Every three months the Federal Reserve releases an enormous pile of numbers. It’s called “Z.1 Financial Accounts of the United States.” It examines the flow of funds through our economy and the balance sheets of different sectors. It’s good bedtime reading. My personal favorite is the “Household Balance Sheet” because it tells us how we are doing, collectively, by reporting on our holdings of all kinds of assets.
The most recent report, released in mid September, provides no big surprises. Covering the second quarter, it tells us that our collective wealth increased by nearly $700 billion from the previous quarter and that our total assets have been increasing in each year of the recovery. More to the point, our collective net worth is now higher than it was at the peak of the bubble in 2007. If you’re lucky you’ve noticed. You have a comfortable feeling of increased ease and affluence. Then again, maybe you haven’t noticed.
Back then we had total assets of $81.2 trillion and a net worth of $66.8 trillion. Today we have total assets of nearly $100 trillion and a net worth of $85.7 trillion. That sounds pretty nice. And in a grand sense, it is. Richer is better.
There’s only one problem. If you ask those ever-present ‘nattering nabobs of negativism’ questions, a different message starts to emerge: the rich are, quite definitely, getting richer. Others, not so much. Here’s why.
Consumers Are Still Borrowing To Look Good.
We like our stuff. So we keep borrowing to buy it. Over the period the amount we hold in consumer durables--- which is mostly cars—rose modestly, from $4.5 trillion to $5 trillion. But consumer credit has more than fully recovered. It rose from $2.6 trillion to $3.3 trillion, an increase of $700 billion. So we own more stuff, but we also owe more on it.
This is important because the reality is that most Americans have more money invested in the used car market (because they own a car or two) than they have invested in the stock market.
It’s also useful to put consumer credit in perspective. The $700 billion increase is far smaller than the $1.2 trillion decrease in home mortgage debt.
Housing Has Recovered, But For Whom?
From its $20.7 trillion peak in 2007 housing crashed and then recovered, but just barely, to $21.5 trillion, a gain 3.9 percent. Things are actually a little better than that because we also paid down (or had foreclosed) home mortgages. They went from $10.6 trillion in 2007 to $9.4 trillion, a decline of nearly 12 percent. So our houses are worth a bit more and we owe less on them.
But those figures don’t sort out the churn. Some people didn’t participate in the recovery. They lost their houses and became renters. Others may still be short of recovery, having purchased close to the market peak. But if you bought your home well before 2007 (the earlier the better), you’ve probably got more equity than you thought you had in 2007.
Another wrinkle is that the Federal Reserve figures indicate a recovery nationally, but it really depends on where you live. According to the Case-Shiller indexes, Las Vegas, Phoenix and Miami are still far below their peak in the bubble. San Francisco is just short of recovered. Los Angeles has only 13 percent to go. Denver and Dallas, on the other hand, never crashed. They are up a healthy, but not worrisome, amount.
We may have the same amount of money in our homes collectively, but it has moved into different pockets.
Holdings in individual stocks are up.
The value of the stocks we hold is up a handsome 36 percent, from $9.9 trillion to $13.5 trillion. But that’s another distribution story. Most people don’t own individual stocks, so the major beneficiaries of individual stock ownership are the big dogs.
Mutual Funds are up, too.
The best news is here. The value of mutual funds we collectively own has risen from $4.6 trillion to $7.8 trillion, an increase of 65 percent. With a multitude of 401(k), 403(b) and IRA accounts out there, this is where it’s difficult to argue that only the rich are getting richer. Lots of very regular working stiffs have been getting richer, too.
Another interesting change is that houses have dropped from 25.5 percent of our total assets to 21.3 percent. Mutual funds have increased from 5.7 percent to 8.3 percent. That’s a good thing. It means we’re collectively less dependent on housing for our sense of personal wealth.