How Much Poorer Are We? Grim New Numbers

You may have heard that Americans lost a lot of wealth in the first part of the great credit unwind. How much? According to a new survey from the Federal Reserve Board, Americans lost as much as 23 percent of their wealth between 2007 and 2009.

That may sound extreme, but it is close to the aggregate decline I reported on, using Fed Flow of Funds data, in 2009. At that time, it looked like somewhere between $8 trillion and $14 trillion in household net worth was lost from a peak of either $58.6 trillion or $64.4 trillion. That's a decline of either 14 percent or 22 percent.

The Fed study "Surveying the Aftermath of the Storm: Changes in Family Finances from 2007 to 2009" [pdf] suggests that higher number was close to the mark: "The mean (median) fell from $595,000 ($125,000) in 2007 to $481,000 ($96,000) in 2009." The study is a re-interview of people who took part in a 2007 Survey of Consumer Finances, and its findings confirm at a more granular level the cumulative loss of wealth reflected in the Fed’s quarterly statistics. More than 60 percent of families lost wealth over the period; about a quarter gained wealth to small degrees.

You may find the lengthy explanations of methodology less riveting than I do, but a few points jump out:

* This recession hasn't been good for economic mobility. Although there's been plenty of movement – mostly downward – in net worth, there’s been very little change in families’ positions in wealth rankings. “[T]he most common single outcome was relatively small or no change in a family’s relative position in the distribution.” Even relative upward mobility can mean little when everybody’s getting burned. “For example, 18 percent of families whose rank in the wealth distribution improved by three to ten percentile points in fact had a decline in their wealth.”

* …But it might be good for marital stability. Households without a spouse were more likely to get hitched during the two-year period than married/partnered households were likely to split up.

* When will someone think of the rich? Relatively speaking, poor households did better over the period than wealthier households: “[I]ncome increased for families with income below the 2007 median and income fell for families with income near and above the 2007 median;” “[R]egions and age groups with the lowest median incomes in 2007 tended to experience increases in median income as well as positive dollar and percent changes;” “Families that moved up the wealth distribution by three or more percentiles tended to have lower wealth than other families;” and “There was greater variation in wealth changes for lower-income families.” (There may be some skewing because changes in wealth seem more substantial the closer you get to zero.) Again, this comports with anecdotal evidence: The difference between the Great Recession and the usual recessions is that this time even rich people got hit.

* Debt = poverty. “Across the wealth-change categories, families that moved down the wealth distribution from 2007 to 2009 by more than three percentile points tended to become more highly leveraged over this period.”

* Real estate is still the word of our undoing. “The largest percentage declines in the median values of nonfinancial assets in the SCF panel were for vehicles, primary residences and non-residential real estate.” Not surprisingly then, “losses tended to be greatest for families living in the west, a reflection in large part, of the relatively greater declines in real estate prices in that region.” Increases in real estate ownership were more than offset by increases in the share of mortgage debt. Although the decline in the equity portion Americans own of their homes is a catastrophe decades in the making, the recession accelerated this trend. 

* Most of the decline came from loss of asset values rather than willful changes in the asset mix. “[T]he majority of families passively accepted changes in portfolio shares driven by changes in asset prices.” Hand up over here! In fact, I’m not even sure how you can make big changes to your mix of holdings when everything’s losing money. How can you sell when nobody’s willing to buy?

* Unemployment matters less than they want you to think. “In general, the relationship between unemployment spells and shifts of families within the wealth distribution appears weak.” Again, you read it here first.

* ...And debt matters more than they want you to think. “Median total debt increased from $70,300 to $75,600.” The ratio of total debt to assets increased in part because the assets lost value rather than conscious decisions to take on more debt. And to the extent that people did reduce debt, brute-force deleveraging doesn’t seem to have made much difference: People who were heavily leveraged in 2007 but moved up within the wealth distribution “might also include families whose principal residence had a mortgage that exceeded its value in 2007 and who had lost that home by 2009; however, the data show that this situation is a negligible element in the observed outcomes.” 

* Saving is hip again. “Most families in each of the relative wealth change categories reported greater desired precautionary savings in 2009 than they had in 2007.” Certificates of deposit and retirement accounts made up a bigger portion of the asset mix in 2009, which is especially impressive considering that interest rates for consumer accounts are close to zero or negative with inflation. Of the whole asset mix surveyed, only bonds and cash-value life insurance appreciated.

* …And that’s bad news for stimulus believers. While the Fed by its nature discourages savings and both the Bush and Obama Administrations sought to spur the economy by getting people to spend stupidly, it looks like the “wealth effect” is moving in the other direction – toward fiscal caution and away from drunken sailorism: “[T]he proportion agreeing that they would spend more if their assets rose is markedly lower than the fraction agreeing they would spend less if their assets declined in value. This outcome suggests that spending responses to wealth changes may be less symmetrical than has been apparent in aggregate data.” Needless to say, the Fed sees this prudence as bad news: “The data show signs that families’ behavior may act in some ways as a brake on reviving the economy in the short run.” As recently as last Christmas, Keynesians were still hoping for a return to spending, but that didn’t really happen.

