Friday, June 06, 2008
Some of us non-economists have long thought that an economy based on keeping asset prices forever rising faster than debt was not only impossible but dangerous. The latest data from the Federal Reserve's Z1 report shows that the same problems from earlier in the decade are back only this time both real estate and stocks are falling.
These are all year-end figures, so the peak in household assets in 1999 actually grew a little bit in 2000 prior to the modest overall decline in the years following. The reason for just the "modest" overall decline was due to housing - note the expanding violet area that greatly helped to offset the contracting green area up until equity markets rebounded in 2003.
Of course, the debt doesn't go away nearly as fast as the asset value as shown below.
Since only the first quarter data is available for 2008, extrapolating out through the rest of the year would paint a quite dismal picture - higher debt and perhaps much lower real estate assets.
There's got to be a better way to run an economy.