According to Wikipedia, total American net worth in 2007 reached an historical peak of $66 trillion dollars. This number exceeded the previous high of $56 trillion (2006). Thus, in that one year, Americans gained nearly $10 trillion dollars in wealth. This catapulting of total wealth in a single year is unmatched in the history of the U.S. If there were a way to measure it accurately, my guess is it would be the single largest increase in the history of civilization.
Since, the total wealth includes all assets, I would guess that a very large percentage of the wealth increase (2006-2007) is attributed to the meteoric rise in real estate prices and financial assets, such as stocks, bonds, and commercial paper. Of the two, my guess is that most of the wealth increase was financial assets. No matter though, the financial collapse of 2008 is clearly attributed to bubbles in the two highly entangled areas – real estate and financial assets. This painful collapse cost Americans more than we want to remember, but suffice it to say, it was too much. Here’s the good news.
Americans’ wealth, or net worth, is the value of assets such as homes, checking accounts and investments, minus debt such as mortgages and credit cards. The Federal Reserve provides a snapshot each quarter. Net worth grew to nearly $55 trillion in the third quarter, a 2.2 percent rise from the prior three months.
This $55 trillion number is roughly equal to 2009 and about $6 trillion less than what it was in 2004. The point here is two-fold. The first, obviously, is that our economy and the wealth it provides our citizens is slowly returning to health. The second is a slow return to health is exactly what needs to happen in order for us stay healthy.
The rise in wealth from 2003 – 2007 ($44 trillion to $66 trillion) was pure fantasy. The inflated value resided mostly on paper, false money that people believed they had. They did not, and as soon as the pyramid scheme came tumbling down, they found that out. Today, however, the American people are sober. We are reducing our debt (to the chagrin of the usurious bankers), increasing our savings, and purchasing more realistically. I believe this trend will continue, as our near death experience opened more than a few eyes. Our new reality also means we are on a slow but certain path to complete economic recovery sooner rather than later. Given the gravity and extent of our illness, this is how it should be.
We are still ill in both the financial market and the real estate market. Both areas, however, are beginning to show signs that the worst is over, although bouts of pain will still come. I expect most of the recovered wealth will derive from these two areas, just as these areas provided the bulk of the paper wealth that disappeared in 2008. This time, however, with financial regulatory reform, it just might be that we can contain our inherent greed, which always produces the same result – bubble and crash. This time we just might get back to the essence of Aesop’s fable – The Tortoise and the Hare – the race goes to the slow and steady, not the swift and greedy.
Trade in the day; invest in your life
