Wikinvest Wire

Our asset-dependent economy

Thursday, December 11, 2008

The Federal Reserve's latest Flow of Funds Report contains some painful news about how our asset-dependent economy is faring in what is now an increasingly asset-averse world. This time around we have double the trouble as prices for both stocks and housing are declining.
IMAGE The two pairs of black arrows in the chart indicate how we made the nearly seamless transition from a stock market bubble to a housing bubble earlier in the decade. The overall value of assets just flat-lined there at around $50 trillion between 1999 and 2002 and then, when the housing bubble kicked into high gear, assets zoomed another $25 trillion higher.

Now, only a year or so into the bursting of the housing bubble, stocks have also headed south in sympathy, the total value of household assets having already dipped some $6 trillion from the peak of $78 trillion one year ago.

Things will certainly get worse when data for the current quarter is reported and who knows what the new year will bring, but it probably won't be good - at least for a while.

As for debt, overall household assets at $71 trillion still far exceeds overall household debt of just under $15 trillion, but it probably doesn't feel like we're $56 trillion ahead.

What it probably does feel like is what's depicted in the chart below - the tango between household real estate assets and mortgage liabilities. Note that a longer time scale version of this chart was posted hours ago by the always alert Calculated Risk along with a rather depressing image of what's happened to household percent equity, which just dipped below 45 percent.
IMAGE It's pretty clear where we go from here in the short-term (things get worse), but it will be interesting to see what happens to these curves over the next year or so.


Anonymous said...

We're $56 billion ahead? You got to be kidding!

Add $11 trillion of Federal Government Debt. Add in state, city, county, corporate debt and we have somewhere in the neighborhood of $58 trillion of debt.

And from the $71 trillion in assets, subtract all the Credit Default Swaps written by insolvent banks who cannot cover them. Not sure what percent of the $100 trillion of CDS's worldwide is USA owned, but let's say 10% as a conservative estimate is. That's $10 trillion of ASSETS that do not count.

Now, another adjustment to the debt: Add the CDS's that USA insurance companies and banks wrote and are on the hook for. Again, let's say 10% as a conservative estimate.

So, the numbers are now $61 Trillion in assets and $68 trillion in liabilities. We're insolvent already.

But wait, we haven't even added the present value of unfunded Medicare A&B liabilities about $98 tillion, Social Security unfunded liabilities of $34 trillion, add unfunded liabilities of Medicare part D of about $18 billion.

Oh, and then add in unfunded liabilities of Federal, State, county, local pensions.

Lucky the market looks the other way. We're way deep into broke territory.

The USA. An experiment in freedom which is now over - enslaved in debt.

Too bad we do not have a constitutional amendment which prohibits the increasing of public debt. Or a "none of the above" option on voting. Both are the only things that are needed to save this country.

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