Household Net Worth Plunges By Most Since Q4 2008, As Government Borrowing Surges

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Arguably the most useful report to come out each quarter out of
the Federal Reserve is the Z.1, or the Flow of Funds report, which
was released minutes ago. And it’s a doozy: household net worth
(assets less liabilities) in Q2 2010 plunged by $1.5 trillion, almost
exclusively due to a plunge in Corporate Equities ($0.9 trillion)
and Pension Fund holdings ($0.7 trillion). In other words, the net
wealth of the US household continues to track the performance of
the stock market tick for tick. And one wonders why the Fed, per
Alan Greenspan’s admission, is only focused on ramping stocks up
to all time highs. Total household financial assets declined by
$1.7 trillion to $43.7 trillion, which was the biggest swing factor,
as the tangible assets, or housing, was kept flat at $23.7 trillion.
Incidentally, to assume that Real Estate value increased in Q2 from
$18.7 trillion to $18.8 trillion in Q2, is one of the dumbest things
to ever come out of the Fed: we expect that this number will plunge
soon after it is realized that the double dip in housing is here,
forcing another major contraction in household net worth. On the
other side of the balance sheet, liabilities were also flat at $13.9
trillion sequentially. And possibly the most important data point:
the change in borrowings, confirmed that everyone is deleveraging
except for the government… whose borrowing surged at a 24.4% SAAR,
the second highest ever, after the 28.9% surge in Q2 2009. In other
words, Keynesianism is alive and well in the US, and any talk of
austerity in the US is nothing less than not-that-funny stand-up
comedy.

Chart showing total financial asset breakdown: at $43.7 trillion,
US consumers are now back to the same net worth levels they had
in Q3 of 2009.

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September
18, 2010

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