In fact, the important question is what has happened to Americans’ wealth since 2009. Real estate has obviously continued to decline, and unemployment is higher than it was at the beginning of 2009. Stock market investments have been up and down, and will be down again. You could make the case that household net worth has been essentially flat since hitting rock bottom in the beginning of 2009. We’re still worth a lot less than we were in 2007, and thanks to the Fed’s two rounds of quantitative easing, our dollars are worth less too.

So basically the only good news here is that Americans remain tough and optimistic people: “In all wealth-change groups, most families found at least something positive in their experience, and the most common response was an answer that indicated a recognition that the workers in the family had managed to keep or get a job or that their income had somehow otherwise been maintained at an adequate level.”

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  • sevo||

    "According to a new survey from the Federal Reserve Board, Americans lost as much as 23 percent of their wealth between 2007 and 2009."

    Uh, gotta gripe here (check the link). The claimed "wealth" was a value presuming housing and other assets were properly valued in 2007.
    Nope; the actual value is what you get when you sell an asset.
    We now "presume" it to be a max of 23% lower, and that could be as inaccurate as the earlier "presumed" value. Both of which "presume" you have to sell at a specific time.
    Actual wealth may have not changed one bit.

  • Tim Cavanaugh||

    Indulge me, sevo.

  • Rather||

    lol.Timmy are you having a bad day?

  • Warty||

    Don't talk back to your betters, tramp.

  • Rather||

    Did an incif bitch type a smart-ass remark?

    BTW Tim, I heard your
    next story is the plight of the Libertarian who got a paper cut because he was forced to read HC papers, and your appropriate comparison will be The Japanese subjecting POWs to anesthesia-free vivisections

  • Warty||

    I have no idea what you said, but I'm sure it involved calling me a bitch, and, more than likely, at least one complete non-sequitur. The people who don't use incif don't know what they're missing.

  • Rather||

    No doubt you are claiming to not read my post because you have incif me. I wonder how the people who pretend to use incif handle the frustration? I bet Warty jerks off, and yells WARTY BLIGGENS, SAVE ME FROM THE BAD GIRL! as you ejaculate

  • Rather's mind||

    ...

  • Rather Retarded||

    I agree.

  • sevo||

    "Indulge me, sevo."

    Awright, but...
    I know that you're familiar with the difference, but the Shrieks/Tonys of the world use data like this to make wild claims that we both know are BS.
    I don't write for a living, but I gotta hope there's something that could be mentioned to make things a bit more clear.

  • Rather||

    Nope; the actual value is what you get when you sell an asset.

    The actual value is when you complete your taxes.

  • Professional Critic||

    You don't pay taxes on an asset that isn't sold. We don't have wealth taxes in this country until you die.

  • Rather||

    Professional Critic? Do you do taxes too? Hmm, I see an audit in your future

  • ||

    You don't pay taxes on an asset that isn't sold.

    And even then it's somewhat dependant on the depreciated value. For business owners, I wonder what the net effect of accelerated depreciation and/or 1031 like-kind's have on their wealth.

  • Rather||

    You must own individual stocks and not mutual funds-otherwise you are all incorrect. The holder is responsible for the net capital gains.

  • ||

    You should go back to writing shitty entries on your blog because you don't know what you're talking about.

    Holders reinvesting can put the proceeds from a sale into an escrow account and defer any capital gains spent on new equipment or real estate through use of a 1031 like-kind exchange. It cannot be used for exchanges of stocks, mutual funds or to replenish inventory. It can even done as a reverse 1031 if the person (or business) knows they will sell something in the near future to pay for a purchase (but it must be set up in advance).

    Trust me, rectal. I deal with these things almost every day with people who don't realize they are getting fucked by the IRS until it's too late.

  • Rather||

    What part of holding stock, and net capital gains do you not understand?

    Go back to your Wal-mart H&R Block booth, and read up on tax law

  • ||

    Yeah, I'm not an accountant. Oh, and it's obvious you don't know what a 1031 is.

    Educate yourself on the 1031 program

    As a side note (in what may directly apply to you), livestock of opposite sexes may not be exchanged as like-kind items. Your marketability just got cut in half.

  • Rather||

    fuck you are an idiot

  • Rather||

    Drastically simplified version:
    In essence, mutual funds shareholders are taxed every year based upon the changes in the values of the funds that they own. Note how this is unlike other investments, which are taxed only when the asset is sold.

