Category Archives: household wealth

9/5/20: Some uncomfortable facts on the U.S. wealth distribution since 1989


The distributional effects of COVID19 pandemic impact on the labour markets in the U.S. will likely result in a massive debasement of the national wealth shares of the 'Main Street' segment of American society (the 90 percent) and a further increases in the national wealth share of the top 10 percent. So much is rather clear from the data on the labour markets (e.g.: https://trueeconomics.blogspot.com/2020/05/8520-path-of-tornado-us-labour-force.html).

But this process is not a unique feature of the current 'ideology' prevailing in the White House, nor is it a unique feature of the 'Republican Party ideology'. Historically, both, the Democratic Party Presidencies and the Republican Party Presidencies since the start of the 1990s on have been responsible for the dramatic drops in the share of national net worth accruing to those outside the top 10 percent of the wealth distribution. Here is the data through 4Q 2019:



The last time, the 'Main Street America' enjoyed sustained increases in net worth was during the tenure of George H. W. Bush. Since then, there have been just one short-lived period of increase in net worth, with subsequent declines erasing fully those gains: the Dot.Com bubble during the tail end of the Clinton and the starting part of the George W. Bush administrations.

And the current Presidency is actually somewhat exceptional to the trend: under Trump Administration, American's Main Street witnessed the lowest rates of decline in their share of the national net worth of 'just' 0.13% per annum, of all post-1992 administrations. In fact, the share of the country's net worth accruing to the bottom 50 percent of Americans has risen under the Trump Presidency tenure at the fastest annualized clip since the data series started.

In simple terms, American policies of destroying the prosperity of the majority of the country's population are not reflective of the 'political divide'. Both, Democratic and Republican Presidencies have led to the effective debasement of the wealth of the American Main Street. And, in equally simple terms, the Trump Administration tenure so far has been more benign to the bottom 50 percent of the American wealth distribution than any presidency since 1989.

Like it or not, but the data is quite telling.

23/4/19: Property, Property and More Property: U.S. Household Wealth Bubble


According to the St. Luis Fed, U.S. household wealth has reached a historical high of 535% of the U.S. GDP (see: https://www.zerohedge.com/news/2019-04-16/where-inflation-hiding-asset-prices).


There is a problem, however, with the above data: it reflects some dodgy ways of counting 'household wealth'. For two primary reasons: firstly, it ignores concentration risk arising from wealth inequality, and secondly, it ignores concentration risk arising from households' exposure to property markets. A good measure of liquidity risk controlled allocation of wealth is ownership of liquid equities (note: equities, of course, and are subject to Fed-funded bubble dynamics). The chart below - via https://www.topdowncharts.com/single-post/2019/04/22/Weekly-SP-500-ChartStorm---21-April-2019 shows a pretty dire state of equity markets (the source of returns on asset demand side being swamped over the last decade by shares buybacks and M&As), but it also shows that households did not benefit materially from the equities bubble.


In other words, controlling for liquidity risk, the Fed's meme of historically high household wealth is seriously challenged. And controlling for wealth inequality (distributional features of wealth), it is probably dubious overall.

So here's the chart showing just how absurdly property-dependent (households' home equity valuations in red line, index starting at 100 at the end of the Global Financial Crisis) the Fed 'wealth' figures (blue line, same starting index) are:


In fact, dynamically, rates of growth in household home equity have been far in excess of the rates of growth in other assets since 2012.  In that, the dynamics of the current 'sound economy' are identical (and actually more dramatic) to the 2000-2006 bubble: property, property and more property.

23/4/19: Property, Property and More Property: U.S. Household Wealth Bubble


According to the St. Luis Fed, U.S. household wealth has reached a historical high of 535% of the U.S. GDP (see: https://www.zerohedge.com/news/2019-04-16/where-inflation-hiding-asset-prices).


There is a problem, however, with the above data: it reflects some dodgy ways of counting 'household wealth'. For two primary reasons: firstly, it ignores concentration risk arising from wealth inequality, and secondly, it ignores concentration risk arising from households' exposure to property markets. A good measure of liquidity risk controlled allocation of wealth is ownership of liquid equities (note: equities, of course, and are subject to Fed-funded bubble dynamics). The chart below - via https://www.topdowncharts.com/single-post/2019/04/22/Weekly-SP-500-ChartStorm---21-April-2019 shows a pretty dire state of equity markets (the source of returns on asset demand side being swamped over the last decade by shares buybacks and M&As), but it also shows that households did not benefit materially from the equities bubble.


In other words, controlling for liquidity risk, the Fed's meme of historically high household wealth is seriously challenged. And controlling for wealth inequality (distributional features of wealth), it is probably dubious overall.

So here's the chart showing just how absurdly property-dependent (households' home equity valuations in red line, index starting at 100 at the end of the Global Financial Crisis) the Fed 'wealth' figures (blue line, same starting index) are:


In fact, dynamically, rates of growth in household home equity have been far in excess of the rates of growth in other assets since 2012.  In that, the dynamics of the current 'sound economy' are identical (and actually more dramatic) to the 2000-2006 bubble: property, property and more property.