Monday, December 16, 2024

The U.S. is the King of Net Worth


The U.S. economy is the undisputed powerhouse of them all. Nothing says it better than the $170 trillion net worth of the U.S. private sector, and the fact that the market capitalization of U.S. equities is greater than the sum of all other global equity markets' market cap. The following charts provide interesting perspectives.

Chart #1

Chart #1 compares the market cap of the U.S. market against the market cap of all other equity markets. (I'm using Bloomberg's calculation, which excludes the value of ETFs and ADRs, so as to avoid double-counting.) The U.S. market cap just edges out non-U.S market cap, for the first time in the past 20 years.

Chart #2

Chart #2 shows the breakdown of the net worth of the U.S. private sector (households plus non-profit organizations). What jumps out to me is the fact that debt has increased by far less than financial and real estate assets. 

Chart #3

Chart #3 shows the net worth of the U.S. private sector adjusted for inflation. In real terms, private sector net worth has increased by 12,656% since 1952. A 13.66-fold gain in 72 years—annualized growth of just over 3.6% per year. And over the long haul, growth in real net worth has been relatively constant.

Chart #4

Chart #4 divides the data in Chart #3 by the population of the U.S. Per-person real net worth has increased by about 2.4% per year for almost 75 years. (The chart implies that the net worth of the average person in the U.S. is almost $500,000.)

Chart #5

To flesh out the implications of Chart #1, Chart #5 demonstrates that the overall leverage of the U.S. private sector has declined significantly since the Great Recession (2008-09), and is now back down to the level that prevailed in the early 1970s. This further suggests that the U.S. private sector is very financially secure on the whole. It's the U.S. government, of course that has been on a borrowing binge like the world has never seen.

Chart #6

Chart #6 details one measure of the evolution of the U.S. government's borrowing binge, which began in the wake of the 2008-2009 Great Recession. 

Chart #7

Chart #7 makes an important qualification regarding government debt. The true burden of debt is not the nominal amount (now $28.85 trillion, or about 96% of GDP), but the cost of servicing that debt (interest expense as a % of GDP). According to this latter measure, the burden of debt was much greater in the 1980s than it is now. Why? Because interest rates today are much lower.

21 comments:

John said...

Looks like Trump is inheriting a healthy economy. Regarding Chart #4, what i the MEDIAN per capita net worth?

Scott Grannis said...

I wish I knew what the median per cap net worth is. But to the best of my knowledge that data is not available. I could take a wild guess, however, and say that it is probably in the range of $350-400K. Multi-millionaires and billionaires represent only a small fraction of the total population, with the vast majority smack in the middle of most distributions.

John said...

Median net worth, according to this source is about $128,000 and up quite a bit recently. https://financebuzz.com/us-net-worth-statistics

ckhajavi said...

scott - i know you are an x bond guy - any sense for what you think fair value is on the ten year / if fears of the bond vigilantes re-emerging are a reasonable fear here? i think rates are higher than what you pegged fair value before the fed cutting cycle started

John said...

Scott, do you think the MAGA billionares will pull out of stocks and foment a bitcoin pump and dump?

Scott Grannis said...

I think fair value for the 10-yr is within the range of 3.5-4.0%

Scott Grannis said...

As for bitcoin, I wouldn’t touch it at any price. I maintain that it is purely speculative, with no intrinsic value.

Harry Thomas said...

I just will never understand--silly me when it comes to politicians--how NO ONE is talking about the enormous Federal deficit and the continued willingness by both parties to continue to spend us into oblivion. It just tells me--China is winning and we are doing it to ourselves. Continually. Day in, day out. Is not our overall net worth built on a house of cards if we owe trillions and trillions and trillions? Shaking my head.

wkevinw said...

Bond/Interest/Rate market- the sausage making is difficult to understand, but one can calculate some things. Averages, ~ 100 years- Fed Funds (short) rate ~ 4.5%, 30yr bond (long) rate ~5%, 30yr mortgage ~7.3%, long term average of CPI inflation ~ 3%.

So, rates are somewhat normalizing to long term averages. Note that the curve is often/usually flatter than most realize. Also, the path taken to "normal" matters- right now, it looks like the bond market thinks inflation will be flat/stubborn (= not down to 2% PCE for 2-3 years?).

If CPI inflation is the "anchor" we are currently in low inflation by about 0.5%, so Fed funds should be ~4%, 30yr bond ~4.5%, 30mtg ~6.8%. Current rates look "normal" to me, (so people need to get used to this).

Scott Grannis said...

Wkevinw: if 30yr mortgages stay around 7%, then housing prices will have to decline by 20-30%. This may well be what comes to pass.

Salmo Trutta said...

Interest rates won't fall unless the deficits are cut

Stardust Capital said...

how so?

Salmo Trutta said...

Debt-to-GDP ratios are obviously contrived metrics. Unprecedented large deficits “absorb” a disproportionately large share of N-gDp (as gov’t spending is a component / factor of gDp).

To appraise the effect of the federal budget deficit on interest rates, it is necessary to compare the deficit, not to the debt to a GDP-ratio (a contrived figure), but to the volume of current net private savings made available to the credit markets

Pitt Man 1982 said...

Mr Grannis - a note on your blog site's functioning: when directed to the page via your URL, the brown background design does NOT load the yellow page that is supposed to be behind the text for a couple of minutes. As such, the text can't be seen unless the reader highlights it with a mouse click, and then it's simply blue text on a blue highlight field. Not sure if it's a problem with the web server on which Calfia Beach Pundit is housed... or maybe it's my computer? I will note that the yellow field eventually loads onto the page, but not for a quite noticeable period of time.

Thought it was worth sharing if you haven't been advised of this yet.

duongquy said...
This comment has been removed by the author.
duongquy said...

@salmo trutta :Which raw index provides information about volume of current net private savings made available to the credit markets?

Salmo Trutta said...

https://fred.stlouisfed.org/series/W986RC1Q027SBEA

Richard H. said...
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Richard H. said...

Salmo, would you mind opining as to where you think the stock market will be at the end of 2025?
December 26, 2024 at 10:34 AM

Salmo Trutta said...

The 2-year means-of-payment money supply is heading up in 2025 cementing inflation pressures. So, I don't think bonds yields will fall given the deficit projections. That said, I don't do levels, only directions. And I think most stocks are headed down.

Richard H. said...

Thank you Salmo. I do remember your correct call of the market top around the end of July 2023. But what is "2-year" means-of-payment money? I thought it was just a current figure - means of payment money today, not one year or two or whatever.