Bill Bonner

Twenty years of going nowhere! Where are we, Hokohama?

Dear Reader…and anyone who has been paying attention…you already knew there was something wrong. The world’s leading economy, in the most dynamic, inventive period in human history, failed to make people a penny richer.

GDP went up. But real wages did not. In fact, people got nowhere financially — if they were lucky. And many families got caught in the credit/housing bubble. When it blew up they got knocked back…actually losing wealth.

We’ll give you the conclusion before we give you the facts: the “growth” in the last 20 years was largely phony. The wheels on the economy spun around faster and faster. The shopping malls were full. Houses were built on nearly every vacant lot. Wall Street cashed big checks. But, overall, it was an illusion. Compared to a real boom, it was a counterfeit. Nobody got anywhere.

Here’s the story from The New York Times:

Family Net Worth Drops to Level of Early ’90s, Fed Says

WASHINGTON — The recent economic crisis left the median American family in 2010 with no more wealth than in the early 1990s, erasing almost two decades of accumulated prosperity, the Federal Reserve said Monday.

A hypothetical family richer than half the nation’s families and poorer than the other half had a net worth of $77,300 in 2010, compared with $126,400 in 2007, the Fed said. The crash of housing prices directly accounted for three-quarters of the loss.

Families’ income also continued to decline, a trend that predated the crisis but accelerated over the same period. Median family income fell to $45,800 in 2010 from $49,600 in 2007. All figures were adjusted for inflation.

The new data comes from the Fed’s much-anticipated release on Monday of its Survey of Consumer Finances, a report issued every three years that is one of the broadest and deepest sources of information about the financial health of American families.

While the numbers are already 18 months old, the survey illuminates problems that continue to slow the pace of the economic recovery. The Fed found that middle-class families had sustained the largest percentage losses in both wealth and income during the crisis, limiting their ability and willingness to spend.

The share of families saving anything over the previous year fell to 52 percent in 2010 from 56.4 percent in 2007. Other government statistics show that total savings have increased since 2007, suggesting that a smaller group of families is saving more money, while a growing number manage to save nothing.

You might be tempted think that this is just a temporary setback…that when things return to normal the typical household will recover two decades of financial progress too.

Don’t count on it. Household wealth in the US rests on housing and wages. Housing prices might stop dropping; they are unlikely to enter a new bull market. Instead, they will probably track GDP growth, just like they always did. Nor can you expect to see wages rise substantially. Why? Because there are 15 million people who don’t have jobs. It will be a long time — practically forever at the current rate — before they are absorbed into the labor force again. Until this huge inventory of willing and able labor is put to use, don’t expect wages to go up.

In other words, when things return to normal they will be what they are now… The bubble was an illusion. The current, dismal situation is real.

The New York Times continues, pointing out that if the feds had let Mr. Market do his work in ’08/’09 the rich wouldn’t be so rich…

The data does provide the latest indication, however, that the recession reduced income inequality in the United States, at least temporarily. The average income of the wealthiest families fell much more sharply than the median, indicating that some of those at the very top of the ladder slipped down at least a few rungs.

Isn’t that what we’ve been saying? First, the feds made the rich richer by creating a phony, credit-fueled economy, where the amount of credit grew 50 times over the last 50 years. Then, when the credit bubble blew up, the feds stepped in to prevent the rich from losing money. And now the feds moan about the ‘inequality’ in our society…and how they have to do something about it. Haven’t they done enough already?

Bill Bonner
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily ReckoningDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

  • Capitaltalk

    Pity the wealthy billionaire…..not.

  • longnine009

    The Krauts seem to be perceived as altruists this week. Maybe they can
    save us too?

  • gman

    “And now the feds moan about the ‘inequality’ in our society…and how they have to do something about it. Haven’t they done enough already?”

    they’ve done a lot, but not nearly enough. their work won’t be done until the moral deserving productive risk-shouldering wealthy infestors have every last bit of it and the rest of the undeserving uwashed mindless barely-human parasitic zombies are chained to their treadmills.

  • bgtu

    that’s it! time’s up! put that public purse down NOW!!!

    and just step away…

  • The InvestorsFriend

    The rich get richer…

    The poor get pooer…

    The poor have guns…

    How does this end?

  • The Investorsfriend

    Well let them eat stocks…

  • gman

    “The rich get richer…

    The poor get pooer…

    The poor have guns…

    How does this end?”

    with the poor shooting each other?

    seriously. that’s what all this talk about “parasite government” is about – to goad those who have been stolen from into destroying any institution which might begin to threaten those who stole from them. and then to reduce their own numbers by shooting each other (“I’m a producer! you’re a parasite!” “no, YOU are!”) so there’s even LESS remaining to threaten those who stole all the wealth. really, that’s all it’s about.

  • The InvestorsFriend

    with the poor shooting each other?

    Great point, that is how it has played out so far. The poor shoot the poor.

    Heck gangs probably do a better job of “eliminating” gang members than the police do.

  • Mattress Stuffer

    Who stole gman’s wealth?

    …Probably his ex-wife.

  • gman

    “Who stole gman’s wealth?

    …Probably his ex-wife.”

    she needed it more than I do.

  • bmac6446

    I said the same thing some ten years ago. Debt is not wealth. All we ever created in this command economy is debt. A $5000 limited credit card doesn’t mean you now have $5000 of magical wealth, it means you have $5000 of real debt. Compound that by some 200 million consumers. A house mortgage, car loan, student loan is all debt. Your house or car contains no wealth until it’s paid off. Reality sucks, doesn’t it.

  • Jaczar

    Ideny it’s all the government’s fault. Wall Street, Big Banking, the Financial Markets shoulder far more of the blame. The government is at fault for not having better regulation, but blame the lobbyists of the aforementioned institutions for that. Typically, this article is the way those “free market” Republicans and Libertarians present their “facts”. Kind of like Rush and Fox Nuze.

  • Fred

    If you think the mess we are in is due to the “free market” you aren’t very well informed.

  • Al Sledge

    Fred is right. There exist two types of “free markets”. The first is sans government control. This made the US the richest nation in history. The other type of free market is what we have now, called crony capitalism by some, fascism by others. It is private ownership under government control. In the first type a bad business decision meant losing your business. In the second type a bad decision means a bailout. Fascism too strong a word? Read about the history of Italy and Germany in the second quarter of the 1900s. Seems quite clear to me. We no doubt need more government and regulation. NOT!

  • S. Carl

    • My BofA bank teller drives a 550i
    • My brother, a carpet cleaner, has his own house, three cars, and nicer electronics than I do
    • All my daughters friends have smart phones
    • Restaurants are all full
    • People coming out of Loaves and Fishes are using cell phones
    • Malls are full
    • Large companies I work for are seeing 10% YOY revenue growth
    • People in my neighborhood are ramping up vacations

    I’m not saying we are wealthier than in 1980, but it sure feels like it to me. Also, The NYT article claims the median Net worth of families is $77k. That seems much higher, even in real terms to me than 1980.

    If we are poorer – it’s a strange sort of poor.

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