Behold a new damage assessment from the credit crisis: The net worth of the median American household plunged 47% from 2007-2010.
So concludes a study by New York University’s Edward Wolff. “The debt of the middle class exploded from 1983 to 2007,” he writes, “already creating a very fragile middle class in the United States… [T]heir position deteriorated even more over the ‘Great Recession.’”
Remarkably, if you throw out housing, the picture is even worse: Median nonhome net worth dived 59% between 2007-2010 and is indeed substantially lower than it was in 1962 — which is as far back as Wolff dared to look.
In Washington, Wolff’s study is prompting a thorough reexamination of policies that larded down the middle class with so much debt over the decades.
Just kidding: The Beltway class is latching on to the part of Wolff’s study that noted median net worth among “the 1%” grew 71% between 1983-2010, measured in 2010 dollars.
“Inequality skyrocketed as a consequence of the Great Recession,” says the questionably named Center for American Progress, “taking resources away from middle class, minority and young families while the wealthy made significant gains.”
The statistic is “almost ready-made for an Occupy Wall Street banner,” notes a story at Salon.
Like it or not, here’s another statistic of that ilk: Student loan delinquencies skyrocketed during the third quarter, according to new figures from the New York Fed.
As of June 30, less than 9% of loan balances were 90 days or more in arrears. As of Sept. 30, the number was 11%. That’s bad enough. In the context of the last decade, it’s frightening.
“Nearly all student loans — 93% of them last year — are made directly by the government,” The Wall Street Journal points out.
“The real fallout from the student loan crisis will hit in mid-2013, four years after the volume of government-funded student loans surged,” our macro strategist Dan Amoss wrote in August . “Like the infamous option ARMs (adjustable-rate mortgages) during the housing bubble, these loans have precisely timed fuses: Four years after the loans are made, borrowers must start making payments.”
“Within a handful of years,” he amends his forecast now, “U.S. taxpayers will be on the hook for over $100 billion in student loan defaults.”
Then again, what’s $100 billion in a “real” national debt of $86.8 trillion?
Officially, the national debt stands this morning at $16.3 trillion. But as we’ve long pointed out, that number does not include future liabilities for Social Security and Medicare.
Different people come up with different numbers when it comes to the true national debt: Former comptroller general and I.O.U.S.A. protagonist David Walker reckons it’s $71 trillion. Boston University’s Larry Kotlikoff’s number crunching comes up with a figure three times as big, $222 trillion.
The $86.8 trillion figure comes from former congressmembers Christopher Cox and William Archer, writing in an Op-Ed posted yesterday at Yahoo Finance.
“Were American policy makers to have the benefit of transparent financial statements prepared the way public companies must report their pension liabilities,” the duo write, “they would see clearly the magnitude of the future borrowing that these liabilities imply.”
Contra Messrs. Cox and Archer, they do: The Treasury Department issues an annual Financial Report of the United States Government — every year during the week between Christmas and New Year’s, to make sure as few people as possible see it.
The preceding article was excerpted from Agora Finacial’s 5 Min. Forecast. To read the entire episode, please feel free to do so here.
Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.
That’s ridiculous. The stock market was still way down in 2010. Bring this study to today and most people’s net worth would be down 5%, not 47%.
Actually the rise in the market will have very little effect on these numbers. This is median net worth, not average. The vast amount of the market is owned by the people at the very top, their rising worth won’t change the median. Rising housing prices is much more likely to improve the median net worth. I suspect though, this number will take quite a while to rise again, when people lost jobs they ended up liquidating their assets to keep going it will take a long time to replenish those assets.
"There has been an issue that has preoccupied my mind for a long time," writes Dr. Marc Faber. "In economics, it is generally accepted that if the quantity of money and credit is increased, prices will rise… However, since economics is so complex… I question whether the expansion of central banks' balance sheets and policies of zero interest rates could have a deflationary impact…" The good doctor wrestles with the question, in today's essay...
The Biotech iShares ETF is up 23% since the Oct. 15th bottom. No, that is not a typo. Biotechs have torched the S&P over the past two months--more than doubling the returns of the big index. And biotechs as a group are up more than 38% year-to-date. In fact, since we first highlighted the June comeback, the Biotech iShares have gone nowhere but up.
The oil market has been under siege for six months. From service providers to producers this downturn has been painful. Of course, we’ve known all along that oil prices were a little toppy over the summer. In fact, when asked just how low oil prices could go I usually answered with a simple “lower than you’d expect…”
Our forecast that Cuba would be open and integrated within 5-10 years is on track after yesterday's big announcement. Ahead of schedule, even. Click here to see how some investors have profited and what the island's likely future is...
The opportunity to sell and install LEDs is enormous. We’re talking about over a billion lighting fixtures. And the areas with the largest potential -- like parking lots -- have barely begun to change. Banker to the presidents Chris Mayer says you could triple your money in this new tech trend. Here's what you need to know.
It's a theme we've shared with you since April. And it's only gotten worse. The gaming industry has come under all sorts of pressure--a situation I first noticed in the charts. The powerful, multi-year uptrends started showing cracks. And it wasn't long before those cracks turned into gaping holes you could drive a friggin' truck through. That's where things stand today.