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Household Wealth In U.s. Decreased By $1.3 Trillion

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Household Wealth in U.S. Decreased by $1.3 Trillion

U.S. household wealth fell in the first quarter by $1.3 trillion, extending the biggest slump on record, as home and stock prices dropped.

Net worth for households and non-profit groups decreased to $50.4 trillion, the lowest level since 2004, from $51.7 trillion in the fourth quarter, according to the Federal Reserve’s Flow of Funds report today. The government began keeping quarterly records in 1952.

Americans are cutting back on spending as unemployment surges, home prices continue to drop and wealth evaporates, signaling any economic recovery will be slow to develop. The drop in net worth is one reason Americans are boosting savings, blunting the effect of the tax breaks and income supplements from the Obama administration’s stimulus plan.

“It’s going to be very difficult to have any recovery in consumer spending without jobs and incomes recovering first,†said Christopher Low, chief economist at FTN Financial in New York. “The probability of a debt-financed consumer spending binge like we saw in the last expansion is essentially nil.â€

Retail sales rose in May for the first time in three months, an increase driven almost solely by U.S. shoppers returning to automobile showrooms seeking bargains and the rising cost of gasoline, a report today from the Commerce Department showed.

Smaller Decline

One positive aspect of today’s Fed report is that the decreases in net worth are starting to ease. Wealth dropped by a record $4.9 trillion in the last three months of 2008.

Americans have taken on less debt as the economic recession unfolds. While the jump in savings rate to 5.7 percent in April was helped by an increase in incomes linked to the fiscal stimulus plan, some economists are forecasting savings will continue to rise as consumers hold back on spending.

Real-estate-related household assets decreased by $551.1 billion, following a $974.5 billion decrease in the fourth quarter. Net worth related to corporate equities fell by $347.8 billion the first three months of this year.

Owners’ equity as a share of their total real-estate holdings decreased to 41.4 percent last quarter from 42.9 percent in the fourth quarter, today’s Fed report showed.

Consumer debt fell at a 1.1 percent annual pace following a 2 percent decrease in the fourth quarter that was the first drop on record.


Mortgage borrowing was unchanged from January through March, the first time in a year it didn’t fall, the Fed’s report showed. Stabilization in real-estate lending adds to evidence that the housing slump is easing.

Total borrowing by consumers, businesses and government agencies increased at an annual rate of 4.1 percent last quarter compared with a 6.2 percent gain the prior quarter. The gain was paced by a 23 percent surge in borrowing by the federal government, reflecting spending linked to the stimulus plan.

Business borrowing decreased at a 0.3 percent pace after rising 1.5 percent the prior quarter, the Fed said.

Borrowing by state and local governments increased at a 4.9 percent rate.

The economy contracted at a 5.7 percent annual pace in the first quarter and consumer spending rose at a 1.5 percent pace.

Economists surveyed by Bloomberg News this month forecast unemployment will climb to 10 percent by the end of the year and lowered their projections for consumer spending in the second half of the year to an average 1.1 percent annual pace. For all of 2009, purchases will drop 0.7 percent, the worst performance since 1974, according to the Bloomberg survey.

And a further opinion on the matter:

The Big Wipeout

The Federal Reserve today announced that U.S. household net worth fell by $1.3 trillion in the first quarter, which sounds like a pretty big deal.

However, sometimes percentages and graphs tell a better story when it comes to numbers like this.

For example, since its peak in the third quarter of 2007, household wealth has decreased by 21.6%, or more than a fifth, which is the most dramatic fall in the series since reporting began more than a half century ago.

And just to emphasize how big of an economic shock this wipeout has been, take a look at the accompanying chart, which plots quarterly values of the 12-month change in net worth as a percentage of nominal gross domestic product.

How anyone could think that the effects of so much wealth destruction in such a short period of time could be quickly overcome is beyond me.

Our American cousins truly are facing their financial biggest challenge since the depression, especially as they look to the drastic cuts that Californians will have to make to survive the rest of this year.

A complete rout of middle class wealth through disaster capitalism. The home of the brave and land of the free at its worst. 1776 anyone? Rule of men? Republic dead in the water?

(sorry about the attached picture file, but the site wouldn't accept the link. Click through on the second article to see it for non-subscribers)



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