Thursday, March 11, 2021

This is a very wealthy country

Today the Fed released its estimates of household net worth as of the end of December 2020. Net worth has reached a new record high in nominal, real, and per capita terms. Covid has been a disaster, to be sure, but the US economy is healthy and poised to continue to prosper, albeit at a much slower rate than we have seen in the past. Here are some charts that tell the story, which is for the most part very impressive.

Chart #1

As Chart #1 shows, the private sector of the US economy currently has a net worth (total assets minus liabilities) of more than $130 trillion. That's up $12 trillion from a year ago, for a growth rate of 10%. Financial assets have done the best, but noteworthy is the relatively small increased in household liabilities since just before the Great Recession: liabilities have gone from $14.5 trillion at the end of 2007 to only $17.1 trillion as of a few months ago, for a growth rate of only 1.3% per year. Real estate holdings, meanwhile, have gone from $25.8 trillion (that was just after the peak of the housing boom) to $35.8 trillion at the end of 2020, for a growth rate of only 2.6% per year. 

Chart #2

Chart #2 adjusts the net worth figures for inflation, and uses a semi-log scale for the y-axis to show that over the long haul, real net worth in the US has increased by an annualized rate of about 3.6% per year. Recent experience is not at all out of line with what we've seen in the past.

Chart #3

Chart #3 further adjusts the net worth figures, subtracting inflation and dividing by the size of the US population. Here again we see a fairly steady rate of growth over the years, but it does look like the current number is on the strong side of what we might have expected. Regardless, the average person in the US enjoys a net worth of about $390,000. Yes, of course that number is inflated due to the estimated 2,100 billionaires we have amongst us, whose total net worth is estimated to be about $8 trillion. (I'm sure it's even more today given stock market gains year to date.) But if we subtract that from the $131 trillion of total net worth and divide by population, we still get a pretty healthy value for the average person: $333,000.

I don't know what the median value of per capita wealth is, but it's important to remember that our collective net worth is based on the wealth-generating value of all the assets we collectively own. Everyone benefits from all the roads, infrastructure, phones, computers, cars, machinery, etc., even if not everyone owns things. Office workers don't own their office building, but without it and without all the US infrastructure that has been built up over the years, they would most be earning far less. Our massive net worth as a country translates directly into the highest living standards we have ever enjoyed.

Chart #4

Sadly, total federal debt held by the public is now roughly equal to our annual GDP (roughly $22 trillion). This is the highest level of debt by far since just after WW II. But relative to our net worth as a country, it is only slightly higher than it has been for most of the past decade. This is not a picture of impending disaster, but I sure wish we weren't going to be borrowing another $4-5 trillion this year.

Chart #5

And despite its enormous size and ongoing (and staggering) growth, Chart #5 shows that the burden of all that debt (i.e., total interest payments on the debt relative to GDP, a proxy for our annual income) is about as low as it has been for many decades, thanks to today's extremely low interest rates. Our national debt is not about to kill us. But since the driver of all the new debt is mostly profligate spending (e.g., huge transfer payments, subsidies, and generally wasteful spending) which does little or nothing to make our economy bigger or healthier. We've been consuming a lot of our seed corn, instead of saving and investing for the future, and this can't go on forever without serious and unpleasant consequences. 

Running up debt the way we are will only serve to weaken our economy over the long run, making future gains in net worth far less than we have enjoyed to date. This will mean a much slower rise in living standards for our children and grandchildren than we have been enjoying.

Chart #6

Our federal government is spending money like a drunken sailor, but the private sector, fortunately, has been very prudent. Chart #6 shows private sector leverage: total household liabilities as a percent of total assets. Leverage today is as low as it has been since 1976, and it has declined by a huge 40% since the peak in early 2009. 

Chart #7

Chart #7 compares the performance of the US stock market to that of the Eurozone. The US is kicking a**. Note that both y-axes are semi-log and use the same ratio from top to bottom. The S&P 500 has gone up by more than double the increase in the Euro Stoxx index since early 2009. This is huge, and quite remarkable. 


Vespasianus said...

Chart # 7 suggests "animal spirits" are still alive across the USA, and in the broader picture this is great news for you all. Not so rosy picture from Europe, as usual, although our politicians are artisans of self-deceit and they`ll figure it out how to disguise the relative failure ("champions of equality", "social model", "progress with humanity" and similar crap).

Peter X said...


You mentioned billionaires but there are an estimated 12 million millionaire households in the U.S. As for the number of households, as of 2019, there were 128.58 million households in the US. Wouldn't these number further deflate the averages and median values?

