First, let's look at households balance sheets. In the charts below, the overall trend is clear: starting with the second quarter of 2008 we say a deterioration of households overall balance sheet. However, for the last two quarters we have seen stabilization. As always, click on all charts for a larger image
Overall net worth has increased for the last two quarters. This is the result of
An increase in the value of total assets and
With the exception of the third quarter of 2008, as decrease in overall liabilities.
On the asset side, we see that
Real estate values have increased. This adds further evidence to the argument that the real estate market has bottomed. In addition,
Total financial assets have also increased.
So -- we have things moving in the right direction. Overall liabilities are down and assets are up. In addition, we are seeing an increase in several asset classes rather than one.
5 comments:
Million-dollar question being, is the asset value increase organic or artificial?
Not that artificial is bad in and of itself, but America's had a rather nasty string of inflating targeted prices at unsustainable rates over the last, oh, thirty years.
I'm a cynic, so I fear too many people want to go back to dreaming.
DC -
Not to be a smart-ass, but I don't see how you can tell the difference. For example, yes rates are low which is leading to people borrowing short and investing. But that's what low interest rates are supposed to do.
I'd be curious as to your interpretation. Open up the September 17 FoF and reconcile the adjustment to residential real estate over the course of the last 6 months with the current release. I recognize that government statistics are only to be taken at face value rather than a certainty, but a two trillion dollar adjustment is difficult to accept. Granted it doesn't change the story but WOW
We need to be concerned about deficit spending but if you take
household debt service payments plus government interest payments
minus our annual savings rate as a
% of GDP it is at it lowest point since 1995.
bonddad -
Well, one time-honored tradition used to inflate assets is lobby Congress to buy up assets, which was certainly done. Second, subsidies like the first-time homebuyer tax credit basically inflates the market on the backs of tax-paying renters. This has also been done. As further stimulus, they're recommending further capital gains tax reductions (yeesh) in the job creation package. As for interest rates, it really comes down to how low & long they're deliberately kept down. Right now they're walking a fine line (if only because the line is de facto fine near zero), but that's because the credit market froze after it saturated. The super-low interest rates came first.
When the government is throwing piles of money into holes as they appear, that's not what I'd call an organic asset value increase. Again, not that that's bad -- it's the POINT of bailout, stimulus and job creation legislation, and doing nothing would've been FAR worse -- but it does make me wonder where prices would actually be without direct intervention in the market. More important, we can't really breathe easier until we take the economy off the government's life support and see these numbers breathing on their own. Do you see that happening anytime soon?
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