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Click to enlarge.
What pessimists see:
1. We're in a long-term linear trend channel heading to zero.
2. We're at the top of the trend channel again (last seen in 2006:Q1 and 2000:Q1).
What optimists see:
3. Yes, but net worth can't fall below zero. The downward trend is therefore guaranteed to fail someday!
It's nice to see both camps in complete agreement here, lol. Sigh.
See Also:
Sarcasm Disclaimer
Source Data:
St. Louis Fed: Custom Chart
6 comments:
divide this into two graphs, the top 5% vs 95% by net worth, and things would be downright ugly.
I keep trying to press my case at DeLong's that the economy does not consist of identical actors with symmetric wealth flows between each other, but am getting nowhere.
Troy,
I keep trying to press my case at DeLong's that the economy does not consist of identical actors with symmetric wealth flows between each other, but am getting nowhere.
I hear that. Sigh.
November 16, 2009
Why Income Inequality Really Matters
As seen through the eyes of "average" and "median" data, both situations are 100% identical. I would ask you these questions though.
1. Which situation is more unstable?
2. Which situation would be hurt most by rising oil prices?
3. Which situation would see payday loan stores become a growth industry?
Mark, you wrote "3. Yes, but net worth can't fall below zero. The downward trend is therefore guaranteed to fail someday!"
Why can't household net worth fall below zero?
It seems to me that households could, in the aggregate, be in debt to corporations and other legal entities. (Especially if we apportioned out federal and state debts, which are functionally owed as future taxes by household income earners.)
Student loans and no home equity or savings? Negative net worth.
Mortgage underwater and no savings? Negative net worth.
Even in the 2007 data (below, same link as my other comment), the lower 25% of households already had zero mean & median net worth, and always have...
If we were to somehow account for U.S. and state debt apportioned at the household level, then net worth even in 2007 was already negative for households well beyond the 50% percentile and possibly beyond the 75th.
http://en.wikipedia.org/wiki/Wealth_in_the_United_States
Sustainable Gains,
Why can't household net worth fall below zero?
In theory, I guess you could be right. It is theoretically possible especially if we maintain a trade deficit.
As a side note, treasury holdings are included in household net worth. According to government accounting, the more we borrow from ourselves the richer we all become. How crazy is that?
One more thought.
Mortgage underwater and no savings? Negative net worth.
A bull market in Jingle Mail would put a lid on how bad that could get.
Jingle Mail doesn't work with student loan debt though, so your scenario could still play out of course.
"According to government accounting, the more we borrow from ourselves the richer we all become. How crazy is that?"
It's incredibly crazy. In fact, I think at some point it will qualify for inclusion in a future edition of Extraordinary Popular Delusions and the Madness of Crowds. Which is why I try really hard to break away from the standard banker-centric framing of financial news and discussions, to try to break free of the delusional paradigms. And that in turn is part of why I really enjoy reading your site. That and the hardcore data. It's like the difference between the good, classic, scientific science fiction and the pseudo-fantasy crap they mostly write nowadays.
(Rob Dawg, if you're reading this, I recall you happen to like The Cold Equations -- as a counterpoint, you might also enjoy Riding the Torch by Norman Spinrad)
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