HDX said...


What about all the off balance sheet liabilities?

Government accountants estimate that social security and medicare are underfunded by at least $70 trillion, while private sector estimates run between $110 and $140 trillion debt.

What about the trillions (in aggregate) unfunded municipal and state pensions that "assume" 8% total returns but in actuality have earned less than half that rate over the last decade?

Biden's $1.9 trillion blue state bailout will fund some of the past pension liabilities, but it doesn't even consider the underlying spend more than you collect mentality that caused the debts in the first place. Biden's bailout doesn't even mention the bogus "assumed rate of return" scam. Younger municipal union workers are getting screwed, and their public education doesn't help them understand the power of compounding liabilities.

Biden's bailout gives the public $1400 per person (asset side). It also gives every person $5700 in new debt (liabilities count too!). That's $1.9 trillion divided by 330 million population. Biden is telling the public school graduates that they are getting $1400, but in reality we are losing net $4300 (additional debt).

Larry said...

Thanks for posting more often Scott,
I look forward to all your valuable input on economy, investing and covid.
A Long time follower.

Scott Grannis said...

HDX, re off balance sheet liabilities: The public sector is indeed bloated and getting worse, and the unfunded liabilities of the public sector are massive. Ultimately, this all but ensures that the liberals' objective of reducing inequality by transferring wealth from the rich to the poor and middle class will do just the opposite. It looks to me like the principal tool for addressing public sector debt will be inflation. All those who hold Treasuries will end up losing lots of money and purchasing power. All those who own equities will gain, at least in relative terms. Who ends up holding the biggest bag? The poor and middle class, who are not smart enough to avoid the "safety" of Treasuries and cash. The main store of value for the poor and middle class will be their home, since real estate will appreciate as the general price level rises. In fact, that is already happening, as home prices are rising nearly everywhere.

Another tool which the public sector is now contemplating is higher taxes, levied primarily on the rich and large corporations. As in the past, this will prove ineffective, and only make things worse for the average person. The rich know how to avoid and/or minimize taxes. Corporations are especially adept that this also. The bulk of the corporate tax burden is born by employees, shareholders, and customers. A business needs to make a certain amount of profit to survive, so higher tax rates eventually force a business to raise prices, reduce salaries, and/or starve its shareholders if it wants to survive.

Simple rule of thumb: government efforts to manipulate markets, redistribute income, subsidize favored activities, and/or address larger social issues will invariably backfire.

Frozen in the North said...


Just so we aer clear, the US GINI index has been declining for years. It was 0.43 in 1990 and its just a shade under 0.48 (down from 0.49 in 2019). That's UN index is a measure of income inequality.

So in a nutshell over the past 30 years -- since the Regan revolution wealth in America has incresingly moved to the richer Americans, and the performance of this group over the past 15 monhts has been even more dramatic.

The "Liberals" as you call then are trying to slow the creep, but it may be impossible

randy said...

Regarding income inequality. The GINI measure has some faults. An important one is it doesn't tell you anything about how the wealth of all groups have improved. So it can miss that, even though the rich have gotten richer, the lower income groups are much better off too. It also is skewed by population dynamics. More divorces and unwed mothers in lower income groups. Aging population, etc.

Still, in my view, it's not hard to see that there is something unfair about how those with financial assets are getting wealthier at a much faster pace than those without. Several factors for that. Economy more driven by soft tech than manufacturing. Interest rates at historically low levels. Ironically, many of these co-factors of income inequality are exasperated by liberal policies. But they are not addressed by conservative policies either. Tax cuts will not solve this problem. Tax increases won't necessarily either.

If one is alarmed by the liberal / leftist momentum (and I am), it seems it would be strategic for conservatives to address the economic concerns of the lower income. Most black and brown voters are just as tired of all the stupid culture moves by the left too. But tax cuts won't bring them to the GOP fold.

There are responsible things GOP could offer. A better answer to health care, and yes some universal form of at least basic health care is 1st. A sane immigration policy that is preceded by border security is second. School choice or something to improve K-12 public schools is close 2nd. Then soft things like property zoning, excessive trade licensing requirements, welfare reform - perhaps supplemented with some form of UBI. Somehow changing the ruinous incentive structure for universities. Notice most of this is obviously made worse by leftist policies.

Something like that is the only path for GOP to have a sustainable base. And for us to have at least one functioning party in the US. For the life of me I don't understand why even well intentioned conservatives can't seem to get on board with something more concrete than supply side economics.

