Thursday, September 18, 2008
It looks like we're undergoing another one of those painful "wealth contractions" - similar to what we saw in 2001 when the last asset bubble burst. A short time ago, the Federal Reserve released their quarterly Z1 Flow of Funds Report and the news isn't good.
The value of real estate and equities owned by households has now shrunk for three consecutive quarters while traditional savings have increased modestly.
When it comes to households and their real estate assets and liabilities, the news is even worse. The home value seems to be going away much faster than the associated debt which, as of the second quarter, was still going up.
It's funny that, here in 2008, you don't hear any economists talking about how we don't need to pay attention to the pathetically low savings rate of recent years since asset prices continue to go up and we're all getting wealthier.
Maybe old fashioned savings is a good idea after all.