U.S. Loss of Wealth Has a Profound Impact on the Economy

Caye International Bank

U.S. EconomyAmericans’ net worth dropped a stunning 38.8 percent from the year 2007 to 2010. Specifically, the gains people have been realizing for the past 18 years are now completely gone. This affects those who had most of their net worth concentrated in their houses more than others because the housing market crash contributed to this loss more than any other cause during the years cited.

In 2007, the average net worth was equal to $126,400 while the Federal Reserve’s latest study found that the average net worth was equal to $77,300 in 2010. The drop of $49,100 is an 18-year low for American net worth. The Central Bank also released numbers describing this drop in net worth but this time, the mean net worth is being discussed. According to the Central Bank, mean net worth dropped 14.7 percent in the United States from $584,600 to $498,800 during the stated years.

Whether people consider the median or the mean net worth, these numbers can be interpreted to say that the amount of wealth Americans owned has returned to 1992 levels. It also shows that no one has escaped the devastating effects that the drop in housing prices has had on the entire country. Every demographic has been affected and lost nearly $50,000 of their net worth. This means that practically every American is engaged in a similar experience.

Over Half the Population Hit

Lance Roberts of Streettalk Advisors, LLC has stated that the bottom 60 to 70 percent of the population is feeling this reality more than anyone in the country. Proof of this can be seen in the difficulties homeowners are having keeping current with their mortgages. So many people have lost value in their houses and are underwater. These people have payments on mortgages that can be as much as $100,000 more than their houses are worth.

The other part of this equation is that a lot of people have experienced a decrease in income over the years. This makes it difficult for them to make their monthly payments and also keep up with all of their other bills. Housing prices and a reduction in income are not the only contributing factors to this problem. People’s retirement accounts and other investment portfolios have also lost value throughout this time. This means that people are less prepared to retire and may have to put it off longer than they thought they would.

Another perspective tells Americans that their high net worth in 2007 was actually artificial. According to economist Christopher Thornberg and many others, housing prices were over-inflated. It was only a matter of time before these prices needed to pull back and decrease as they have done. When this happens, it creates a psychological feeling of being less wealthy, and people begin to act accordingly. For example, feeling poorer will cause people to decide to put off making decisions to purchase new cars, and this also contributed to the downfall in the economy.

Economic Upswing

As of now in the year 2012, the economic news shows improvement in the economy and Americans’ net worth. The Federal Reserve has already released figures for this year’s first quarter, and it stated that net worth increased by 4.7 percent during this time. The main reason for the increase is the gains recorded by the stock market. An even better sign is the fact that housing prices have increased by 2.3 percent since the year 2006 when housing prices were getting ready to crash. Things may be on their way up after all.

 

This article is copyright © 2019 

Tags: , , ,

About this author:

Caye Bank

Caye International Bank Limited (CIBL) was granted an Unrestricted "A" Class International Banking License on September 29th, 2003 by the Central Bank of Belize and is regulated by the Central Bank of Belize which set the standards for liquidity and capital adequacy.

Leave a Reply

*