Thursday, April 21, 2011

Real Net Worth Per Capita

This chart uses data from 1952 through 2010.

The Fed tells us our net worth each quarter (Table B.100) but does not adjust it for federal, state, and local debt (D.3). I have adjusted it. I'm working under the assumption that if the government takes on more debt then eventually I'll be asked to pay for some of it. Crazy thought I know.

I was most interested in seeing the real net worth of the average person. This chart doesn't exactly do this justice. Income and wealth inequality has been growing. The average person therefore is probably not doing as well as this chart would imply.

From what I can see, the real net worth of the average person has not risen since 1997 (other than temporarily through a dotcom bubble and a housing bubble).

I would also argue that the future doesn't look much better.

1. Real interest rates are extremely low. When adjusted for inflation and taxes, it is very difficult to grow net worth safely right now.

2. Stocks have doubled in the last few years. It is very difficult to grow net worth if you own stocks that aren't exactly cheap.

3. The housing market still looks bad to me. The NAR tells us that sales activity is up 3.7% in March but prices are down 5.9% from last year. Talk about painting lipstick on a pig. If the stock market did that we would call it panic selling. If is very difficult to grow net worth if your home's price is declining.

4. I believe the employment party ended in 2000 and nothing we do can bring it back to its former trend. It is very difficult to grow net worth if the employment situation is bad.

5. At some point, taxes will need to rise and the "free" lunch must end. It is very difficult to grow net worth when taxes are rising.

6. At some point, the baby boomers will stop investing for the future and instead will begin to sell off what they have in order to fund their retirements. It is very difficult to grow net worth when a rather substantial portion of the population is hovering over the "sell" button.

7. And lastly, there's our trade deficit. As seen within the link, "America’s Growing Trade Deficit Is Selling the Nation Out From Under Us." Those are Warren Buffett's words from 2003. I'm a believer in his theory. It is extremely difficult to grow net worth if our nation is being sold out from under us.

Is it any wonder that I am still bearish long-term?

Source Data:
FRB: Flow of Funds Accounts
St. Louis Fed: CPI
St. Louis Fed: Population


Mr Slippery said...

"At some point, taxes will need to rise and the "free" lunch must end. It is very difficult to grow net worth when taxes are rising."

You just made a powerful argument against 401k plans and deferred compensation. Tax rates are near 70 year lows. Why do people assume they will pay less taxes in the future? They might have a lower income and be in lower bracket, but pay a higher tax rate anyway.

Stagflationary Mark said...

Mr Slippery,

Let's not forget that if inflation hits 20% then deferring taxes would definitely be a good idea even if tax rates are higher in the future.

My biggest concern is that I earn 20% on my TIPS each year due to 20% inflation but have to pay 6% of it as taxes.

Picture 30 years. If I pay 6% per year in taxes for 30 years then the math looks like this.

0.94^30 = 0.16

I'd lose 84% of the investment to taxation. Nickle and dimed to death!

I continue to buy I-Bonds for that very reason even though they have a lower real yield (currently 0.0%, sigh).

getyourselfconnected said...

Man, you are on fire with these posts! I actually penned a post where I say to sell silver at $50 and gold at $1550. Just not for me:)

Off to Antigua on Saturday morning, need some sun after this winter, nasty.

Stagflationary Mark said...


I read your post and thought I'd just met a fellow gold and silver heretic. Hahaha!

But hey, at least you do not shun the nonbeliever! ;)

Stagflationary Mark said...

P.S. Enjoy your trip!

getyourselfconnected said...


I think I lay it out, If this stuff worries you, I would unload the boat like NOW, not even at $50. If I had any positions in play of any size I would have been out at $40. The core I hold is not in play and I may be wrong later, but thats life. I have been wronf before, would not be news.