    More precise (longer) version:
    Mutual funds are collections of a very large quantity of other investments. For instance, a mutual fund may own thousands of different stocks as well as any number of other investments like bonds or CDs.

    Each year, a mutual fund (like any other investor) is responsible for paying taxes on the net capital gains it incurred over the course of the year. However, instead of the mutual fund paying those taxes itself, each of the fund’s shareholders pays her share of the related taxes.

    What makes the situation particularly odd is that, in any given year, the capital gains realized by the fund can vary (sometimes significantly) from the actual change in value of the shares of the fund.

  • ||

    I'm talking about real (concrete) assets, not paper ones. Try to keep up.

    And what are you quoting? I know you're in the habit of posting someone else's writing as your own, and I can tell the above isn't you because the words bitch, clit, daddy and incif are conspicuously absent.

  • Rather||

    notice the italics? Guess what it means?

    It won't let me post the link
    google obliviousinvestordotcom

  • ||

    Taking tax advice from someone who just passed the first of four parts of their CPA sounds wise.

    I'll take it from my corporate tax attorneys and escrow agents (all CPA's) we use to execute our 1031's, thank you very much.

  • ||

    And based on the search results for "1031" on his blog, he doesn't know too much about them either.

  • Rather||

    I look for a simple site for you. Would you like the IRS quote?

  • AU H20||

    Sloopy, you're on a fools errand! FOOL'S ERRAND!!! I mean, giving that Rectal lacks the basic math skills to tell you how many times her Daddy fucked her, I don't know how you expect her to understand the complexities of the tax code.

    And Rather? Remember how when you were a kid, and the adults needed to talk, you were shut up by having your Daddy's dick jammed in your mouth? Well, in situations like this, just pretend that the adults are talking. If you need a dick to replicate the experience, I suppose I could risk VD for the greater good of HnR, but I'm pretty certain that a rabid Dobermam chewing my crotch to pieces would be more pleasurable than having your lips near my member for a second.

    Anyway, sloopy, please continue, because, as an IRS idiot (seriously, I am lucky I do not have my ass audited- given that I am too young to afford an accountant, I just grill the guys at work until they tell me to go away), I would love to hear more.

  • Rather||

    Dobermam?

    When you fuck your dog you say thank you mam?

  • AU H20||

    @Rather

    No, no... a dobermam is what you are. Go look in a mirror, you'll see what I mean.

    @Sloopy

    Yeah, I think as annoying as threaded comments are, if no one responded to her, the threading would make it easier to avoid her stupid bullshit, which is kind of getting tiresome.

  • ||

    You're right, Goldwater, and I should have learned my lesson from the last thread.

    I started replying to Professional Critic and brought up how 1031's and accelerated depreciation could affect wealth. Rectal took the thread off the rails, as usual, and brought up mutual funds when we were discussing real property.

    You know what? The dumbass can't even write a limerick. Why would I trust her financial advice?

  • Night Elf Mohawk||

    He's not incorrect. The tax is due because the underlying assets of the mutual fund were sold (without offsetting losses) even if the shares of the fund were not. Yet another reason why funds with a lot of turnover are teh suck.

  • wrong||

    she's right again

  • johnl||

    If you can borrow against an asset then it's appraised or market value is a very motivating thing even if there is no way you will sell it..

  • ||

    Actual wealth may have not changed one bit.

    If you could sell your house 23% more in 2007 then you can now that is a loss in wealth.

    The Houses were selling for those prices...one assumes that the "actual" sale of house at an "actual" price is the "actual" value of the home. When those homes sell for less 4 years later the difference in price "actual" loss of value.

  • Rock Action ||

    We put a little sand inside to make the experience more pleasant...

  • Alan Vanneman||

    "Stock market investments have been up and down, and will be down again."

    And, of course, they'll also be up again. What Tim is trying to say is that, when markets don't tell you what you what them to say, predict that in the future they will say what you want them to say. If you don't like the facts, don't change your thinking, change the time-frame.

  • 4chan||

    If you lived like a bum before the recession, then your lifestyle didn't change anyway. College lifestyle for the wiiiiiiiiiiiiiiiiiiiiiiin.

  • Vermont Gun Owner||

    I have weathered this recession like a champ.

  • sevo||

    If you weren't leveraged to the hilt, I can't see any reason you shouldn't.
    That's kinda my point; you only "lost" if your "gains" were based on the 2007 valuations.
    Or unless you held GM bonds. In which case, thank Obama for your bath.
    So far........

  • Sean W. Malone||

    Also, to some degree, if you just got out of say college or graduate school when the stock market collapsed.

    Though, that's a lot like having your "gains" be predicated on 2001-2007 thinking as well.

  • ||

    During this recession I discovered 4chan...

    ....

    ...like a boss.