For a thoughtful proposal from a hard liberal - see

wkevinw said...

Frozen and Randy-

1. "The "Liberals" as you call then are trying to slow the creep" - The last Republican administration (and all "good ones") are trying to "slow the creep" by improving the job market. Redistribution/welfare solutions are not sustainable and create all sorts of destructive economic, social and political activities. If a person only has a government check to relate to economically, they are more likely to be unhappy with the government/politics, their community, etc. People need productive jobs to gain their full "agency"/citizenship/self-reliance. Giving welfare destroys this.

2. The Republicans have one particular lazy response to many policy issues: "let the market take care of it". A market needs rules, just like a sport. The government needs to set the lines, net height, etc., etc., just like in tennis. If the government doesn't do that, you get a lot of unfairness in markets.

There must be sensible regulation. Nobody wants to do the hard work to accomplish this.

HDX said...

@Frozen-- the partisan propaganda isn't helping anyone. You cited GINI coefficient numbers (developed by a partisan academic) over 30 years from 1990 to 2020... a period which includes Clinton and Obama, but does not include Reagan. Then you blamed Reagan. Do you expect such a sloppy argument to persuade anyone with differing views?

I think if you look at the matter with more care, you would blame LBJ (mostly) and all the other politicians (both parties) as accomplices. No politician, in either party, has demonstrated much ability or interest to spend within their means. Both parties have controlled Congress and the White House for at least two full years (or more) and yet neither party has managed to spend within their means.

LBJ was the first politician to throw aside the guns *OR* butter debate and spend like a madman on both. LBJ ramped up Vietnam, the war on poverty, a very expensive moon program, massive increases in regulations... all while the baby boomers were coming of age (massive and sudden increase in economic activity). LBJ engaged in all sorts of accounting scams, including "selling" FNMA and FHMLC while not giving up control or financial responsibility for debts.

Within a few years, the US government formally defaulted (not for the first time -- see FDR). In 1971 the US defaulted on the "solemn full faith and credit", breaching the Bretton Woods agreement that the US itself wrote. FDR similarly defaulted back during the great depression (the US had promised the USDollar would be convertible at $1USD = 1 ounce of gold, but FDR unilaterally broke the promise).

The result of both US government defaults was widespread inflation. Inflation tends to hurt the poor the most, and the middle class a lesser amount. The wealthy can re-allocate their assets, change the manner and timing they pay themselves, and pass costs onto persons later in the economic chain.

Whenever a government goes on a spending binge "paid for" with inflation, the poor get it the worst. Their paychecks do not keep up with the cost of living and they have limited financial assets. The middle class often owns real estate (their home is their largest financial asset) so they do a bit better, but their paycheck still fails to keep up.

As dementia Biden goes on yet another spending binge, plan on it backfiring on the poor... again. For the same reasons it backfired all the other times.

HDX said...

Sorry for the typo... The US government had promised that the USDollar would convert at $17 dollars per one ounce of gold, until FDR defaulted. FDR's default was just as popular as many other defaults in many banana republics over the last century. And just like those other defaults, FDR's default was a sugar high at best. Long term, the poor suffered -- unless they died in WW2.

LBJ's spending binge coincided with the baby boomers coming of age (and the resultant economic activity). It also happened when foreign suppliers had a lot more pricing power (OPEC wasn't going to give its oil for half price, Taiwan wasn't going to give its trinkets for half price, and Japanese car companies were all too happy to use the depreciated USD to run rampant on Detroit).

Anyway you cut it @Frozen, it was a government spending binge that ultimately screwed the poor. Biden's spending binge will have the same effect, but its the same dumb policy.

Enjoy your $1400 stimulus check, but remember that it cost you $5700 in additional debt.

wkevinw said...

Inflation history. I have thought the powers that be wanted this kind of outcome- let inflation run high for a long time.

1966-1986- cumulative inflation was ~250%. That would go a long way to "reducing the debt burden" for the US Govt and lots of other institutions.

The republic survived it from 1966-1986, so I imagine it would again (with plenty of pain).

Scott Grannis said...

Re wealth and income "inequality" and the GINI coefficient.

John Cochrane leads a nice discussion of how, when properly accounting for taxes paid and government transfer payments, there is no evidence at all of rising inequality in the US over the past 50 years. His arguments flesh out those made by Phil Gramm and John Early in today's WSJ op-ed. Highly recommended reading:

is100 said...

so now you acknowledge covid 19 was real back when this crisis started you were alongside the trumpers saying it was 'fake' and against lock downs...though you are an excellent with all your squiggly charts