Friday, March 12, 2010

Peak Prosperity?

I offer three charts using data from the recently released Flow of Funds Accounts of the United States.



The chart above shows our collective net worth over the years. It is not seasonally adjusted. I have included an exponential growth trend line. It peaked in June of 2007 and two months later I started this blog.



The chart above attempts to remove the inflationary effects to better show the change in real prosperity. In inflation adjusted terms, net worth peaked in December of 2006. Whether or not it is the absolute peak is anyone's guess. You can pretty much guess what I suspect.

Total net worth has gone nowhere in the last decade. It's even worse than it looks though. It's the same amount of total net worth split amongst a larger population. In January of 2000 there were 281 million people in America. Now there are 309 million. We have 10% more people but roughly the same overall net worth. Therefore, the average American is 10% poorer than they were 10 years ago.




The chart above has been put on a log scale. Constant exponential growth, such as the red trend line, is therefore seen as a straight line. Optimists would say that we are still on that line. This is just a short-term setback. I am extremely skeptical. We've never been so far below the line. I just do not see how we can get back to it.

There are enormous challenges and headwinds in our future. We're borrowing massive amounts of money to keep the party going. Meanwhile, my state is attempting to raise taxes yet again.


Gregoire calls special session for Monday

The Senate has proposed $890 million in new taxes, including a tax on bottled water, a three-tenths of a cent increase in the state-sales tax, a boost to tobacco taxes, and an end to certain tax exemptions.

The House has proposed $680 million in new taxes, but its package does not include a sales-tax increase.


This is not an environment where prosperity can flourish. That's my opinion and I'm sticking to it.

See Also:
Trend Line Disclaimer

Source Data:
FRB: Flow of Funds Accounts
St. Louis Fed: CPI-U (Not Seasonally Adjusted)

11 comments:

Who Struck John said...

I'd be very curious to see what that last chart looks like if carried back another 50-100 years farther. I suspect we'd find that the only similar excursion from the trend was the Great Depression.

getyourselfconnected said...

Mark,
pardon my french-ugly but...

All That Sh$t has broken to the downside!

Stagflationary Mark said...

WSJ & GYSC,

From early 2009...

http://www.independent.co.uk/news/uk/politics/this-is-the-worst-recession-for-over-100-years-1605367.html

"The economy is going to define our politics in this region and in Britain in the next year, the next five years, the next 10 and even the next 15 years," Mr Balls said. "These are seismic events that are going to change the political landscape. I think this is a financial crisis more extreme and more serious than that of the 1930s, and we all remember how the politics of that era were shaped by the economy."

It's been one year so far.

watchtower said...

Mark,

IMO this is great post.

It is making me think, not that I'll truly understand it mind you, but it is definitely making me think.

Here is my take on it (not that it's correct):

The last two upward movements look to be the tech and housing bubble.

It's almost as if you don't pull up a chair in the casino and know when to cash out, a person doesn't stand much of a chance to keep following the trend line (especially when looking at the first chart).




"These are seismic events that are going to change the political landscape."

On this I have no doubt, and to me it is worrisome.

watchtower said...

I left out an 'a' in the first line of my comment : (

Stagflationary Mark said...

watchtower,

"It's almost as if you don't pull up a chair in the casino and know when to cash out, a person doesn't stand much of a chance to keep following the trend line (especially when looking at the first chart)."

I do believe that's a distinct possibility.

1. Fool me once shame on you.
2. Fool me twice shame on me.
3. Fool me ___________________?

Has this saying ever been tested this far out before?

getyourselfconnected said...

Watchtower,
you are correct 100%. Too bad the next bubble is federal debt and when that ones pops, well, it may not have an encore.

Great post Mark.

Stagflationary Mark said...

GYSC,

My nest egg sits almost entirely in treasury inflation protected securities. If you are right, when my bubble goes at least I'll be popping out in style! :)

Of course, there is some risk that China's economic miracle story is the next bubble (and its fall could knock the legs out of commodities).

China's economic promises center on job creation

http://www.ocregister.com/news/wen-64808-ocprint-china-economy.html

“Many destabilizing factors and uncertainties remain in our external environment.”

Wen said China needed to cool inflation, cope with banking risks and boost consumer spending to ease the reliance of the world's third-largest economy on exports and investment to drive growth.

Much of his address, however, dealt with problems stirring unease among China's 1.3 billion people that could potentially threaten stability. Wen pledged to narrow a yawning wealth gap, increase the stock of affordable housing, boost the moribund rural economy and fight rampant corruption.

Start with rising internal inflation, internal banking risks, internal lack of consumer spending, relying on an internal export driven economy, stirring unease among its internal 1.3 billion people, the threatened internal security that it represents, high internal income inequality, high internal wealth inequality, a lack of internal affordable housing, a dying internal rural economy, rampant internal corruption, and a speech that makes internal job creation a #1 priority.

Now add the destabilizing factors and uncertainties in their external environment.

I don't know about you, but I'm thinking of moving to China to enjoy some of that economic miracle story. I'm thinking of buying a nice house right near the center of Beijing.

Tiananmen Square

http://en.wikipedia.org/wiki/Tiananmen_Square

Trees line the east and west edges of the Square, but the square itself is open, with neither trees nor benches. The Square is lit with huge lampposts which also sport video cameras. It is heavily monitored by uniformed and plain clothes policemen.

Safe. Secure. Expensive. Livin' the dream!!

http://en.wikipedia.org/wiki/File:Tianasquare.jpg

G.H. said...

Stag,

"In January of 2000 there were 281 million people in America. Now there are 309 million. We have 10% more people but roughly the same overall net worth. Therefore, the average American is 10% poorer than they were 10 years ago."

This is the point that is so hard to make. There is so much Repub/Dem back and forth blaming for the crash(es) that very few see the veritable skid we've been on now since the '90's.

IMO.

Stagflationary Mark said...

G.H.,

There is so much Repub/Dem back and forth blaming for the crash(es) that very few see the veritable skid we've been on now since the '90's.

It will only get worse in my opinion.

G.H. said...

"It will only get worse in my opinion."

I hate to quote one of my worst fears (News Corps latest mouthpiece) but here goes:

"YOU BETCHA!"

Know what I mean?