America: Now $8-to-$14 Trillion Poorer


The Federal Reserve's Flow of Funds report for first quarter 2009 [pdf] puts total U.S. household net worth at $50.4 trillion, down $1.3 trillion dollars from fourth quarter 2008.  This is the seventh straight quarterly decline, CNN notes. Green shoot version: Bloomberg says the rate of decline has slowed since the fourth quarter of aught-eight. More coverage.

Just how much has household net worth dropped since the peak? Calculated Risk calls it $14 trillion, as does CNN, which refers to an "all-time high of $64.4 trillion in the second quarter of 2007."

Those figures don't seem to agree with the historic data in previous FOF reports, which indicate that the peak came in the third quarter of 2007.

First quarter 2009 [pdf]:

Household net worth--the difference between the value of assets and liabilities--was an estimated $50.4 trillion at the end of the first quarter of 2009, $1.3 trillion dollars less than at the end of 2008.

Third quarter 2007 [pdf]:

Household net worth--the difference between the value of assets and liabilities--was at an estimated level of $58.6 trillion at the end of the third quarter of 2007, $0.6 trillion dollars more than in the preceding quarter.

If I'm missing/misreading/misinterpreting something, please deliver swift kicks in the comments. Comparing these two, it looks like household net worth declined only $8.2 trillion since the 2007 peak. But what's $5.8 trillion in post-capitalist America?

Where did the money go?

Flow of Funds figures don't get a lot of attention because they arrive three months after the fact, but they are an interesting tool for guessing the size of the bubble and the depth of the bust. The American people are now worth about what they were worth in 2004, but the value keeps dropping. And there are reasons to think the value can go a lot lower: In many regions, nobody's buying houses at all, so how do you really value real estate holdings there? Even without that wild card, the sum of "real estate holdings" is subject to revision: The equity share of total real estate owned now stands at only 41.4 percent, down from 42.9 percent in the fourth quarter. One in five Americans now owe more than their house is worth.

So it comes down to when you think valuations of everything -- real estate, stocks, bonds, savings -- started going out of whack. The end of the 2001 recession? The beginning of the century? The beginning of the dot-com bubble? The Reagan era? I'm working on a thesis that it all started going south for the U.S. economy when Ohio became a state; it's just taken a while for the effects to become clear.

In any event, the FOF's claim to putting a price on the entire U.S. economy (which itself should be viewed with skepticism) makes the quarterly report valuable for handicapping. You may believe the price of all that stuff out there is at or near its low point; or you may think the country is moving back to a state of nature. Either way, it's worth a look.