You would think that Americans would be dsaving more and spebding less. But this is not the case.
Household wealth is falling.
Household wealth plummeted by more than four percent from July to September according to a report released last week by the Federal Reserve, marking the steepest drop since 2008 and the second quarterly decline in a row. That represents an average loss of about $21,000 per household in just three months. At the end of the third quarter, household wealth plunged by $2.4 trillion, from a total of about $60 trillion down to slightly less than $57.5 trillion. The dramatic drop in net worth — the value of all assets minus total debts and liabilities -—was led by still-declining housing prices and crashing stock values.
This is a frightening statistic. It indicates that the recovery is an illusion. People are not in panic mode yet, but they are being ground down by events beyond their control.
Home values continue to fall. There is no end in sight. The Standard & Poor’s 500 is down for the year. It has never recovered to its peak of 1527 on March 24, 2000. The dollar has declined in purchasing power by 30%.
Then there are people’s retirement hopes.
The Associated Press reported that 401(k) accounts managed by Fidelity Investments, the biggest workplace plan provider, dropped almost 12 percent. The value of pension-fund reserves also plunged close to $1 trillion for the quarter.
What about wages?
Wages are suffering as well. Data from the Census Bureau cited by the AP show that, adjusted using the government’s measure of inflation, household income plummeted 6.4 percent last year from 2007 when the recession began.
Now we come to debt. We know about the federal government: up, ip, and away!
Household debt was down slightly during the period, but not because Americans were paying off their mortgages as some analysts claim. It was mostly due to the fact that so many families were defaulting and being foreclosed on.
Still, the tiny 1.25 percent annual rate of decline in household debt was not enough to offset the federal government’s record borrowing spree. And the deficit trend is expected to continue indefinitely.
What seems incredible is that credit card debt is still rising. The public has not learned its lesson. It was up by $17 billion. It is likely that Americans will by up by $65 billion in credit card debt for 2011. This is the most expensive form of debt, other than outright loansharking.
We see that common families are falling slowly behind. The rich do not run up credit card debt. It’s the average Jane and Joe who do.
Company managers are still scared.
But companies, concerned about a Congress and an administration that insist on spewing out regulations and the threat of regulations, are sitting on increasing cash stockpiles. According to the Fed’s Q3 report, non-financial firms increased their liquid holdings by $41 billion from the previous quarter.
The situation is Europe remains bad. There is no resolution to the massive debts of the PIIGS and the massive expposure of northern Europe’s banks to a default.
“The word ‘depression’ frightens a lot of people. It should. But, we are in one now,” noted economic analyst Jeff Harding. “Since we, in my opinion, have not yet recovered from the Crash of 2008, we are in a depression. Just ask the 25 million Americans who either don’t have a job, can’t find one, stopped looking, or are working part-time because they can’t find full-time work. Just ask the 24 percent of home owners whose homes are financially underwater.”
Legendary investor Jim Rogers was even more pessimistic, offering apocalyptic scenarios that could ensue if policy makers continue down the dangerous path they have been traveling. During a recent interview with conservative personality Glenn Beck, Rogers warned that the worst was yet to come.
Americans are falling behind steadily. “American households have lost about $8 trillion of their net worth so far during Obama’s first term. That’s about $27,000 for every person in the country, not including the trillions in federal debt tacked on in recent years.”
The average family has few economic reserves to fall back on. It is a time for frugality. But frugality is seen as old-fashioned. People are cutting back on their overall debt, which is good, but they are not cutting back fast enough.