US Household Financial Situation

I ran across two very nice graphs on the Calculated Risk web site that gives a picture -- better than words -- of the household financial situation in the US.

First, this graph shows how badly hit household wealth is by the market collapse. The big dot com/tech bubble burst and now the housing bubble burst have knocked household wealth down from their highs of the late 1990s. They are back to more historical levels:


Despite the 50% run-up in stock prices from the market's bottom in March 2009, the wealth has not been rebuilt.

This graph shows that Americans are building bigger more expensive houses, but they own less and less of their own homes:


The trend is not good. The value of the housing is now 55% higher than it was 50 years ago, but the amount of mortgage debt is 500% higher than it was 50 years ago. That is not a sustainable trend. Two things need to happen:

1. People need to learn to live without the McMansion dream.


2. People need to stop treating housing like an ATM where you make a withdrawal every time to build up a little equity in your house.

Will the lessons be learned? I'm pessimistic. I fully expect that by the middle of next year the partying will pick up again and everybody will have forgotten the "lessons" of this Great Recession (except for the victims -- the long term unemployed and those who lost their homes -- the victims who will need about a decade to recover their lives).

The great injustice of a big recession is like the injustice of a war. The sacrifice falls on the shoulders of the few. Those who held on to their homes and jobs will quickly rebound and forget all the "lessons". But the 10% of the population really hit hard by this financial disaster will take a decade to recover (those that can) and there will be a smaller number who just never get their lives back. This 10% is taking the big hit. The 90% don't acknowlege it. And the fat cats on Wall Street are already back to their billion dollar bonuses and they could care less. They got the taxpayers to "make them whole". So the forgotten 10% are like the dead and wounded of a war. The immediate families will suffer and mourn. But the broader society will soon forget.