  • Bob Dylan||

    the only good news here is that Americans remain tough and optimistic people

    The best is always yet to come
    That’s what they explain to me
    Just do your thing, you’ll be king
    If dogs run free

  • CrowWestYoungMan||

    Yet the earth is still getting warmer.

  • db||

    There once was an Empire named 'Murcah...

  • ||

    Where women weren't forced to wear a burka.

  • SIV||

    BAD meter

  • ||

    How do you figure? Both lines are in anapestic trimeter.

    There once was an Empire named 'Murcah...
    Where women weren't forced to wear a burka.

  • SIV||

    You're getting two syllables out of "once"?

  • SIV||

    Of course what do I know. I haven't had an English class since completing all my public school offered in 10th grade back in the late 1970s. I even tested out of taking it in teh college.

  • ||

    Those aren't syllables. They're the feet. Imagine a metronome while you're reading it. The meter's fine.

  • Dello||

    "“In all wealth-change groups, most families found at least something positive in their experience..."

    I haven't had to cut off my arm to feed my kids...yet.

  • johnl||

    We can always count on Tim Cavanaugh to spread the joy.

  • Red Rocks Rockin||

    Shit, he's got a ways to go before he even gets within shouting distance of Balko's transcendental nut-punching prowess.

  • Snobbit||

    .....interest rates for consumer accounts are close to zero or negative with inflation. Of the whole asset mix surveyed, only bonds and cash-value life insurance appreciated.

    But - but, inflation makes my house worth more dollars than it was before. Doesn't that mean I'm richer?

    See, QE works! QE works! Yippee!

    Oh wait. Do I owe more or less? Do I own more or less? Well anyway, it all comes down to more dollars and that what we all want. More dollars! More dollars! Yipee!

  • ||

    “In general, the relationship between unemployment spells and shifts of families within the wealth distribution appears weak.”

    So when unemployment is high jobs are lost in all wealth brackets equally?

  • prolefeed||

    But it might be good for marital stability. Households without a spouse were more likely to get hitched during the two-year period than married/partnered households were likely to split up.

    Ummm, compared to what time period? Or are you saying that there were more marriages than divorces during that time period, without comparing the marriage to divorce ratio to other periods, in which case the number is entirely meaningless?

    Let's say during the time period you speak of, the ratio of marriages to divorces was 1.04 to 1, but say during the most recent boom years the ratio was 1.1 to 1 -- would you still conclude that the recession was depressing marriages versus divorces?

    Fucking statistics -- how do they work?

  • ||

    Fucking statistics

    Never blame statistics and always blame Tim's writing.

  • prolefeed||

    It was unclear whether Tim did not understand the statistics, or did not understand how to write an unambiguous sentence, or quite possibly both.

  • I bet||

    both

  • Ted S.||

    Fucking statistics -- how do they work?

    The male statistic's penis goes into the female statistic's vagina. Didn't you ever learn about the birds and the bees?

    At least, that's traditionally how it's done; you may be into more kinky forms of statistical sex.

  • prolefeed||

    In fact, I’m not even sure how you can make big changes to your mix of holdings when everything’s losing money. How can you sell when nobody’s willing to buy?

    Oh, for fuck's sake, Tim, EVERYTHING that has any value can be sold, in good times and bad. If no one is buying, no matter how low a price tag you put on something, that is an indication that that asset's value has sunk to zero (or below).

  • prolefeed||

    Illustration -- You buy a house for $900K. Soon afterwards, the real estate market tanks. Your realtor says, list it for $650K. You ignore her and list it for $800K. It sits and sits and sits unsold at that price with no offers. Do you conclude:

    1) There are no buyers for houses in your neighborhood, so your house can't be sold?

    2) No one is willing to buy your house at the price you're asking for it?

    Note that the two are not remotely the same thing.

  • ||

    I love the Printapons website. It is so convenient and easy to use. It's coupons are great and there are sooo many. 5 stars all the way.

  • Spoonman.||

    Sounds like a handcrafted tampon.

  • jtuf||

    I saw the Great Recession coming years ago. The Every Other Decade Theory is the best model of America's changing fortunes. I think there is also an 80 year cycle in history. Because the Millennials are living through the Great Recession they will resemble the Greatest Generation for the rest of their lives.

  • Scruffy Nerd Herder||

    In that they will lobby for and institute even more entitlements than existed before?

  • Free Health Care||

    Where do I fit in?

  • Sailor||

    I highly recommend Dividends Still Don't Lie by Kelly Wright for anyone interested in long term investing. It's a short book.

  • Almanian||

    Now I feel bad - I paid cash for a Jeep this weekend :(

    I wonder how the poor people are doing?

  • rain||

    So you can't believe that these are replica handbags? Then you are far not alone. But it is

    time to accept the truth that replica prada handbags can be as fascinating!
    asdsada

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