Wealth implosion: It's not just housing

CNN Money ^ | 06/19/12 | Tami Luhby

[TigerLikesRooster]

Wealth implosion: It's not just housing

By Tami Luhby @CNNMoney June 19, 2012: 2:32 PM ET

NEW YORK (CNNMoney) -- Americans' net worth collapsed in recent years, but don't blame the housing market for it all.

A CNNMoney analysis of new Census Bureau data shows that if you strip out the effects of the housing collapse, median household net worth still fell by 25% between 2005 and 2010. The decline was driven largely by the plummeting stock market, which devastated Americans' portfolios and retirement accounts.

Overall, median household net worth declined 35% to $66,740 in 2010.

The median worth of stock and mutual fund portfolios fell 33%, while the median home equity value dropped 28%.

"One of the significant factors is housing, of course, but it's not that alone" said Alfred Gottschalck, an economist with the Census Bureau. "It's how business conditions affect stock and retirement accounts."

[arrogantsob]

Central banks cannot indefinitely peg nominal interest rates (r) since the inflation in the money supply necessary to peg its rate will fuel inflationary expectations (x) which are then worked into the nominal rate (n). n = r+x

In other words, say they pick a r of 2% and that the inflation required to keep it there causes a 2% increase in the expected inflation rate (x). Then rather than have an n of 2% it jumps to 4% (2% r and 2% x). This is the rate people will pay. Plus, of course, whatever the actual inflation rate when this started which was worked into the initial rate.

Low interest rates are part of the standard monetary prescriptions for recession/depression. But we appear to be seeing an example of Keynes’ idea of the Liquidity Trap which makes Monetary Policy powerless especially when risk-takers are not inclined to take risks because of punitive tax policies.

With interest rates this low the correct monetary policy should lock in rates for government debt at the longest possible maturities. Real rates must be extremely low since nominal ones are barely above the rate of inflation.

[arrogantsob]

In my case it is almost entirely a drop in housing value of 1/3. But this drop allowed my boys to buy housing which they could not have afforded five years ago. So I am not complaining too much.

[rbg81]

Obviously, the interest rate for everyone isn’t low. But for countries that have “safe haven” status (US, Japan, Germany, UK, etc), they are. I contend that inflation is actually quite high (especially food inflation), but that is not getting factored into the official inflation rate. I also believe that the Fed buying of USTs (with $$ from thin air) is helping to keep interest rates artificially low. Because the alternative means the System will unravel.

[Lurker]

There is dignity in all honest labor.

[arrogantsob]

It is pretty hard to have inflation when the housing and construction sectors of the economy are flat on their backs. This is why inflation has remained quite low, lower than I would have expected.

There is no inconsistency in having one or more sector with price increases and have the overall rate stay relatively stable. Inflation is a rise in the General price level. After the initial Obama increase in energy prices they have remained fairly stable as well so are not pushing current inflation up. And unemployment and the bad economy is keeping wage increases down.

[mrsmith]

“I also believe that the Fed buying of USTs (with $$ from thin air) is helping to keep interest rates artificially low. “

And what of the future day when the Fed is holding 3% bonds when inflation is 10%?

[Toddsterpatriot]

We lost 22 million manufacturing jobs over the last 20 years due to trade policies that opened our markets

Neat trick, since we've never had 22 million manufacturing jobs, ever.

[gura]

Everyone seems to have missed the point. You create growth in an economy when you move things from a position of lower value to a position of higher value.

There is absolutely dignity in all honest labor, and a good worth ethic is not only American, but a value we should all aspire to and continue to pass on.

But any weakness in the American economy isn’t due to a lack of shoe factories, sweatshops, and other low-paying jobs. It’s a testament to the wealth of our country that we outsource the production of those goods somewhere else.

[Grampa Dave]

Thanks for posting this. I will be sending it the parents of our school age grandkids, nephews and nieces.

By allowing the 2003 tax cuts to retire, President Obama will be increasing the bottom rate from 10% to 15% and the 20% bracket to 25%.

math here:

Raising the 10% bracket to 15% represents what percentage of increase? Hint: The correct answer is NOT 5%.

Raising the 20% bracket to 25% represents what percentage of increase? Hint: The correct answer, again, is NOT 5%.

Finally, raising the 35% bracket to 39% represents what percentage of increase: Hint: The correct answer is NOT 4%.

Extra credit question: People in which tax bracket will see the largest percentage of increase in their taxes?

Extra extra credit question: People in which tax bracket will see the smallest percentage of increase in their taxes?

To those moving from the 35% to the 39% tax bracket...that’s roughly an 11% increase in taxes.

From 20% to 25%...that’s a full-blown 25% increase in taxes.

To those moving from the 10% bracket to 15%, their taxes will be increased by a whopping 50%.

So the low-income people get their taxes raised even more when seen as a percentage. And the rich folks lose a higher magnitude of money, but the percentage compared to what they already make is lower.

[Grampa Dave]

“we’ll still be meeting one another in the future as Wal-Mart Greeters because we’ll need to work well into our 70’s and 80’s at this point...”

Actually, Wal Mart has dced its greeters and put them on the floors to answer questions, help customers find items, restock returned items and items left in carts and not bought.

Target has used this concept for along time.

The hidden objective of the greeters was to let wanna be shoplifters know they were being watched as they were greeted while entering the store.

Now, they have people on the floors helping the video security systms to deter shop lifters.

[mistfree]

Actually, we don't need tariffs we would have manufacturing flocking to our shores if we didn't have the highest corporate tax rate in the industrialized world. Congress does carve outs and special legislation for it's cronies and the average business takes it in the neck. Make one simple LOW corporate tax rate that applied to everyone, no exceptions, and business would never think of leaving. The political stability of the US is very attractive to them all else being equal. While we're on the subject, why do we subsidize losses with tax write-offs? You don't do well in the market place too bad, that's the breaks in business.

[MSF BU]

I agree with you; what I had in mind was a young person/couple buying a four family and living in it. Owner occupied properties of four families or less tend to be pretty good investments, in my experience. The question is, do the owners really want to live in these areas?

[TurboZamboni]

correction to my statement:

To those moving from the 35% to the 39.6% tax bracket-that’s roughly a 13% increase in taxes.

Since we’re going from 6 different brackets to 5, we can only decode the lowest and highest with any certainty.

also, there is no 20% bracket,according to the article...my mistake.

People in which tax bracket will see the largest percentage of increase in their taxes?
The people in the lowest bracket will see the largest increase.

People in which tax bracket will see the smallest percentage of increase in their taxes?

can’t tell with the information given.