Replies

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.

The graph you have shown for government projected debt does not include the government's largest liabilities, Social Security and Medicare.

You made the comment: "There are currently no proposals to use that household net worth to service the federal debt."

The use of the words "no proposals" is a bit misleading. Governments generate no income; taxpayers inevitably pay all liabilities of government , if those liabilities actually get paid rather than defaulted. The absence of a plan or a specific proposal of how or when does not negate the realities that are going to be dealt with by payment, default or a compromise that involves both.

Make no mistake, it is not economically or politically possible to pay the accruing, but unfunded liabilities of the entitlement programs. Default is inevitable; the questions are only how, how much, and when.

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.

Household net worth was brought up because of HopefulPatriot's following gem:

The middle class is systematically being destroyed in this country as well. The people don't go broke overnight or even over a generation or two. They just get gradually ground down until everybody is equally poor if not impoverished and they live a subsistence standard of living.

When debt is used to temporarily increase your consumption, the long term net effect is to lower your total net worth and lifetime total consumption by the amount of interest that is paid.