed the large groups of people whose situation & views were completely different. He resolved that he needed to do more in the future to avoid that mistake because he failed in his job because of it.