Household Net Worth vs. Wages

July 17, 2013
Bubbles Forever by Robert J. Shiller

Because bubbles are essentially social-psychological phenomena, they are, by their very nature, difficult to control.

As seen in the following charts, the bubbles are definitely getting increasingly difficult to control. In my opinion, it's not a coincidence that the housing bubble was worse than the dotcom bubble.


Click to enlarge.

The high points form an exponential trend. The low points form a 2nd order polynomial trend. In addition to the extremely high r-squared values, both trends have plenty of data points to support them. If current trends remain in place then the following is what we can expect to see in the distant future.


Click to enlarge.

The risks do not end here. Real wages per capita have fallen since 2000. These charts would imply that wages are very important to real net worth per capita, especially if we ever start to hug that blue trend line again. I could definitely see that happen. Just look at the period from 1952 to 1980 on the charts. There was no growth in the household net worth to wages ratio. The 1980s and 1990s are over. What comes next is anyone's guess.

In my opinion, this is long-term uncertainty of biblical proportions, especially for those who thought we were past the worst of it and have gone all in on risk. I can't speak for others, but baby most definitely does not need new shoes.



This is not investment advice.

See Also:
Trend Line Disclaimer

Source Data:
St. Louis Fed: Custom Chart