I wish I had the time to refute your arguments and the data on which they are based. I don't. One of the fundamental problems of determining real wealth, is that there are few if any meaningful standards to use. Net worth depends on the price that will be paid for any asset including cash at the time. It is easy to put down a price and add those current prices to determine net worth. Are you going to determine those values in dollars or ounces of gold or some other unit of measure. Since the "price" or even the value of each of those things changes from second to second and over long periods of time there have been immense changes in each of those potential units of measure, necessity created an accountng need to use a "factor" to adjust prices at various points of time. These become statistics subject to fudging in order to present the best possible picture or to portray the picture desired by the adjuster.
That said, let's look at Net Worth from a slightly different perspective. Stock X has a price of $100/share and you have a thousand shares on margin. At the moment, your net worth is 50k, but the stock begins to fall and you start having a series of margin calls. Your 50k can become a negative net worth in a matter of days. Your stock will be all gone because your broker will sell it, but you could still be left with some margin debt, possibly even a lot of margin debt if the price crashed sufficiently quickly. Real estate has the same potential. Contrary to what a lot of Americans believe, real estate prices can and do fall. I have bought a significant number of foreclosed properties over the years, some for as little as 15 cents on the dollar that was originaly used to buy them with a mortgage. If the price of the RE falls, the debt doesn't. The leverage works in reverse if the price of the asset falls instead of rising.
Based on past Presidential election cycles in the stock markets, we have the bottom of the four year cycle coming up this year or early next year. Using history only as a guide, the average conditions of the past as compared with current conditions, say that on the average the market should correct by 35-40% with this presidential election year cycle. When the Fed is raising rates, history says that a 20% or more correction in RE prices could be dead ahead. Go to the Grandfather's Economic Report website and check out his statistics on debt and family income/net worth data. Factor in a 20% decline in real estate and 30% decline in stock and bonds. Consider the impact on an economy that could be job starved and burdened by soaring unemployment. Will it look a lot like a depression? When the assets have been sold at deep discounts to get rid of them, and the debt remains, what will American family net worths look like then?
The ability to be able to afford taking on more debt, is not equivalent to increasing your net worth. Real net worth can not be measured because there is no standard by which to measure it. Factors used to adjust standards over time are accounting fictions. Warren Buffet has often been quoted as saying, "It is only when the tide goes out, that we learn who has been swimming naked." The evidence is fairly compelling that tide is about to go out. If it does, a very large number of Americans are going to find out that they themselves have been swimming naked and didn't even know it.
That said, let's look at Net Worth from a slightly different perspective. Stock X has a price of $100/share and you have a thousand shares on margin. At the moment, your net worth is 50k, but the stock begins to fall and you start having a series of margin calls. Your 50k can become a negative net worth in a matter of days. Your stock will be all gone because your broker will sell it, but you could still be left with some margin debt, possibly even a lot of margin debt if the price crashed sufficiently quickly. Real estate has the same potential. Contrary to what a lot of Americans believe, real estate prices can and do fall. I agree that you have to be careful in judging the recent increase in household net worth. As the first graph at http://home.att.net/~rdavis2/worth.html shows, stocks rose rapidly from 1994 to 1999 but then plummeted until 2003. Real estate values began rising sharply in the late 90s. Only time will tell if and to what degree they may stagnate or even decline.
In any case, bringing up household net worth when discussing government debt is a little like mentioning your rich neighbor when discussing your own debt. There are currently no proposals to use that household net worth to service the federal debt. The following graph shows the projected growth in government debt through 2080 according to the most recent budget:
The actual numbers and sources are at http://home.att.net/~rdavis2/pro2007.html. As can be seen, the debt is projected to rise to 177% of GDP by 2080. This is well above the previous maximum of 122% of GDP reached at the end of World War II. This level of debt assumes the collection of all taxes authorized under current law. Hence, unless those who point the the household net worth are proposing new taxes on that wealth, it will not help us to deal with the rapidly increasing government debt.
I wish I had the time to refute your arguments and the data on which they are based. I don't.You don't have the ability. Take your time. Think really hard. We'll be waiting.
One of the fundamental problems of determining real wealth, is that there are few if any meaningful standards to use. Net worth depends on the price that will be paid for any asset including cash at the time.
First you say there is no meaningful standard, then you mention price. You refute your own argument in the very next sentence.
Since the "price" or even the value of each of those things changes from second to second and over long periods of time there have been immense changes in each of those potential units of measure, necessity created an accountng need to use a "factor" to adjust prices at various points of time.
You have a source that discusses this mystery "factor"?
That said, let's look at Net Worth from a slightly different perspective. Stock X has a price of $100/share and you have a thousand shares on margin.
See, you've got it. You add the $100,000 of stock and the $50,000 of margin debt to get your net worth. How hard is that? Next quarter, repeat.
Using history only as a guide, the average conditions of the past as compared with current conditions, say that on the average the market should correct by 35-40% with this presidential election year cycle.
Really? How short are you? Since the market should drop by 35-40%.
When the Fed is raising rates, history says that a 20% or more correction in RE prices could be dead ahead.
Really? Didn't the Fed Funds rate double between 1993 and 1995? I don't remember RE prices dropping 20%. Maybe you have a link?
Real net worth can not be measured because there is no standard by which to measure it.
And therefore, we are obviously doomed. LOL!
The evidence is fairly compelling that tide is about to go out.
Yeah, okay. Buy gold! I just hope it doesn't drop 60% like it did in the early 1980s.