What To Do About Declining Wealth?

From the Washington Post:

The recent recession wiped out nearly two decades of Americans’ wealth, according to government data released Monday, with ­middle-class families bearing the brunt of the decline.
The Federal Reserve said the median net worth of families plunged by 39 percent in just three years, from $126,400 in 2007 to $77,300 in 2010. That puts Americans roughly on par with where they were in 1992.
“It’s hard to overstate how serious the collapse in the economy was,” said Mark Zandi, chief economist for Moody’s Analytics. “We were in free fall.”
The recession caused the greatest upheaval among the middle class. Only roughly half of middle­-class Americans remained on the same economic rung during the downturn, the Fed found. Their median net worth — the value of assets such as homes, automobiles and stocks minus any debt — suffered the biggest drops. By contrast, the wealthiest families’ median net worth rose slightly.
 Not only were Americans still facing significant debts, but they were making less money. Median income fell nearly 8 percent, to $45,800, in 2010. The median value of stock-market-based retirement accounts declined 7 percent, to $44,000.

 The poorest families suffered the biggest loss of wealth from the drop in real estate prices. But middle-class Americans rely on housing for a larger part of their net worth. For some, it accounts for just more than half of their assets. That means every step downward is felt more acutely.
Rakesh Kochhar, associate director of research at the Pew Hispanic Center, calls this phenomenon the “reverse wealth effect.” As consumers watched the value of their homes rise during the boom, they felt more confident spending money, even if they did not actually cash in on the gains. Now, the moribund housing market has made many Americans wary of spending, even if their losses are just on paper.

From Amir Sufi:

My view:

The fallout from the 2006-2007 housing collapse is still working its way through the economy.

The gigantic reduction in net worth for the average American can not be understated.

We are now back at the net worth level we were at in 1992!

The original 80 page report from the Federal Reserve can be found here.

Even more troubling, net worth in adjusted 2010 dollars are 12% lower now than in 1983 when they were $88,000.

Over a period of nearly 30 years the typical American household's net worth has gone backward.

In my view, the debt deflation that occurred since 2007 will continue even further.  Household income dropping combined with falling net worth do not equal a new boom in lending or housing prices.

As Economic Winter continues, the misallocation of capital to housing, stocks, bonds, and leveraged asset classes will be unwound.

So what is the typical American to do to protect what remains of their wealth after 30 years of zero progress in net worth?

It is clear from a long term view of the stock market that there has been no progress since 2001 if one used a buy and hold strategy.

If one looks to bonds, a similar results are evident.

Bond yields have plunged over the past 20 years.

So where does one place their hard earned cash?

Precious metals have outperformed for the past 10 years.

Based on the charts and the recent period of consolidation, I anticipate a further big move up both in the metals and the miners in just a few short weeks.

It seems that based on recent history only PMs have protected our net worth from Corporate and Government shenanigans.


  1. Good post PW. Note miners are not digging for Bonds or Stocks..Gold! is and always will be REAL money.

    Sad part is most Americans are clueless to this analogy, as prevalent to their voting abilities.

    Be well


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